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."A sustained push
Thousands of e-mails, letters and calls from small banks across the country soon poured into offices on Capitol Hill, especially to members of the House Financial Services Committee and the Senate Banking Committee.
Verdier and other lobbyists like the ABA representing small banks began a sustained push, meeting regularly to express their concerns with Treasury officials and congressional lawmakers, particularly Rep. Barney Frank (D-Mass.), the powerful chairman of the House committee.
In late July, Verdier and the ICBA gave lawmakers a list of 10 recommended changes to the structure of the new agency. Among the appeals was a proposal that would leave the authority to examine the banks' books with their existing regulators, such as the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp., rather than requiring small bankers to undergo an additional examination by the new agency. Verdier said that Frank and his staff were "willing to listen to the specifics."
But the August recess was looming, and lawmakers were leaving town for a month. The lobbying effort would follow wherever they went.
One late summer morning, as much of the country was engrossed in the fiery debate over health care, a handful of local bank executives gathered in a conference room inside First State Bank in Mesquite, Tex., a suburb east of Dallas. They had come to meet with Rep. Jeb Hensarling (R-Tex.), a member of the House Financial Services Committee and one of the most outspoken opponents of the proposed new agency.
Over the next hour, they rehashed their gripes with the proposed new agency. "He was responsive," said Jim Lindsey, the bank's president. "He knows that the community banks are not the main cause of this problem."
Days later, 250 miles south in Houston, the phone rang inside the office of Tommy Brooks, executive vice president of Unity National Bank, the lone African American owned bank in Texas. On the line was Rep. Al Green (D-Tex.), who Brooks had known for decades and who also served on Frank's committee.'The pendulum swings far'
Community banks weren't the culprits, Brooks told him, adding that his bank already was paying fees to multiple regulators and didn't need another. "I know the pendulum swings far one way and far back the other way," Brooks said, but "we were hoping to not get caught up in the backswing."
Dozens of other lawmakers from dozens of other states returned to Washington in September, having heard similar messages from the bankers in their districts, over and over again.
On Sept. 15, Barney Frank held a caucus for the Democrats on his committee in a wood-paneled hearing room inside the Rayburn office building. The debate over the proposed new agency was heating up, with almost every Republican firmly against it, and Frank wanted to settle several unresolved issues that remained with the bill. Near the top of the list was how to oblige community banks.
"I thought from very early on that there was obvious middle ground," said Rep. Brad Miller (D-N.C), who spoke up during the meeting to say he thought there was "an obvious accommodation" to exempt small banks from additional examinations by the new agency on top of those conducted by their existing regulators.
Frank suggested that Miller and Rep. Dennis Moore (D-Kan.) draft an amendment that would do just that. The community banks "wanted a complete exemption from the bill," Miller said, but after consulting with consumer advocates, Treasury officials and the bankers themselves, Miller and Moore settled on language that would free small bankers from extra examinations, while requiring the firms to abide by rules set by the new agency. That body also could investigate consumer complaints.
"In the words of Mick Jagger," Miller said, "you don't always get what you want, but sometimes you get what you need. I thought this got them what they needed."
The Miller-Moore amendment passed easily as Frank's committee hashed out the details of the bill earlier this month.
"We think it's a terrific step," Verdier said with measured enthusiasm.
His organization and others have refused to endorse the bill outright, saying they still have significant concerns about the scope and reach of the new agency. They plan to continue lobbying for changes. Some have vowed not to push on as long as the new agency still exists.
"It's an unnecessary, unnecessary, unnecessary example of federal growth and redundancy," said Thad Woodard, president of the North Carolina Bankers Association. "Like your own shadow following you around, the agency and its tentacles are still there. Those tentacles could reach out and grab you any time."
Woodard recently wrote a memo to his constituents.
"Progress is being made, but we must continue to fight to kill the CFPA," he told them. "To declare victory at this juncture is a dangerous strategy because it sends the message that the industry is satisfied."
His message: The small banks had won this battle, but the war was far from over.