On The Record: Community Bankers Speak Out On the Impact of Dodd-Frank Regulations
Posted by on October 17, 2011

Obama Administration officials are frantically trying to convince the public that the 400 new regulations tucked inside the 2,300-page Dodd-Frank Act are having absolutely no impact on small town and mid-sized banks.  None.  Whatsoever.  So just move on, OK? Nothing to see here.

But, what are community bankers saying? A much different story in congressional testimony and in statements to their local newspapers:

One community banker from Illinois said, “The Dodd-Frank Act will add an additional, enormous burden, has stimulated an environment of uncertainty, and has added new risks that will inevitably translate into fewer loans to small businesses.”

While community banks did not cause the crisis, they have to comply with the 2,300 page Dodd-Frank Act.  Michael Martin, CEO of Lordsburg’s Western Bank, said We’re small business people. We have to understand and comply with the regulations just like Wells Fargo. We don’t have 70 attorneys on staff to figure it out.”

While Republicans continuously warned of the disproportionate impact these regulations would have on “too small to save” community banks, Democrats relied on illusionary exemptions in the bill. Make no mistake about it: community banks are being placed at a disadvantage due to the 400 new regulations stemming from the Dodd-Frank Act.

Following is a roundup of community bankers -- on the record -- regarding the impact of the Dodd-Frank Act:

Michael Martin, CEO of Lordsburg’s Western Bank: “We’re small business people. We have to understand and comply with the regulations just like Wells Fargo. We don’t have 70 attorneys on staff to figure it out.”

Craig Reeves, President of First National Bank of New Mexico in Clayton: “We’re being penalized for things none of us ever thought about doing…I was penalized for not lying” about the credit worthiness of potential borrowers.

Greg Ohlendorf, President of First Community Bank and Trust: “What we have to understand is we’re already overburdened with regulation. We have significant numbers of regs that we need to comply with today, and it seems like just one more isn’t going to change the deck a whole lot, but the consistent piling on of additional regulation is very, very stunning. It’s punishing.”

Albert Kelly, Jr, CEO, SpiritBank: “This new bureaucracy [the Consumer Financial Protection Bureau]--expected to hire over 1,200 new staff--will certainly impose new obligations on community banks--banks that had nothing to do with the financial crisis and already have a long history of serving consumers fairly in a competitive environment. Thus, the new legislation will result in new compliance burdens for community banks and a new regulator looking over their shoulders."

Jim MacPhee, CEO of Kalamazoo County State Bank (Michigan): "We weren't part of the subprime (mortgage) meltdown. Why throw more regulations at us?"

Leslie Andersen, president of Nebraska's Bank of Bennington: “Big banks have whole departments that focus on compliance. Small banks can't afford to do that."

Thomas Boyle, Vice Chairman, State Bank of Countryside (Illinois): “Each new regulation… adds another layer of complexity and cost of doing business. The Dodd-Frank Act will add an additional, enormous burden, has stimulated an environment of uncertainty, and has added new risks that will inevitably translate into fewer loans to small businesses.”

Tommy Whittaker, president of The Farmers Bank (Tennessee): "The cumulative burden of hundreds of new or revised regulations may be a weight too great for many smaller banks to bear.”

Daryl Byrd, president and chief executive, IberiaBank: "I think you're going to see a lot of consolidation.”

Guy Williams, chairman, Gulf Coast Bank & Trust: “There are some banks that don't have enough employees to read the bill. If you assigned everyone a chapter, it would never get read….We want to help local businesses succeed. That's why we're in the business."

Wes Sturges, chief executive, Charlotte's Bank of Commerce:
"The other thing we'll have to deal with - and we're not sure how - is the Dodd-Frank bill. For a little bank like ours with 19 people, that could be a full-time job for somebody to make sure we comply with the provisions of the bill.”

Brad Quade, regional president, Johnson Bank (Milwaukee branch): “We are going to have to invest a lot more money into people and resources to manage the heavier compliance load.  Right now it’s requiring a great deal of additional resources to get our arms around what the expense will be going forward.”

Steve Steiner, senior vice president, North Shore Bank: “Obviously, the smaller you are, the larger the burden that places on you. We will have to take some combination of actions to compensate for this loss of revenue. It will mean we are losing money on every transaction that a customer of ours does with a debit card. Through some combination of pricing and cost reduction, we will have to offset that somehow.”

Greg Ohlendorf, President and CEO, First Community Bank and Trust (Illinois): “Many community banks complain that the required capital level goalpost is unpredictable and regulators simply keep moving it further, making it nearly impossible to satisfy capital demands in a difficult economy and capital market place. As a result, bankers are forced to pull in their horns and pass up sound loan opportunities in order to preserve capital. This is not helpful for their communities and for overall economic growth.”

Mark Sekula, Executive Vice President, Chief Lending Officer, Randolph-Brooks Federal Credit Union (Texas): “With a slew of new regulation emerging from the Dodd-Frank Act, such relief from unnecessary or outdated regulation is needed now more than ever by credit unions. Further, while we acknowledge that taken on its own, Section 1071 [requiring banks to collect additional data from small business borrowers] is a well-intentioned provision, when added with other laws and regulations, this new compliance burden is just another drop in the new and growing overall cost of compliance bucket emerging for credit unions from Dodd-Frank.”

Thomas Boyle, Vice Chairman, State Bank of Countryside (Illinois): “We strongly believe that our communities cannot reach their full potential without the local presence of a bank – a bank that understands the financial and credit needs of its citizens, business, and government. However, I am deeply concerned that this model will collapse under the massive weight of new rules and regulations…Banks are working every day to make credit and financial services available. Those efforts, however, are made more difficult by regulatory costs and second-guessing by bank examiners. Combined with the hundreds of new regulations expected from the Dodd-Frank Act, these pressures are slowly but surely strangling traditional community banks, handicapping our ability to meet the credit needs of our communities. The consequences are real. Costs are rising, access to capital is limited, and revenue sources have been severely cut. It means that fewer loans get made. It means a weaker economy. It means slower job growth.” 

The opinions expressed below are those of their respective authors and do not necessarily represent those of this office.
  • William Grant commented on 10/19/2011
    The breadth and depth of Dodd-Frank is just begining to be known. The law, at over 2,300 pages dwarfs any other banking law. The Federal Reserve Act was about 50 pages. To place the requirement of reading and understanding this bill---not to mention the thousands of pages of regulations it will foster---is an unfair burden on community banks. Would the Congress really prefer that bankers spend their days reading and complying with this law, as opposed to reaching out and helping their communities? For many, many community banks, this is the choice they must make.
  • Monty Small commented on 10/19/2011
    I do not have the years left in my life nor the room in this scrollable window to complete my commentary on this latest attempt at the government to make rules for business entities about which they are ignorant. As an example, by having failed over many years to require sensible capital restrictions on Freddie Mac and Fannie Mae, which have now become another leech on the taxpayer, the government has demonstrated the inability to implement critically important decisions because of politically motivated constraints. Larger banks (which generally are the source of the latest maladies of the industry as opposed to community banks) consider the fines levied for regulatory violations a simple cost of doing business. They venture off into unknown territories without regard for their responsibilities to their depositors, shareholders, and certainly not their regulators at the whim of their (investment) bankers and, in the most recent fad ("sub-prime lending"), effectively do irreparable damage to the institution and the industry in general. The Dodd-Frank Act and the rumored subsequent implementing regulations (still being drafted) are bound to be oppressive to the industry and unfair to community banks who have always generally gone by the book. The law, in its current form, should not be implemented.
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