As change threatens, small banks wield powerful lobby

(Joshua Roberts - Bloomberg News)
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By Brady Dennis
Washington Post Staff Writer
Saturday, October 31, 2009

Hundreds of small-town bankers had converged on Washington for their annual conference five months ago when Treasury Secretary Timothy F. Geithner, addressing them in the chandeliered ballroom of the Grand Hyatt, gave notice that the financial industry was about to change.

He offered them a glimpse of the Obama administration's plans to overhaul bank regulation, leaving them with the unsavory feeling they'd be facing more of it.

"He was very direct about the fact that this was a proposal that was going to be sweeping," recalled Chris Williston, president of the Independent Bankers Association of Texas. "That's when it started gearing up. We knew at that time we had a major battle on our hands."

That battle, which unfolded not only in the marbled halls of the Capitol but also in small communities in every corner of the land, culminated last week when lawmakers granted these firms a major concession, agreeing to exempt banks with less than $10 billion in assets -- 98 percent of all U.S. banks -- from a proposal for additional oversight. Unlike the country's biggest financial firms, these 8,000 smaller banks would not be subject to annual examinations conducted by a new federal agency responsible for regulating credit cards, mortgages and other loans to ordinary Americans.

While big Wall Street firms can each muster multimillion-dollar lobbying efforts and their top executives can pick up the telephone and reach senior government officials like Geithner, it was the collective voice of thousands of small bankers from Everytown, USA, capitalizing on their influence in their own communities, that turned this debate.

Making the case in person

Days after Geithner was sworn in as Treasury secretary in January, he got a visit from Camden Fine, the president of the Independent Community Bankers of America, who insisted that the smaller bankers had not participated in the risky loans and abusive practices that fueled the financial crisis and should not be penalized with new regulations.

Months later, during his speech at the Grand Hyatt, Geithner referenced that initial meeting and called community banks a "source of strength and resilience for the financial system." He further flattered them, telling the group: "You are a formidable force. When you talk, we listen." But Geithner also tipped them to the substantial changes ahead. "I hope we'll have your support for how we do it. It's not going to be comfortable for everybody, but it's important to do," he said.

On June 17, the administration unveiled proposals to streamline the current banking system, eliminate existing loopholes and regulate markets that had for years remained in the shadows. It included a plan to create a new regulatory agency aimed at protecting ordinary consumers from deceptive and abusive lending practices.

The financial and business industries, from the U.S. Chamber of Commerce to the American Bankers Association, opposed the new agency from the start, and community bankers saw it as a particular threat.

"There was so much not to like about the original proposal," said Steve Verdier, a top lobbyist and senior vice president for the ICBA. "You just alert the bankers that this is coming and tell them to contact their legislators. We put out the word pretty fast."

The word filtered down that day to people like Shawn Mitchell, president of the Community Bankers Association of Kansas, who e-mailed small banks throughout the state, calling them to action.

"Within 30 minutes of the ICBA letting me know, I let them know," Mitchell said. "We're everywhere. We're in every district. Our bankers are active in their communities and very active with their elected leaders."

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