Community bankers protest tougher federal scrutiny

WASHINGTON — Federal banking regulators said Wednesday that community banks should not face the same post-meltdown scrutiny mega-banks do, but local bankers said that’s what’s happening.

At a hearing before a Senate Banking panel, community bankers said that after the financial crisis, the regulatory pendulum swung too far.

“There needs to be an understanding from Washington what reality is in Wichita, Kan.,” said Frank Suellentrop, a Wichita-area bank official. “There is a stark difference in what we’re doing from what they’re doing in New York or Washington or other banking environments. It’s much more of a customer relationship approach.”

Suellentrop, chairman and president of Legacy Bank in Colwich, Kan., and Salvatore Marranca, a banker from New York, said regulators show up at their banks more often.

“There are very few times in my small, one-light town in Little Valley, N.Y., that I don’t have examiners in my bank,” said Marranca, president and CEO of Cattaraugus County Bank. “And we are a 109-year-old institution, highly rated, low-risk profile and not a complex organization. This takes me away from lending.”

Marranca is also chairman of the Independent Community Bankers of America, an industry trade group.

After the Wall Street crisis, Congress passed the sweeping Dodd-Frank Act, with added consumer protections. The crackdown was aimed more at the larger financial institutions with assets of $50 billion or more. Community banks generally contain less than a $1 billion.

Federal banking regulators testified that they were adjusting their oversight.

“Banking supervision should be conducted in a way that is effective for all institutions, but it should also be scaled to the size and complexity of the supervised firm,” said Michael Foley, a senior official with the Federal Reserve Board.

But, Marranca said, “Every regulation that has landed at Wells Fargo or Bank of America has landed on my desk. There needs to be some tiered regulation.”

Since the financial crisis, mega-sized banks have been swallowing up smaller ones.

The 10 largest banks hold more than three-quarters of all bank assets, compared with 2002 when they held slightly more than half, according to the community bankers group.

About 30 Kansas banks have closed in the last five years, according to Sen. Jerry Moran, a Republican from the state and member of the banking panel. He asked Suellentrop, whose bank was established in 1886, whether he was worried that community banking could “become a thing of the past.”

Suellentrop, whose father, grandfather and great-grandfather all preceded him as president, said: “There is a concern with the number of community banks that continue to decline. Many bankers are frustrated by the rules and regulations and are looking to possibly get out of the banking business.”