An Important Distinction


By Camden R. Fine, President and CEO of ICBA

Here we go again. Another megabank scandal has stunned ICBA and the nation’s community bankers, who are working to ensure the negative backlash from outraged consumers and policymakers does not rub off on their local institutions. Not only did Wells Fargo violate the trust of its customers by opening as many as two million unwanted accounts, the top executives at the nation’s second-largest bank have generally refused to accept full accountability as Washington considers a policy response.

Although Wells Fargo’s now-retired chief executive, John Stumpf, has directed blame toward the 5,300 employees the bank fired for following its crooked sales practices (or else, paradoxically, be fired), his banking industry allies have responded by merely condemning dishonest or unethical behavior at “any bank, anywhere, any time.” But this fraud and its potentially industry-shaking regulatory aftermath cannot be laid at the feet of anyone other than the $2 trillion-asset institution that perpetrated it. It certainly shouldn’t punish or burden community banks that had nothing to do with the fraud.

Nevertheless, the Wells Fargo scam poses a grave threat to our industry. Community bankers have been down this road before, and it doesn’t end well. We have seen over and over how megabank misdeeds result in dramatic new regulatory demands—not on the perpetrators, but on us. Again and again, systemically risky institutions have made reckless decisions, harmed consumers and wrought a broad-brush policy response that trickles down on community banks.

Washington policymakers and the American public clearly distinguish between community banks and systemically risky, too-big-to-manage institutions. In face-to-face meetings, written communications and media coverage, we have called on Congress and the regulatory agencies to avoid the kinds of overreaching laws and regulations enacted after the financial crisis, which disproportionately affected local institutions.

Furthermore, the Wells Fargo fraud should not inhibit the passage of bills containing tailored regulatory relief for community banks. Much-needed legislation inspired by ICBA’s Plan for Prosperity remains before Congress this very moment, and Wells Fargo should not be allowed to stall its momentum.

Washington can and must be able to differentiate between relationship lenders, who are held directly accountable to their customers, and the megabanks, whose impersonal, transaction-based business model too often exploits consumers and puts the financial system at risk. That is why, of course, ICBA has long advocated a system of tiered and proportional regulation based on an institution’s size and risk. With the Wells Fargo scandal putting immense pressure on policymakers to mount a regulatory response, this tailored approach to regulation has never been more important.

Just as community banks are accountable to their local communities, ICBA takes responsibility for exclusively representing community banks, not the megabanks that make our lives more difficult. Therefore, we will stand up for community banks every step of the way. We must ensure that we are neither tarnished by this scandal nor roped into an unwarranted and burdensome regulatory backlash. Instead, through tailored and proportional regulatory standards, we can fix what’s wrong with our banking system by strengthening what’s right with it—community banks.

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