Dodd-Frank Expected to Strain Community Banking

The Dodd-Frank bank reform act was passed in 2010; three years later it has yet to be fully implemented. Supporters of the bill claim the financial services lobby has delayed the regulations from taking effect, while the bill's critics say they have good reason for such behavior, as Dodd-Frank would require small regional and community banks to adhere to the same rules and regulations as "too big to fail" banks like J.P. Morgan Chase.

That, says Lynn Mitchelson -- president and CEO of American Bank of Baxter Springs, Kansas -- is the problem:

I think they find it difficult to differentiate between the "too big to fail" banks and community banks. The ability of community banks to effectively lobby and be differentiated from the "too big to fail" banks has not been successful yet.

Mitchelson has more than 50 years of business-lending experience in the Kansas City area. More than 25 years of this were spent in Johnson County following his founding of the Corporate Woods State Bank in 1980, and through subsequent sales of the bank to Bank IV, Boatmen’s, NationsBank, N.A., and Bank of America. Mitchelson stopped short of saying Dodd-Frank is bad legislation, partially because the bill has not been fully implemented:

I think we're all still sorting it out. I don't believe there's a true complete understanding of what Dodd-Frank will entail. I think the biggest concern I hear among community bankers is what it may do to single family mortgage lending. We don't want this new national regulation to affect our ability to serve the market.

Congressman Steve Pearce (R-NM) says Dodd-Frank's cookie-cutter approach to regulation is part of the problem:

Dodd-Frank’s one-size-fits-all approach saddles community banks with the same regulations as Wall Street giants -- there is no commonsense distinction made to account for differences in how they operate, or their vital role in small communities across the country. Community banks have the power to get our economy going again, by making local loans and jump-starting small business. Instead, they’re being regulated out of existence. In New Mexico, I constantly hear from community banks that the Dodd-Frank act spells the beginning of their end.

Mitchelson agreed that changes need to be made to the regulations to make them more friendly to small banks:

That's a refinement that has to be imposed on the Dodd-Frank legislation, as there's a realization that Main Street needs community banks to get this economy going again. That's where the lending happens for small business. You can't stifle community bank lending with national legislation and then have Main Street prosper. It's just not going to happen.