The Banking Community

How have community banks been affected by regulatory scrutiny related to data and electronic transaction security, financial reporting, and other compliance issues?

The financial reporting requirements seem to expand all the time even though regulators are stating they are trying to pull back. Right now it’s still a burden.

On the electronic and consumer side, where it becomes a burden is in this whole arena of identity theft. You have a credit card issued by a bank and it’s compromised. Is the bank going to notify you? Certainly. But some of the expense should be borne by the people that caused the problem. Legislators seem to think that banks are backstops, a place where they can protect the consumer. But did the merchant keep its data secure or did it violate its contract with the credit card companies? Some of this rightfully belongs to the bank, but sometimes it belongs elsewhere.

On the plus side, electronics have made community banks competitors of larger banks. You can live in Phoenix and bank in Duluth. Electronics have made it viable to keep your account where you set it up, not where you live. It is how community banks have continued to grow.

What other issues is ICBA involved in?

We have formed a lot of coalitions to make sure small businesses survive, that their regulatory and tax burden is not big either, because they are big customers of community banks. We want to make sure that houses continue to be built; that houses change hands and mortgage loans are made; that everyone has the opportunity to buy a home on a nondiscriminatory basis.

Community banks did have a pretty good year, up until September. The ICBA kept Wal-Mart out of banking—we were the mouse that roared. You don’t want them in banking; they are bad enough on small town businesses.

Wal-Mart was attempting to get an industrial bank charter from the state of Idaho. It’s the only place that issues that kind of charter. That would have allowed them to have an office in every Wal-Mart store. Think of the financial power they would have—it would have been a behemoth. It could have been a very difficult situation for community banks to compete, and they would have put many community banks out of business.

The community bankers got a groundswell of grassroots people—community bankers from across the country—and they started making calls to their legislators. The legislators started working on a bill to bar this type of bank, and it passed the House by a huge margin. It hasn’t gotten out of the Senate Banking Committee yet, but the FDIC put a moratorium on approving this type of charter because of the pending legislation. Eventually Wal-Mart withdrew its application.

Credit unions wanted to get into commercial loans, and we kept them out of that. People should do what they are chartered to do, and do it well.

How might community banks adapt to current market conditions?

Most community banks will have problems with liquidity. People won’t put money into banks because they are unsure of them, even if we publicize that it’s fine because of the FDIC. If there is no liquidity from deposits, banks won’t loan money, consumers won’t have the money to spend, and we will slide into a deep recession or even a depression.

Right now, the community banks are in good shape. But if people hear that big banks are failing, then they think the small ones are, too, but it’s not true. If community banks can get across the message of their strength and stability, and that the decisions are made right here, it may give them some real opportunity for growth and having a stronger image.