While the politics surrounding big banks could not be more heated, small and community banks are hoping Congress will ease regulations on them in the weeks and months ahead.
“What we’re pressing up in the House and Senate is [regulatory] relief morning, noon, and night,” said Paul Merski, the head of congressional affairs for the Independent Community Bankers of America, the powerful trade group for community banks. The “number-one priority is rolling back some of the onerous regulations put on community banks over the past several years."
Community banks are defined by the Federal Reserve as banks with less than $10 billion in assets. By the Federal Deposit Insurance Corporation’s reckoning, based on traditional relationship banking and limited geographical scope of operations, more than 6,500 community banks are spread across the U.S.
By comparison, JPMorgan Chase alone has more than $2.5 trillion in assets, according to the Fed. But while banks such as JPMorgan, Bank of America and Citigroup may be more powerful in terms of money, the community banks have a more diverse representation in all 50 states and are in the backyards of lawmakers.
A top priority for the community banks is relief from mortgage rules issued in the past few years by the Consumer Financial Protection Bureau and separately by banking regulators. The mortgage rules, intended to prevent consumers and investors from getting ripped off by abusive loans, are onerous for community banks, Merski said. Community banks will be looking for exemptions for loans they keep on their books, rather than sell off as part of securities.
They also want a break from the capital rules imposed on banks in the wake of the crisis. Those rules have caused big banks to double their capital levels, meaning that they are less reliant on loans. The best-case scenario for small bankers would be an outright exemption from the rules for banks with under $50 billion in assets.
Regulators are mostly attuned to the needs of community banks and the fact that regulations to rein in larger banks could be prohibitive for smaller banks with less staff.
Last week, Toney Bland, senior deputy comptroller for Midsize and Community Bank Supervision at the Office of the Comptroller of the Currency, said in a speech that “smaller banks and thrifts don’t have the same kind of resources that large institutions can bring to bear on regulatory compliance, and if we can eliminate unnecessary rules and streamline others, we can make it easier for these institutions to serve the economic needs of their communities.”
Bland specifically mentioned the possibility of exempting banks with less than $10 billion in assets from the Volcker Rule, the provision in the 2010 Dodd-Frank financial reform law meant to prevent banks from trading for their own profit with depositors’ funds insured by the FDIC.
In some of its earliest meetings of the year, the Senate Banking Committee headed by Richard Shelby, R-Ala., will hold two hearings next week on community banks. One will feature regulators, including Bland and representatives from the FDIC, National Credit Union Administration and Federal Reserve. The second will involve testimony from industry officials.
Where the process could run into trouble is where the interest of community banks and the big Wall Street banks intersect.
During a December showdown over a provision in a larger spending bill that rolled back part of Dodd-Frank, a group of liberals led by Sen. Elizabeth Warren, D.-Mass., rebelled against the Obama administration and then-Senate Majority Leader Harry Reid of Nevada, who wanted to pass the bill to fund the government.
Warren and other liberals have warned that big banks will lobby to have provisions undoing Dodd-Frank slipped into larger must-pass bills. Obama has pledged to veto such attempts.
That includes efforts to rein in the CFPB, a creation of Dodd-Frank. With Republicans now controlling the Senate, the CFPB will likely face legislation meant to overhaul the way it works.
The community bankers association has long favored CFPB reforms and will continue to press for them, Merski said. In particular, they want legislation to overhaul the CFPB’s structure so that it has a five-member commission, like the Securities and Exchange Commission or the Commodity Futures Trading Commission. Currently, the CFPB has a single director, appointed by the president, who can act more quickly than a commission.
Such a change could get caught up in the politics surrounding the big banks that have raised the ire of Warren and other Democrats. Nevertheless, Merski sounded confident about the legislative landscape. “It’s challenging, but we’ve had some good successes recently,” he said.