If community banks get their wish for tiered regulation, they may want to send a thank you note to the head of a much larger bank.
Robert Wilmers, chairman and chief executive of M&T Bank in Buffalo, N.Y., on Thursday came out in favor of simpler regulations for community banks as well as regional banks like his own.
"The time has come to allow America's community banks to serve their traditional roles of taking deposits and making prudent loans to the friends and neighbors they know," Wilmers wrote in his yearly letter to shareholders.
Wilmers, 80, routinely uses his shareholder letter to comment on broad economic trends, issues of importance to the banking community and sometimes M&T's competitors.
Wilmers devoted a large section of this year's letter to the nature of financial regulation and how the largest banks operate with distinctly different business models than "Main Street" banks.
"Regional and community banks do not exhibit the maze of interconnectedness through derivative transactions that characterize the largest banks, and have much simpler legal structures, which make them much easier to deal with in case of failure," Wilmers wrote.
The adoption of tiered regulation would not impose undue burdens on community and regional banks, while at the same time "preserving the core intent of the Dodd-Frank regulations to minimize risks to U.S. financial stability," he wrote.
Wilmers did not explicitly define his size categories, but he was fairly clear that he does not view his own institution as a large bank, even though it has assets of $99 billion.
"The 6,482 community and regional banks of Main Street have a very different business model than the five large U.S. banks that dominate the activities traditionally associated with Wall Street," he wrote.
"M&T has long been a community bank," Wilmers wrote. "Our core tenets of serving the financial needs of people in our communities through simple, easily understood products, strong credit standards and an efficient operating model, remain our mission."
M&T's assets would rise to $135 billion if its deal to acquire Hudson City Bancorp in Paramus, N.J., goes through. Last year, M&T underwent its first Dodd-Frank Act stress test.
In fact, Wilmers argues in the letter that the issue of grouping banks based on asset size is wrongheaded.
"Size makes for a simple, perhaps too convenient barometer a bank either has over $50 billion in assets or it doesn't," he wrote. "The complexity and systemic importance of an institution, on the other hand, is far more difficult to ascertain."
As a result, Wilmers equated the current regulatory framework to "misplaced animus and a one-size-fits-all approach [which is] hinder[ing] the American economic recovery finally underway."
On other topics, Wilmers addressed M&T's ongoing effort to upgrade its compliance systems in order to obtain regulatory approval to acquire Hudson City. Wilmers did not offer an update on whether the Hudson City deal will close by the banks' target of April 30. The companies have already postponed the deadline three times, after initially announcing the agreement in August 2012.
"Delays are admittedly frustrating, but this is a merger to which both parties remain deeply committed," Wilmers wrote.
M&T spent $266 million to fulfill regulatory obligations last year, which he described as "an unprecedented amount in unprecedented times." Investments in data will continue this year and beyond, Wilmers wrote without providing specific cost estimates. Included in the $266 million figure, the company spent $151 million last year on efforts related to the upgrade of Bank Secrecy Act and anti-money-laundering regulations.
Not surprisingly, Wilmers said the high cost of regulation is weighing heavily not only on M&T and other banks, but also on the economy as a whole.
"It pains me to see excessive regulation that might stifle innovation, drive society's best and brightest away from our industry or discourage bankers from fulfilling their role in the economy out of fear of being inordinately fined and sanctioned," he wrote.