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Community Banker Says Bank Examination and Debit Interchange are Key Concerns

Washington, D.C. (April 6, 2011)-William A. Loving, Jr., vice chairman of the Independent Community Bankers of America (ICBA) and president and CEO of Pendleton Community Bank, Franklin, W.Va., today told the Senate Committee on Banking, Housing and Urban Affairs' Financial Institutions Subcommittee that one of the most harmful consequences of the financial crisis for community banks is the overreaction among bank examiners.  He also stressed that the most troubling aspect of the Dodd-Frank Wall Street and Consumer Protection Act is the debit interchange amendment, which will harm Main Street.  

In his testimony about the status of community banking, Loving also said that community banks play a significant role in the economic recovery.  "Collectively community banks finance the growth of small businesses where many Americans work-often in markets not comprehensively served by large banks," said Loving.  "Our business model is based on longstanding relationships in the communities in which we live.  We often make loans passed over by the large banks because we have personal knowledge of the community and the borrower, which gives us firsthand insight into the true credit quality of a loan.  It's these localized credit decisions, made one-by-one by the thousands of community bankers across the country, which will ultimately help restore our nation's economic strength."

Loving went on to explain how one of the most troubling issues facing community banks today is the overreaction among bank examiners.  Even though community banks didn't participate in the risky practices that led to the economic crisis, there continues to be a disconnect between the examiners in the field and the directives from Washington.  "Many of my community bank colleagues relay experiences with examiners who demand unreasonably aggressive write-downs and reclassifications of viable commercial real estate loans and other assets," he said.  "The over-reaching zeal of these examiners is having a chilling effect on lending and an adverse impact on the recovery."

In addressing the Dodd-Frank Act, Loving said that one of the most troubling aspects is the debit interchange amendment, which will harm Main Street by costing consumers more.  He said that small issuers will feel the full impact of the Federal Reserve's proposed rule over time and urged the Senate to support S. 575, the Debit Interchange Fee Study Act of 2011, introduced by Sens. Jon Tester (D-Mont.) and Bob Corker (R-Tenn.) to delay the implementation of the rule and give the Federal Reserve two years to study the impact on small issuers and consumers.

Loving also mentioned that community bankers are concerned about the new Consumer Financial Protection Bureau (CFPB).  While Dodd-Frank allows community banks with less than $10 billion in assets to continue to be examined by their primary regulators, he said that community bankers remain concerned about CFPB regulations and that the CFPB should not draft any rules to hamstring the ability of community banks to customize products to meet customer needs. 

He also said that ICBA has long expressed concerns about too-big-to-fail banks and the moral hazard they pose.  "Every community banker knows how difficult it is to compete against mega-banks whose too-big-to-fail status gives them unique funding advantages.  For this reason, we're pleased the Dodd-Frank Act takes steps to diminish too-big-to-fail, including the creation of the Financial Stability Oversight Council, enhanced prudential standards and contingency plans for systemically risky firms, and resolution authority to unwind large, systemically risky firms," Loving said.  

To read Loving's testimony, visit the ICBA website at www.icba.org.