The Woodward News

November 7, 2013

‘We didn’t start the fire’

Community banks damaged by regulations aimed at global institutions

Rachael Van Horn
Woodward News

Woodward, Okla. — New federal regulations born out of the 2008 financial collapse have hamstrung many community banks and the damage could spell trouble for small towns that depend on those hometown banks.

That is the opinion of the leadership of the Oklahoma Bankers Association, an organization that advocates politically for bankers all across the state.

The comments are regarding a now more than 13,000 page reform act called the Dodd-Frank Wall Street Reform and Consumer Protection Act, according to OBA President, Roger Beverage.

The act was signed into law in 2010.

"Our concern is what this means to Oklahoma," Beverage said. This was meant to target the large, global bank operations, not community banks and yet, here we are."

Tuesday evening about a 100 members of the Oklahoma Bankers Association gathered at the Northwest Inn for one of two meetings they have per year, Beverage said.

Bankers heard from non-partisan experts about the details of the Affordable Care Act and how it might impact banks or their customers, Beverage said.

"Bankers are seen in their communities as the experts on all things financial," Beverage said. "So this meeting, we wanted to offer the information about Obamacare, partially because of what it might mean to bankers as employers but also so they can respond to the questions of their customers."

However, while the Affordable Care Act was the speaker's topic, a more insidious monster that is having a possibly devastating impact on community banks in Oklahoma, was the true reason for gathering, he said.

With the weight of new federal regulations, many small town banks have stopped lending money for residential properties all together, while others simply have less available money to loan in general, Beverage said.

This was never the intent of the post 2008 economic slump legislation that was meant to oversee the "Big Six" (JPMorgan Chase, Bank of America, Citigroup, Inc., Wells Fargo, PNC Financial and U.S. Bancorp), Beverage said.

Those banks represent a group of banks known as "Too Big To Fail", meaning if they did fail, it could signal the collapse of the nation's economy.

That hardly describes the Bank of Laverne, said its president David Cook.

"We didn't cause the collapse, but they still won't carve us (small community banks) out of the law," Cook said.

Now, even though the OBA leadership is taking their cause to Oklahoma's leadership in Washington, their voices are drowned out by the dysfunction there and all the attention Congress is focusing on the Affordable Care Act.

The hope of OBA leadership and members is to tweak the Dodd-Frank Act, not get rid of all regulation

"The atmosphere in Washington right now is really unfortunate because as important as this is to the economy, no one is listening because all they are talking about is Obamacare right now," Beverage said.

So the disease marches on and little by little, small community banks find themselves less able to help their customers, he said.

Among many onerous requirements, Dodd-Frank requires a bank keep a certain amount of capital on hand.

In fact, part of the law could require an increase of on hand capital of a total of $250 million for banks across Oklahoma, Beverage said.

"That translates in a reduced lending capacity to Oklahoma Consumers and small businesses by about $2.5 billion, he said.

For instance, in a town like Laverne, it means Cook might have to turn away a customer for a small business loan, which he might have floated just two years ago.

"That means, I have to keep so much money in capital reserve and I have less that is available so I cannot loan that money," Cook said.

But perhaps even more burdensome are the requirements regarding compliance with the issuance of housing loans, both Beverage and Cook said.

Those rules include numerous compliance issues a bank must adhere to regarding how a home is appraised as well as requirements that force a bank to keep mortgages on the books that might have better served the bank if they were sold.

Add to that the need for nearly three times as many full time personnel who do nothing but manage compliance issues and you now have created a situation where it simply costs too much for a small community bank to issue home loans.

Bank of Laverne, is representative of many medium sized banks that are the financial and economical centers of their communities, Beverage said.  But now these banks, in some cases, have been forced to get out of the business of lending local customers money to purchase homes.

That's a problem for small, outlying communities, said Edmond Remax Broker Victoria Caldwell.

"Conventional and FHA loans may not be available for the some types of properties that are being sold in these communities," Caldwell said "The community banks are vital to residential loans in these areas."

So what this means to the average Oklahoman, who makes his home in a rural community is less financial support availability whether you are selling a home or buying one, Beverage said.

What is means to the banks across the state is a less robust presence in their own hometowns, Cook said.

"I had a guy come to me to purchase a home and I had to send him to the competition," Cook said.

Cook's goal in the coming months, is to inform his customer base and turn them into advocates for their small town banks and perhaps get the Consumer Financial Protection Bureau to work together with community banks and exempt them from the burdensome regulation.

"This is the message I am bringing to my fellow bankers. When you have a customer who you can't serve, tell them to write their legislators and tell them how this is affecting them," Cook said.