By Chris Day
STILLWATER, Okla. —
Federal banking regulations designed to rein in the United States’ megabanks and protect consumers will crush small community banks with paperwork and additional costs, Oklahoma Bankers Association representatives said.
The result will be consolidation of community banks and less money to lend to small businesses and small-town residents, the representatives said.
“Oklahoma is predominantly a community bank state. Even by national standards, Stillwater National Bank is a small bank even though it is one of the largest ones in our state. Even BOK (Bank of Oklahoma), which is the largest bank in the state is a small bank by national standards,” Oklahoma Bankers Association President/CEO Roger Beverage said.
The median-sized bank in Oklahoma has assets of approximately $95 million and 30 to 35 employees, Beverage said.
Community banks, especially those in Oklahoma, didn’t create the financial meltdown four years ago, but Basel III, the Dodd-Frank Act and the Durbin Amendment to Dodd-Frank increases banking costs which reduces the amount of money community banks have available for lending, President/CEO of Oklahoma City’s Valliance Bank Brad Swickey said.
“It robs money that would ordinarily go into the community to grow the community and to grow businesses and to create new businesses and hire new people and expand and buy new equipment,” he said.
Rules, collectively known as Basel III, proposed by federal banking regulators require banks to keep more money on hand. Oklahoma banks will need to keep an additional $250 million, which will reduce their ability to lend money to consumers and small businesses by $2.5 billion, Beverage said.
The Dodd-Frank Act will generate more than 20,000 pages of additional or new regulations. Community banks aren’t megabanks. They don’t have departments or a person devoted solely to study regulations and making sure the bank complies with those regulations.
“When Dodd-Frank was originally hatched, it was supposed to be about too big to fail,” Swickey said. “It seemed that by the end too big to fail was memorialized and put into place for perpetuity at the expense of the community banking industry that now has to wade through thousands of pages of regulations at a cost that is not only burdensome but ... disproportionate to what the larger banks have to face.”
An amendment to Dodd-Frank reduced the fees merchants pay banks for the privilege of accepting credit cards or debit cards to pay for items. It represents a 45 percent loss in revenue for community banks, Beverage said.
“It’s hard to quantify exactly how much money the ripple effect through the economy will be, but it has got to be close to that ($2.5 billion),” Swickey said. “We’re not talking a few hundred thousand or even a few million. We are talking about billions of dollars that will not be available to lend to Oklahoma communities.”
Dodd-Frank’s impact may create a community bank consolidation frenzy, he said.
Banks, especially community banks, will have a difficult time finding additional money to comply with the Basel III requirements. They will have two options — shrinking or selling, Swickey said.
Bank mergers aren’t inherently bad, but rural economies rely on local bankers who know the community to judge risks and make loans.
“They take risks everyday based on the knowledge and understanding of the community. The question is: “Will those same bankers be allowed to make those same risks when they are working for a larger bank in Oklahoma City, Tulsa, Dallas, Chicago or San Francisco? The question is: Will those small rural communities be served as well?”