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April 2, 2014

Regulators Must Better Engage Community Banks in Major Rulemakings

“The community bank furor over the final Volcker Rule highlights a troubling issue: the banking agencies are failing to effectively consult with the majority of banks in rulemakings.

“Bank regulators have the challenging task of building public confidence and preventing a future crisis. To do this, they have issued thousands of pages of proposed rules to meet Dodd-Frank Act requirements and satisfy a steady stream of international standards. While targeted nominally at the largest banks, significant and complex issues that impact community banking are buried within these proposals — issues that few small institutions are aware of until it is too late.

“The problem is at least twofold. Community banks are challenged to divine the bits and pieces of the regulation that may affect them, and the focus of the proposals on the largest institutions causes regulators to neglect how they impact community banks and the industry as a whole. Compounding the situation, media attention is more likely to focus on the large bank issues in these major rules.

“The Volcker Rule and Basel III rules were nearly 1,000 pages each. The Volcker Rule was designed to curtail certain large bank activities, yet many community banks — to their surprise — are immediately and significantly affected. Even when community banks do comment on proposed rules, they often do so at an informational disadvantage. Many small banks, for example, supported the Volcker Rule proposal based upon its public portrayal by advocates, only to find out later that it had significant negative implications for banks of all sizes.”

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Read full American Banker article here.

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