The Oklahoma Banker Association recently said that federal banking regulations aimed at America’s largest banks will prove to be a detrimental burden on community banks.
Representatives from the OBA said that many small banks will consolidate as a result of the regulatory burden and reduce lending to communities.
“Oklahoma is predominantly a community bank state,” Roger Beverage, the president and CEO of the OBA, said, Equities.com reports. “Even by national standards, Stillwater National Bank is a small bank even though it is one of the largest ones in our state. Even [Bank of Oklahoma], which is the largest bank in the state, is a small bank by national standards.”
Beverage said that the average-sized bank in Oklahoma has approximately $95 million in assets and between 30 and 35 staff members.
Brad Swickey, the president and CEO of Valliance Bank, said that community banks were not responsible for the financial collapse of 2008, adding that financial reforms under the 2010 Dodd-Frank Act, however, will reduce the amount of money available to communities for lending.
“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, Swickey said, according to Equities.com.
Basel III rules crafted by the Basel Committee on Banking Supervision will ultimately require banks to keep more capital at the ready. Beverage said that Oklahoma banks will be required to keep an additional $250 million, reducing their ability to lend to small businesses and consumers by $2.5 billion.
Many participants in the financial industry warn that Dodd-Frank will impose increased compliance costs on community banks, which lack compliance departments.
“When Dodd-Frank was originally hatched, it was supposed to be about too big to fail,” Swickey said, Equities.com reports. “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.”
Beverage said that banks have lost 45 percent in revenue as a result of the controversial Durbin Amendment, a provision of Dodd-Frank that caps interchang fees, the amount a bank can charge a merchant to process a debit transaction.
“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, according to Equities.com. “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.”
Swickey also said that small banks will have a hard time funding additional compliance personnel, leaving institutions with two choices — consolidate or sell. Rural economies and communities rely on local banks that understand the economy enough to judge risks and lend to the community.
“They take risks every day based on the knowledge and understanding of the community,” Swickey said, Equities.com reports. “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?’”