Community banks get reprieve
from reform legislation

It’s practically a given that Congress looks for babies to throw out with the bath water. To add another cliche, if a pound of cure suffices then surely a ton will bring them an unending stream of public adoration, which is why they choose to err on the side of excess.
Every so often, however, they do the right thing.
Consider the financial reform being considered within the banking industry to prevent the sort of abuse that brought the world to the edge of financial collapse earlier this year.
One of the proposals marching through the halls of Congress is the need for an independent consumer financial protection agency. The agency’s job would be to protect consumers by establishing rules for the financial services industry, and it would have broad authority over all loans, credit cards, mortgages, etc.
The legislation, however, did little to discriminate between offenders and non-offenders. Eve-rybody was to be subject to the enhanced scrutiny — giants like Citibank and JPMorgan and the little guys, like those that serve all small and middlesized towns.
But JPMorgan can afford the scrutiny that would attend the proposed legislation. The bank just posted a multi-billion dollar profit last quarter. It would be a disproportionate burden to small, community banks.
And unfair.
Small community banks didn’t create the crisis. They didn’t abuse the system. They didn’t give $720,000 mortgages to migrant farmers with $14,000 a year incomes. They don’t specialize in bundling bad loans hoping they miraculously turn good when the next fool picks them up. Add-ing a regulatory rung to their daily grind makes no sense, and adds ex-pense, which makes it more difficult for them to be competitive. And that affects the rest of us.
Yet, that’s what the initial proposal included.
Until a little bit ago.
The House Financial Services Committee voted unanimously to exempt community banks from the planned oversight. The legislation, instead, will focus where it will do the most good: on the Bank of America, JPMorgan, Chase, etc. — the banks that helped push us into a recession of untold misery.
Our community banks will not be asked to pay higher fees to fund the agency, and will be exempt from most new oversight regulations. This will, at the very least, hold our community banks harmless, which is important to rural communities such as ours.
The battle is not yet won. There are still provisions of the legislation that could adversely affect community banks. But last week’s vote was a big step in the right direction and it happened because every representative has a local banker at home who spoke up. And these representatives know who the problem guys were — and weren’t.
It would be an egregious error for Congress to over-interpret this correction and end up allowing the industry to revert to old practices. There is a dramatic need for our large banking institutions to be regulated in a manner that protects against the sorts of abuse the world just en-dured.
But the regulation needs to be precise and it should not put at risk the very banking institutions that did their jobs correctly, and those institutions that remain essential to the business of rural America, our community banks.

By Emerson K. Lynn,
The St. Albans, Vt., Messenger