Aug 31, 2011
Despite reassurances that major parts of the Dodd-Frank law will not affect them, small banks’ anxiety regarding the law has them in panic mode. Small banks' main concerns, including new overdraft protection guidelines, tougher regulatory exams and higher capital requirements, are technically unrelated to the law. However, scary claims from big banks about what might result from the law are fanning the flames of concern, said Cam Fine, the chief executive of the Independent Community Bankers of America.
Aside from a proposed cap on interchange fees, Fine said very little will impact small banks. More than half the bill's 16 titles, or 85% of the text, have virtually nothing to do with small banks, he said. Such assurances are doing little to calm the nerves of some bank executives, who remain convinced that the law's unknowns and negatives outweigh any positives.
Legal experts say Fine's claims are mostly true, but industry observers have noted that regulations have a way of trickling down, leaving the observers to wonder whether the intended protections for small banks will stand the test of time.
As it stands, the law is decidedly harsher on big banks, some experts said. Provisions relating to the Volcker Rule; creation of a Financial Stability Oversight Council; orderly liquidation authority; regulation of advisers to hedge funds; greater oversight of derivatives; and state and federal insurance reform would largely impact large banks and non-banks.
Scott Anenberg, the co-head of Mayer Brown LLP's financial services and regulatory enforcement practice, said the law is a mixed bag for community banks.
It includes a number of specific carve-outs for small banks. Those under $10 billion of assets will not have to be examined by the Consumer Financial Protection Bureau — though they will still be subject to its rules — and they will be exempted from parts of the Sarbanes-Oxley Act that requires a public company's auditors to attest to its internal controls. Under a grandfathering provision, certain small banks can keep trust-preferred securities as regulatory capital.
It also includes a number of tangible benefits for community banks, including a permanent increase in the deposit insurance limit, to $250,000, lower assessments for smaller institutions and temporary blanket coverage for transaction checking accounts.