WASHINGTON — Hundreds of small-town bankers had converged on Washington for their annual conference five months ago when Treasury Secretary Timothy Geithner gave notice in a speech that the financial industry was about to change.
He offered them a glimpse of the Obama administration's plans to overhaul banking regulations, leaving them with the unsavory feeling they would 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 Capitol but also in small communities in every corner of the land, culminated late last month 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.
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.
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.
Plan for a new agency
On June 17, the administration unveiled proposals to streamline the banking system, eliminate 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."
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."
On Sept. 15, Frank held a caucus for the Democrats on his committee. The debate over the new agency was heating up, with almost every Republican against it, and Frank wanted to settle several 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 more examinations by the new agency.
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 the committee hashed out the details of the bill.
"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.