WASHINGTON — Community bankers got their first exclusive meeting Tuesday with President Obama amid an intensifying fight within the industry over legislation that would tighten federal financial regulation.
Obama used the White House parley with executives from smaller banks to reiterate his push for bankers to do more lending to small businesses. "The pendulum may have swung too far in the direction of not lending," Obama said, adding that the White House is working on ways to cut "red tape" that banks complain is making it harder to lend. He suggested the White House wouldn't intervene with federal regulators, though, which many bankers complain are being too strict.
"We don't have direct influence over our independent regulators," Obama said. A top focus for the White House in the coming months will be to push for more lending, he said, and that can only be done with the cooperation of financial institutions.
But getting bankers to sing from the same hymnal won't be easy. Two bankers' groups, the American Bankers Association and the Independent Community Bankers of America, are challenging each other, and delivering competing messages on Capitol Hill as Congress weighs a wide-ranging overhaul of financial-industry regulation. The ABA and ICBA both claim to speak for "community banks," but they took starkly different positions on a recent House bill. The ICBA supported it, while the ABA opposed it.
The spat among bankers promises to become nastier as the Senate takes up the bill.
"The name-calling is really partly a strategy to build their brands against each other, and I think it's foolish," said Ed Mierzwinski, consumer program director at U.S. PIRG, a coalition of consumer groups that frequently fights against the banking industry. "To the extent that it hurts them, it's great that they are fighting with each other and using up their bandwidth."
ABA officials say ICBA officials have been too willing to throw their support behind controversial legislation in exchange for modest changes in the bill. ICBA officials counter that the ABA is conflicted because it represents both small community banks and large Wall Street firms that are often at odds with each other.
Conflicting messages from the industry "will invite the enactment of a bill that will truly hurt us badly for years to come," ABA Chairman Art Johnson wrote in a letter to chief executives earlier this month.
ICBA officials bristled at the letter, and Chief Executive Cam Fine said he felt it attacked his group's "leadership personally." He had his own criticism of his group's rival.
"ABA represents both the very largest financial firms and some smaller institutions whose best interests are not always the same," he said.
The ICBA backed a provision in the House bill that would allow the government to go in and break up big banks if regulators believe the company could pose a risk to the broader economy. The ABA opposed this measure. ICBA has also argued for stricter limits on the amount of deposits banks should be able to control, an idea the ABA has fought.
Community banks are traditionally held in higher esteem in Washington than are large banks, in part because community bankers are in each lawmaker's district and the group collectively wields considerable influence. After the House passed its bill earlier this month that would raise fees and impose new limits against large financial companies, House Financial Services Committee Chairman Barney Frank (D., Mass.) said large banks didn't wield as much influence.
"It's not the big banks that have the clout," he said. "It's the community banks and the credit unions."
The financial crisis has exposed cracks in part of the financial system, with several large companies getting bailed out by the federal government. In addition, 165 banks have failed since January 2008. There are more than 8,000 banks in the country, and most are small, with less than $10 billion in assets.
The ABA, created in 1875, says its members represent 95% of the total assets within the banking system, though it won't disclose exactly how many banks pay dues.
The ICBA, created in 1930, says it speaks for more than 5,000 dues-paying banks. Combined, the groups spent close to $10 million lobbying Congress in the first nine months of the year, according to the Center for Responsive Politics.