Fine Points


Fighting public policy fires in Washington

By Camden Fine

Grab your Kevlar vests, and keep your powder dry. Washington, long notorious as the gun-slinging Wild West of policymaking, has become a more dangerously volatile place for community banks.

Once again, ricochets from regulatory fire aimed at Wall Street megabanks continue to endanger community banks on Main Street. Recent rulemaking shootouts—first over the Basel III capital guidelines, then the final Volker Rule on megabank proprietary trading—illustrate this chronic policymaking problem.

From their inceptions, Basel III and the Volker Rule were never intended to affect community banks, let alone ambush them in the night. All the focus on these rules spotlighted megabank risks and practices (Basel III, named after a Swiss city after all, was widely known as the international capital standards). In both cases, the bipartisan intentions of lawmakers have been clear. After months of open debate and various draft proposals, those policy objectives hadn’t changed for either rule—until the last step in the rulemaking process. When the final details of these rules surfaced, the once-benign regulations became a menace overnight. (The final Volker Rule, for goodness sake, arrived while everyone was celebrating the Christmas holiday!)

If community banks hadn’t fired back so quickly and forcefully in self-defense, the repercussions from these regulations would have been disastrous. Which, ultimately, leaves everyone wondering: Why can’t the regulatory agencies shoot straighter, without inflicting serious collateral damage on community banks? Aren’t megabanks a big enough target to hit?

What’s clear is that the current unpredictable, overly complex policymaking process for community banks—both on Capitol Hill and within the regulatory agencies—needs to end. Yes, community banks dodged these deadly Basel III and Volker Rule bullets. But these kinds of highstakes dramas should never happen in the first place. Community banks, ironically the world’s best risk managers, simply cannot operate properly under such unrelenting and arbitrary risks. No business, organization or human being could.

No doubt, finance and banking serve an especially important economic purpose that requires effective regulatory oversight. But that is not what’s happening here. On public policies dealing with too-big-to-fail, you and your community bank should simply be left alone to do your important work on Main Street. That’s common sense. But, unfortunately, old habits of one-size-fits-all policymaking die hard.

ICBA has made major regulatory relief and tiered regulation for community banks its top priority, on which we’re making real short- and long-term progress. But, as ICBA has said for many years, the underlying cause of today’s unwieldy, overly complex financial regulation for community banks stems from too-big-to-fail, too-big-to-regulate financial firms. Until excessive financial concentration is truly and fully addressed, America’s diversified financial system will remain perpetually vulnerable to unpredictable policymaking.

So ICBA and community bankers will remain ready for new skirmishes sure to erupt suddenly over bad and destructive regulation. But, ultimately, we must remain simultaneously focused on winning the broader war of ending too-big-to-fail. That is the long-term fight we and the American people can and must win. But, as you know, it’s a fight that simply won’t happen without community bankers and ICBA leading the way.

Let’s keep our eyes on the prize and our hearts in the cause. We can do this. Stay with us.

Reach Camden R. Fine at