A convention of financial institution regulators is a lot different from a meeting of bankers or thrift executives.

For one thing, you have to pay for your drinks. Also, virtually all the attendees are in their seats for each entire business session.

And the backgrounds of attendees are far more diverse.

Some are bankers who have been wooed to the public sector, some career government employees, and some are former legislators.

Topics are similar to those one would see at a bankers convention, only the slant is, of course, more on how to detect problems in advance and avoid them than on how to promote activity in new areas like credit scoring, using the Internet, and the like.

Specific topics of interest at one such meeting I attended of commissioners, chief examiners, and other financial officials of the various states were also addressed from a perspective not always found in private sector meetings.

For example, one topic discussed at a bull session over drinks I attended was "Should we institute an exam before licensing mortgage lenders?"

The answer, provided by a regulator whose state had turned the idea down, was that with licensing requirements the industry would push for extremely tough standards but then grandfather those already in the business.

The result: When more lenders would be needed, such as during another refinancing boom, there would be a shortage of qualified lenders.

Another area of concern was the shortage of supervisory and examination staff.

Sure, the banking departments have the money to finance this expansion of staff, as the cost is paid out of examination fees and licensing charges. But banking departments are generally not allowed to make such expenditures, as that would make them larger than other departments in the state government.


As a columnist who is always looking for ideas, I asked a number of bank commissioners about the future of community banking.

One responded: "What worries me is not their being acquired in unfriendly takeovers, but rather that too many independents see the era of generous takeover terms ending in the near future and they are trying to sell out before what they feel will be too late."

Another, a midwesterner who is his state's top banking regulator, responded that there is no fear for the viability of community banking in America because of the constant chartering of so-called de novo banks.

He gave this scenario:

"The local bank is bought out, and while consumers are not unhappy with the new ownership, business people start to complain about new forms, less accommodating lending officers, and new faces on the platform.

"Then, after seeing the new president of the local region of the bank is a 26-year-old MBA, several businesspeople get together at the club and decide to start a new bank."

I asked him what he looks for in approving a new bank.

"Capital, capital, and capital.

"But then I want talent, and most importantly I want a realistic business plan. If the area has 20 auto lenders and this bank says its niche will be auto loans, I tell them to go back to the drawing board.

"As for talent, we know most local bankers. And even if we feel that the organizers of the new bank plan to build it up and then sell it, just as their old bank was sold, we say, 'So what?' The community will still have a solid new competitor, and that is good for the people we try to serve.

So the general public may fear that community banking as we know it will die, but these professional regulators do not.

And when you look at the experience most of them have had with banking, legislation, and public service, doubters about the community bank's future should stand back and ask themselves, "Maybe they know something we don't know?"

Mr. Nadler is a contributing editor of the American Banker and professor of finance at Rutgers University Graduate School of Management.

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