WASHINGTON — A week after blasting the "fat cats" at large banks who don't understand why the public resents them, President Obama took a decidedly different tack Tuesday at a meeting with a dozen community bankers.
The president went out of his way to say that community banks did not cause the crisis and then pledged to do what he could to help them.
Obama did encourage the community bankers to boost lending to small businesses, but he spent most of his time listening rather than criticizing.
"He made the comment twice that 'we understand that you guys weren't players in the subprime thing, that you guys didn't create this mess,' " James MacPhee, president of Kalamazoo County State Bank in Schoolcraft, Mich., said in an interview after attending the meeting. "He was very complimentary toward the community banking industry."
In interviews several other bankers said the president was engaged, taking notes at various stages and appearing sympathetic to many of their concerns.
For their part, bankers said they did not pull any punches. They argued that much of the current credit crunch is due to overzealous regulators and a lack of creditworthy borrowers.
"There was lots of conversation about the inflexibility of regulators in this current environment," said Rebecca Romero Rainey, chairman and CEO of Centinel Bank of Taos in New Mexico.
Larry Bauer, president of Planters and Merchants in Gillet, Ark., said his problem isn't examiners — it's the lack of customers seeking credit.
"In my part of the world, the quality loan demand is not there," he said.
Their message appeared to get through. Although Obama stopped short of directly criticizing regulators — and made it clear he had no direct authority over them — he said the banking agencies should do what they can to ensure they are not being too strict.
"We don't have direct influence over our independent regulators, but we think that … in some ways the pendulum may have swung too far," Obama said.
He said that he would try to "get that balance right that there are businesses and communities out there that are ready to grow again, and we just need to help make that happen."
In private, participants said the president was slightly more forceful on that point.
"He certainly thinks it would be appropriate for his administration to raise its awareness about the issues that he heard around the table," said Dorothy Bridges, president and chief executive officer of $135 million-asset City First Bank of D.C.
"Those issues were in fact exams, and an overaggressive nature of the regulators with downgrades and the way they are viewing valuation of assets and mark-to-market issues … and the kinds of problems that it's creating for the banks."
Obama also pledged after the meeting to try and give some regulatory relief to bankers.
"We are looking to see if there are possibilities to cut some of the red tape," he said. "I think, fairly, they [bankers] just want to make sure that as we regulate better, that that doesn't automatically mean that we're just loading them up with more paperwork and more burdens."
The president also used the meeting to emphasize the importance of regulatory reform. Though he avoided specifics, participants said he was most forceful about the need for a new consumer protection agency.
"He was pretty insistent on that," said Bauer. "He wants that to happen."
Rainey said the bankers tried to emphasize that reform should "deal with organizations that really created the crisis."
"Focus regulatory reform on the unregulated and the big banks that don't have the same scrutiny we do," she said.
MacPhee joked with the president: "We are all in favor of regulatory reform — if you can keep community banks out of it."
Among sectors of the financial services industry, community bankers are already among the most supportive of regulatory reform. The Independent Community Bankers of America backed the House version of reform, in part because it exempted community banks from supervision by the proposed Consumer Financial Protection Agency.
Among specific concerns raised during the meeting, MacPhee said qualifying borrowers for Small Business Administration loans is frustrating; in Michigan, he said, even creditworthy businesses have been struggling to turn a profit, but unless banks can show a business is making money, they cannot get the agency's guarantee.
"Many of those companies have not made money in four, six, eight quarters and are not going to qualify for an SBA guarantee," he said.
Other bankers complained that regulators are cracking down on deposits gathered through Promontory Interfinancial Network's Certificate of Deposit Account Registry Service, which allows banks to guarantee deposits beyond the $250,000 coverage limit. Treating these as brokered deposits means tougher restrictions, and banks argue CDARS deposits are not so-called "hot money," but are primarily used by a bank's local customers that want to ensure their money is guaranteed by the government.
"Most of the deposits that community banks have in the CDARS program, we have a very high percentage of retention," said Bridges. "They are our customers first."
Bridges said Obama appeared sympathetic on the issue after a fellow banker raised the concern.
"The president got it," she said. "He acknowledged what she was saying about the CDARS program. … He made just a broad general statement that … he certainly would raise the awareness and give the regulators the feedback that he was receiving from us. I'd like to think that that would include CDARS."