Community banks are a troubled but vital part of economy
Jon Talton
Special to The Seattle Times
Community banks seem to have come out in decent shape from the financial-overhaul bill signed into law this past week by President Obama.
They get what they see as a fairer way to assess the fees they pay to the Federal Deposit Insurance Corp.
Expanding account-holders' FDIC coverage to $250,000 is good for these institutions that depend heavily on individual depositors.
Many regulations that community bankers feared didn't make the final legislation.
Yet when I discussed this with John Collins, president of the Community Bankers of Washington, he was cautious.
"Until the new regulations are interpreted by the regulators, we don't know. The devil's in the details."
The Great Recession and its hangover have been nasty for community banks, roughly defined as institutions with less than $1 billion in assets. (JPMorgan Chase, by comparison, has about $2 trillion). Nearly 100 have failed this year, including seven in Washington state.
Failure means little for depositors, thanks to the FDIC — one of the reforms that grew out of the banking crisis that helped cause the Great Depression. But bank failures can still jostle communities and reduce competition.
The American banking system has bifurcated, thanks to deregulation. The midsize regional banks such as Seafirst disappeared into behemoths such as Bank of America. That left thousands of smaller community banks nationally that handle large amounts of banking for average people and provide loans for small businesses.
Collins, who calls himself a "recovering banker," spent 30 years in the industry before joining the trade group.
Asked how his members are faring now, he said, "They're holding on. Are they strong? Not really. Will some fail? Maybe."
Yet this is the system as it was designed to work. Community banks aren't too big to fail. When they get in over their heads, regulators shut them down in an orderly fashion, depositors wind up at a new bank, the imbalances are worked out and the risk-taking cowboys punished.
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