Banking Groups Split on “Too Big To Fail”

Two of the largest bank lobbying groups each wants to be the voice of community banks in Washington, but when it comes to the reinvigorated debate over “too big to fail” — they are taking decidedly different positions.

The Independent Community Bankers of America has come out swinging against Wall Street giants and last week endorsed a bill by Sens. Sherrod Brown (D-Ohio) and David Vitter (R-La.) that many in the industry say would force the biggest banks to shrink or break up.

Meanwhile, the American Bankers Association — which counts banks of all sizes among its members — has urged caution, arguing that efforts to crack down on the largest banks could hurt the entire industry.

The split underscores the simmering tension between the two groups following enactment of the 2010 Dodd-Frank law as each seeks to be the go-to lobbying organization for community bankers.

At a mid-April ABA meeting in Washington, bankers were still grumbling about the ICBA’s efforts to secure exemptions for community banks when Congress was considering Dodd-Frank — a move they say paved the way for the bill’s passage. If the industry had stuck together, they argue, the bill could have been defeated.

Those hard feelings aren’t stopping the ICBA from keeping up pressure on big banks, but ICBA President Cam Fine said it has nothing to do with a beef with ABA or any of the other big bank trade groups.

“I look at it as I’m doing the best I can to advance and protect the interests of my thousands of member banks,” Fine said. “And if that upsets other people, I totally get that, but that’s not my problem.”

ICBA has wholeheartedly thrown its support behind the Brown-Vitter bill, which would boost capital levels for the biggest banks and scrap a Basel III proposal that requires new capital standards for community banks. The group argues big banks have a competitive advantage over smaller lenders, in part, because customers and investors believe they will be bailed out by the government if they run into trouble.

The Brown-Vitter proposal also includes provisions that would ease regulations for small banks — a section that industry lobbyists have dubbed an “ICBA wish list.”

Earlier this month, the group ran full-page ads for two days in POLITICO, The Hill, Roll Call, The Washington Times and The Financial Times’ Washington circulation, calling for an end to too big to fail. The ad noted that the 17 biggest banks control 63 percent of assets.

Even if the Brown-Vitter measure flops, Fine said, the ultimate goal is to keep the “too big to fail” conversation going. The bill’s chances of moving anywhere legislatively this Congress are long.

“We will in the end win this debate because more will have happened on this subject than would have otherwise,” he said. “It pushes this ball down the field.”

The ABA is forced to walk a fine line between fighting for small bank interests and protecting its bigger members — a point ICBA is eager to make. ICBA describes itself as being “dedicated exclusively to representing the interests of the community banking industry.”

But the ABA dismisses the idea there is any tension over how it represents its members and argues it is shortsighted to view the debate over Brown-Vitter as being good for small banks simply because it cracks down on Wall Street giants, warning about “unintended consequences.”

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