While the nation's financial giants will be subject to new guidelines for stress tests and enhanced risk management, the Federal Reserve clarified that community banks will not be held to these similar testing requirements. Smaller institutions have plenty of reasons to celebrate this news. Earlier in the week, community bankers were on Capitol Hill to ask Congress for relief from regulatory pressures that are costing them time and money.
Samuel Vallandingham, senior vice president and chief information officer at West Virginia-based First State Bank, laid out the challenges that small institutions face from new banking rules and regulations. "Every dollar spent on compliance is a dollar less that we have to lend and invest in the communities we serve. Every hour I spend on compliance is an hour I could be spending with customers and potential customers, acquiring new deposits and making new loans," Vallandingham said.
I certainly understand the argument from community bankers. Many of them simply do not have the staff and resources to jump through the hoops of additional tests. Should community banks be expected to adhere to the standards that the biggest banks in the country follow? Probably not.
Still, it's not an easy question to answer. Between the bailouts and bank failures of the past four years, it's clear that every institution is susceptible to serious risks. I feel that part of the challenge in this particular regulatory debate lies in the Fed's classification of what makes a bank "large." The threshold lumps every institution with less than $10 billion in assets into the category of "community banks." It seems to me that a bank with $9 billion in assets would pose a much greater risk than an institution with $500 million in assets.
As news of JPMorgan's massive loss dominates the headlines, we can expect the banking industry to stay under the microscope. Are you stressed about the safety of your deposits?