Ashley Archibald, The Union Democrat

As regulators scurry to flesh out new rules promised by July's financial overhaul, small banks are left to the monumental task of figuring out how the 2,300-page document impacts them.

The bill - touted as the biggest clampdown on the financial industry since the 1930s - aimed to target the root causes of the 2008 financial collapse, namely the overextension of banks that gambled with risky mortgages.

In general terms, it will force large banks to keep more money

in-house, limit their ability to take on risky securities called

derivatives, and empower a new agency called the Consumer Financial

Protection Bureau to act quickly to regulate against risky behaviors.

But the devil is in the details.

According to Nancy Sheppard, president and chief executive officer

for the trade association Western Independent Bankers, the 2,300-page

document will be accompanied by 5,000 additional pages covering 260

additional regulations that will be defined over the next 12 to 18


Although many of the provisions will not affect small banks, it's

difficult for anyone to determine what those banks will have to do in

the future to comply to new regulatory standards.

That uncertainty is causing angst among the members of the WIB,

many of which do not have the staffing levels to devote a person to

monitoring the new regulations as they come down.

"We went from too big to fail, not completely gone and now too small to comply," Sheppard said.

That might force some small banks to consider merging, continuing

the trend of financial institution consolidation, she said.

Bankers express concern over unintended consequences of the

legislation, Sheppard said, including fears over yet-to-be defined

capitalization levels and fees associated with the use of debit cards.

According to Steve Verdier, executive vice president and director

of congressional affairs for the Independent Community Bankers of

America, small banks have plenty to be happy about in the new bill.

The change in the amount of money that the Federal Deposit

Insurance Corporation will insure was permanently raised from $150,000

to $250,000, and the costs to pay for that insurance have been shifted

increasingly onto larger banks.

The bill codifies that smaller banks should be treated differently than larger banks, Verdier said.

"In our view, one of the things that community banks needed was

recognition that there's a difference between community banks and how

it should be examined, report to the government and be regulated that's

different from larger institutions," he said.

The move to regulate too-big-to-fail banks, Wall Street, and other

non-banking organizations that the overhaul addressees, will improve

life for smaller banks, Sheppard agreed.

"Things have gotten better because Wall Street is more under

control," Sheppard said. "The verdict is still out on how almost 300

new compliance regulations will let small banks continue to be small


The regulation of big banks and Wall Street will be helpful, said

Tom Meuser, CEO of El Dorado Savings Bank, but those same regulations

will inevitably trickle down to smaller banks.

"Anything they can do to eliminate a future financial disaster

would be wonderful. The whole idea of the legislation was to put new

rules on Wall Street, but unfortunately it all filters down to Main

Street," Meuser said. "We're going to be dealing with a deluge of new

rules and regulations that will ultimately restrict banking activity

and make it more costly."

El Dorado Savings Bank is large for most independent banks. It

employs 330 people, with 35 branches across nine counties and two

states. It has offices in Twain Harte, Murphys, Arnold and San Andreas.

It was one of the few that continued to make mortgage loans when larger banks began to dominate the market.

According to Meuser, the new regulations could make it difficult

for banks like El Dorado to continue to make those loans to local

customers who might not be eligible for such loans under new regulation.

"This will affect the way we make loans to our communities,

especially residential real estate loans," he said. "I'm worried we

will not be able to serve local customers who won't meet new

underwriting guidelines."

Chuck Milazzo, president and CEO of Mother Lode Bank, described the

regulations as a mixed bag - some good and some "horrendous."

"With regulatory change, some may appear positive on the face, but

as you begin to implement them, there are items to be dealt with,"

Milazzo said. "It's premature for me to say this is how this particular portion of the act will affect our local market."

Contact Ashley Archibald at or 588-4526.