Small Banks Happy to Let Big Banks Pay: Today's Outrage

WASHINGTON ( TheStreet) --The great divide between big banks and small banks has never been more significant.

With Congressional leaders vilifying megabanks as they draft new punishments, er, I mean rules for the banking industry, smaller banks seem more than happy to let the big banks pay.

The current proposals are being fought by megabanks such as JPMorgan Chase ( JPM) and Bank of America ( BAC), along with big bank industry groups like the Financial Services Roundtable.

But smaller banks are fine with the plan so far and the current provisions have the support of the Independent Community Bankers of America, which represents about 8,000 smaller banks across the country such as Capital Bank ( CBKN), California Republic Bank ( CRPB) and Virginia Heritage Bank ( VGBK).

The divide is not such a surprise, really.

The Democrat-led regulatory reforms in the works cast big banks as villains that need to be drawn and quartered - literally. Banks considered too big to fail could be forced to dismantle some of their operations and they would all have to increase their reserves and contribute to a $150 billion fund to be tapped in the event of a big bank failure.

Hedge funds would need to be registered. Complex derivative securities -- such as the bundled and re-bundled mortgage-related investments that ended up having no assets to back them and collapsed like a house of cards - would need to be governed by more regulated exchanges.

New oversight panels and more consumer protection are also in the works. And, of course, more taxpayer assistance for consumers, many of whom are being treated as victims of the evil banking industry.

This villain and victim nonsense makes the political debate easier. Let's not get into the whole issue of how so many "victims" were real estate speculators who all too willingly fueled the mortgage frenzy by flipping homes for profit.

It's quite the challenge to know which homeowners suffering through foreclosures and defaults are innocent victims. But that doesn't matter.

The point that many politicians want to make is that people should be able to trust their bankers and banks that violate the trust should be punished. Big banks most of all.

That's the stuff that election victories are made of.

--Written by Glenn Hall in New York.

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