Dodd-Frank Finger Pointing: Street Whispers

NEW YORK ( TheStreet)--Community banks are disappearing, and portfolio manager Gary Townsend lays some of the blame at the feet of their chief lobbying organization, the Independent Community Bankers of America (ICBA).

"The ICBA supported Dodd-Frank," says Townsend, who manages an investment fund at Hill Townsend Capital that focuses on financial services companies. "They thought it was going to punish large banks and they got screwed," he says of the 2010 legislation.

Townsend singles out ICBA CEO Camden Fine for particular censure, saying Fine "sold out his membership," in supporting the law. "I don't know how he keeps his job. Community banks were poorly served."

For his part, the ICBA's Fine insists Townsend is mischaracterizing his position.

"The ICBA never publicly, privately in e-mail or in letters or in instructions or in any other way shape or form ever supported the passage of Dodd Frank," he said in an interview.

While it may never have endorsed the whole bill, the ICBA was clearly more supportive than the largest banks. In a blog entry on April 22, 2010, prior to the passage of Dodd-Frank, Fine described himself as " growing dizzy from all the spinning Wall Street is doing as it desperately tries to trick the American public into killing a reg reform bill that would finally rein in the Wall Street mega firms."

A lobbyist for one of the six largest U.S. banks who spoke on condition of anonymity says the ICBA was largely supportive of Dodd-Frank, though he acknowledges the group fought against the Durbin Amendment, which caps fees banks can charge merchants for debit card transactions. He believes if the ICBA had opposed Dodd Frank, the legislation wouldn't have passed at all. 

While both Fine and the lobbyist agree that both Durbin and the Consumer Financial Protection Bureau are potentially harmful for community banks, they differ over the effect other provisions of the legislation will have. The big bank lobbyist, for example, argues the Volcker Rule, aimed at preventing big trading bets by the largest banks, will also harm the ICBA's members because they will have to spend time and money proving the rule shouldn't apply to them.

Fine says the rule is overly complex as currently proposed, but if it is written properly, it won't harm his members.

"Sure a lobbyist from a big bank is going to attack me because they hate ICBA--because we try to point out that there is a disparate treatment between a $2 trillion bank and a $200 million bank," Fine says.

Dodd-Frank accomplishments Fine says he is proud of include raising deposit insurance from $100,000 to $250,000 per account, and decreasing the relative contribution of small banks to the Federal Deposit Insurance Corp.'s insurance fund. Most important, he believes, has been his success in communicating to Congress that his members should not be treated the same as larger banks when it comes to designing regulations.

These victories are lost on Clyde White, Chairman, President and CEO of Ouachita Independent Bank, a $567 million asset institution in Monroe, La.

Ouachita belongs to the American Bankers Association, not ICBA, but White's impression is that the two lobbying organizations were fairly similar in their positioning on Dodd Frank.

Though angry about the law, he doesn't appear to fault the lobbyists.

"We got what we got," he said.

White faults Dodd-Frank for trying to "cover all the ills of the world with one piece of legislation that's designed to deal with some issues that community banks aren't even involved in and to punish banks for things community banks never did."

The debate over the effects of Dodd Frank is likely to continue for some time, as many of the rules are still being written, and it may be some years before their impact can be accurately assessed. What seems clearer is that the shrinking pool of community banks will grow ever smaller. Fine expects the number to shrink to roughly 5000 from its current level of 7000 over the next eight years. Other industry watchers make even more drastic assessments.

The banking industry is hardly unique in this regard. For better or worse, the world is every day less hospitable to small businesses. Dodd Frank undoubtedly has its flaws, but it seems excessive to hold it primarily responsible for the disappearance of small banks.

-- Written by Dan Freed in New York.

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