Small Bank Exemptions
Community banks and credit unions are the darlings of Congress in the financial services industry. This is quite understandable--they play an important economic role in their communities and have a much greater civic presence than the big banks. The president of the local community bank is much more likely to be involved in major civic organizations than the Bank of America branch manager. As a result, a parallel regulatory system has developed for community banks and credit unions. Small banks and CUs (net assets of less than $10 billion) are exempt from CFPB examination and from the Durbin Amendment's regulation of their interchange fees. They're subject to regular FDIC seizure, rather than OLA, and are not subject to SIFI regulation with higher capital requirements. And they would have been exempted from the proposed cramdown legislation.
Generally, this two-tracked treatment (other than being subject to regular FDIC seizure) is more favorable to the smaller financial institutions, which are subject to less regulation than their larger counterparts. This would seem to give small banks a competitive boost vis-a-vis larger banks. One would think that small banks would readily embrace this treatment, but they often have not. They generally opposed cramdown, opposed Durbin, and opposed the creation of the CFPB.
I've been puzzled by the apparent solidarity within the financial services community on regulatory issues where there should be clear divergences of interest between large and small banks. In the past I've urged small banks to embrace the Durbin Amendment, and while some people at small banks understand the benefits of Durbin intellectually, they remain generally opposed. Apparently, I'm not the only one they've been hearing this message from, but industry solidarity apparently trumps duties to shareholders. I wonder if this will start to change as more data comes in about things like the impact of the Durbin Amendment. So far, small banks' debit interchange revenue has held steady, even as large banks' debit interchange revenue has fallen. Will this win any converts from the small banks? Any thoughts from readers on why are the small banks so unwilling to break with the big banks many issues where they receive more favorable treatment?