Financial overhaul measures rile small banks

The financial regulatory overhaul making its way through Congress is aimed squarely at the big banks given most of the blame for the credit crisis that brought the economy to its knees.
But the country's small banks are lobbying against dozens of requirements in the legislation, saying they would unfairly burden thousands of institutions that for the most part had nothing to do with subprime mortgages or the complex securities backed by such loans.

Although small banks would be exempt from much of the overhaul, the provisions that would apply would make it harder for community bankers to serve their customers and to expand lending, financial industry groups say.

The proposed rules could overload many community and independent banks, said Nancy Sheppard, chief executive of Western Independent Bankers, a trade group in San Francisco.

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As a result, she said, the massive overhaul would create difficulties for two segments of the banking industry: the "too big to fail" and the "too small to comply."

Consumer groups dismiss such objections, saying the exemptions in the legislation mean the small fry already are getting off easy.

Lawmakers last week began efforts to reconcile the Senate's version of the legislation with the House's. Their goal is to deliver the final measure to President Barack Obama for his signature by the Fourth of July.

Both versions would assign regulators to monitor and control the "systemic risk" to the economy posed by the banking system. The Senate version would specifically limit that new oversight to the 30 or so banks in the country with at least $50 billion each in assets.

Both bills also would create a regulatory body charged with protecting consumers from abuse at the hands of financial companies. But the new regulator would not inspect banks with less than $10 billion in assets.

That means only 105 of nearly 8,000 U.S. banks and savings and loan associations would be subject to routine oversight by the consumer protector.

The House bill, however, would let the new agency refer violations of consumer laws to bank regulators and step in to enforce the laws if the main regulator did not. And the Senate bill would allow the agency to keep all banks from forcing customers to have their unresolved complaints heard by an arbitrator instead of by a judge.

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