In the World of Financial Regulation, is Small Really Better?

by Houston Agent

Is small better? Not according to representatives from credit unions and community banks.

Though credit unions and small community banks had little to no impact on the global financial crisis of 2008, representatives from the two banking sectors stated before the House Financial Services Committee today say that a maze of new regulations is making it increasingly difficult for them to serve their clients.

As reported by HousingWire, Patricia Wesenberg, president and CEO of Central City Credit Union in Marshfield, Wis., and Marty Reinhart, president of Heritage Bank in Spencer, Wis., spoke to the committee, emphasizing the challenging environment in financing today.

“The barrage of regulations creates an unnecessary burden without any measure of the effectiveness of these changes,” Wesenberg said. “They are costly, both in time and personnel to implement, and they are confusing to our membership. We would prefer to spend our resources on promoting our mission of financial literacy and the development of new products to serve the needs of our members within our local communities.”

According to Wesenberg, it’s not simply one regulation, but a host of new rules and boundaries that disproportionately affect credit unions.

For his part, Reinhart said that community banks are continually grappling with shifting regulatory requirements.

“Community bankers nationwide have reported that bank regulators are often demanding significant capital increases above the minimum regulatory levels established for well capitalized banks,” Reinhart said. “For example, some examiners are requiring banks to maintain minimum leverage ratios as high as 8 percent to 9 percent (versus the 5 percent required by regulation) and minimum Tier 1 risk-based ratios as high as 10 percent (versus the 6 percent required by regulation). To bankers, the process appears arbitrary and punitive.”

The two leader’s comments often reverted back to one key theme – that the largest banks in finance are too big, and their relative size makes business increasingly difficult for smaller institutions. Just last month, in fact, the Independent Community Bankers of America appealed to regulators to halt Capital One’s much-maligned request to purchase ING Direct USA.

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