By: Michelle Patana
The Independent Community Bankers of America reiterated to lawmakers the need to develop a tiered and more customized approach to financial regulations that would not have a disproportionate impact on community institutions. Under the current financial reforms, community banking programs are likely to become overburdened by heavy regulatory costs, which ICBA�explains could drive up lending rates and threaten customer retention and acquisition.�
For example, a recent Federal Reserve study revealed that a handful of the most burdensome regulations are likely to amount to an estimated 14 percent of community bank operating costs. ICBA noted that since the study was conducted, regulatory costs have only increased.
"Community banks face an alphabet soup of regulations, each of which contains hundreds of pages of burdensome rules," said Jeffrey�Gerhart, ICBA chairman. "From A to Z and beyond, these regulations impose direct costs on community banks, inhibiting them from serving their customers and communities. To help community banks restore our nation's economic growth, policymakers should build on the tiered approach to financial regulations that distinguishes between community banks and the nation's largest financial institutions."
Community banks have seen a strong uptick in the number of customers who are switching from national banks to these local institutions. A number of reasons have been cited for the switch, ranging from more competitive interest rates and reasonable service fee structures to rewards checking and other lucrative reward programs. Bankers are concerned that in the wake of new regulations - and the heavy costs they will impose - they may not be in a position to offer these affordable products, which could hamper their ability to satisfy customers. Despite increased costs, the affordable programs local institutions offer may help them remain competitive with other institutions as consumers seek value services. For these reasons, community banks should consider the long-term effects of cutting free checking programs or raising fees.