Unfortunately the community banks of this country are thrown under the bus by just being a bank.  They have been unable to disassociate themselves from extra costs and lost credibility resulting from the scarred reputation of the bigger banks. Today the community banks are subject to the same increased regulatory burden, increasing capital and general public disdain as the larger bank. It’s time for community banks to disassociate themselves from the big banks in the eyes of the public, the legislatures and the regulatory community. They must seek regulation under a different set of expectations, consistent with their size, capabilities and ability to compete consistent with community opportunities.

Smith, a former Chairman and CEO of Security Pacific Corp., now founder and director of a community bank in Newport Beach, California, “gets it.” Having made a living in a “too big to fail” bank and now having to survive and compete with Security Pacific’s acquiring institution, Bank of America, Smith conveys the mounting uncertainty of the future of community banks in a post Dodd-Frank era.

What’s perplexing to me is the inability of so many of Smith’s community banker comrades to recognize the reality of the financial service marketplace today. For more than 100 years, community banks and big banks have coexisted serving different market segments with virtually the same product mix.  Community banks relied on the larger banks for traditional correspondent relationships seeking help with loan participations and clearing needs. And while some of these relationships still exist today, most have gone by the wayside with the emergence of community “bankers banks” and other larger community bank correspondent relationships. Today, the systemically important to big to fail institutions have come to rely on community banks for one thing and one thing only…their credibility and grassroots relationships with lawmakers.

Make no mistake; the big banks are taking a ride on the community bank advocacy bus in Washington and throughout state legislatures all across the country. They hide like thieves in the night behind the goodwill and unified message of the community banks proclaiming “one industry voice” as the only means to a successful legislative and regulatory end. And look where that has gotten us…a “one size fits all,” over-regulated world and a growing public perception that a bank is a bank, all of us out for personal enrichment and public deception.

In his bestselling book, “Good to Great,” Jim Collins says this about the philosophy of great companies:

They start by getting the right people on the bus, the wrong people off the bus, and the right people in the right seats. And they stick with that discipline—first the people, then the direction—no matter how dire the circumstances.

The same rings true for industry success. It is time community bankers to throw the “too big to fail” off our bus. Community bankers should finally unite as one and support only those organizations whose philosophies and advocacy match precisely their needs and is not conflicted by having to serve two masters. Or as Smith concludes:

The community banks should work to convey a message that they should and must stand alone if they are to remain. They must be divorced from the larger banks both in reputation and regulation if not name.

It only took Kim Kardashian 72 days to realize that her union with Kris Humphries was not a marriage made in heaven. As we begin this New Year, let’s resolve that we have tied the knot with the too big to fail for far too long and vow instead to pull our own wagon by bifurcating and advancing our own legislative and regulatory agenda and pursuing and preserving our own good name.

Those words, spoken in response to a question posed by an ABC news correspondent about Bank of America’s decision to begin charging a $5.00 monthly debit card fee by our 44th President, sent shock waves throughout the banking community this week.  And, well, it should have.

He went on to say, “This is exactly why we need this Consumer Finance Protection Bureau that we set up that is ready to go,” Obama said.  “This is exactly why we need somebody whose sole job it is to prevent this kind of stuff from happening.  You can stop it because if you say to the banks, ‘You don’t have some inherent right just to – you know get a certain amount of profit.  If your customers are being mistreated, that you have to treat them fairly and transparently.”

Now let me say at the outset that I don’t have any warm fuzzy feelings about too big to fail Bank of America.  Every time they are held out for their lame-brained treatment of the consuming public (remember this summer’s robo-signing incident?) it hurts all banks, including community banks.  But, if you believe in our free enterprise system, then you must admit that B of A has the right to model and price their product offerings any way they want.

Senior Democratic Senator Dick Durbin from the land of Lincoln, whose infamous interchange amendment prompted the fee to begin with, couldn’t wait to pile on.  He used the announcement to offer this suggestion to B of A customers in a personal privilege speech to his colleagues on the Senate floor.  “Vote with your feet.  Get the heck out of that bank.” Is this the brave new world of civility and discourse we live in?  Did a United States Senator call, from the floor of the Senate, no less, for a run on an American financial institution?

President Obama showed a modicum of political savvy as he later followed his advisors and backed away from his earlier comments.  When asked in a subsequent news conference whether government has the right to dictate how much profit American companies make he responded, “I absolutely do not think that.  Now (B of A) has the right, but it’s not good practice.  It’s not necessarily fair to consumers.”

A couple of observations.  First, Obama has shown his true colors and zest for creating the Consumer Financial Protection Bureau (CFPB) in the first place.  Short of this country having a nationalized banking system, he wants bank product and price regulated, and he is willing to use the bully pulpit to suggest so.  That is precisely what the industry feared when the new agency was constructed in Dodd-Frank.  Only after speaking to Secretary Geithner and Acting CFPB Director Raj Date was our President reminded that the CFPB’s mission is in fact, not to regulate product and price, but to ensure financial products and fees are clearly disclosed to consumers in plain English.

Second, just what did our fearless leader and trial lawyer Senator expect would happen when they craftily inserted debit fee interchange price controls in Dodd-Frank?  The banking industry warned that such limitation would dramatically affect debit card usage and likely result in higher fees for consumers.

I certainly do not suggest that all banks will follow Bank of America’s lead and impose a monthly fee on their debit customers.  I only opine that there is inherent danger when government gets in the way of free enterprise and attempts to create winners and losers.

Our leaders should spend less time trying to interject public policy into free markets and concentrate instead on truly enabling financial institutions to fail, regardless of size, something they attempted to do in the financial reform legislation.

Bank of America doesn’t need their help in driving consumers to other financial institutions.  They seem to be doing a pretty good job of doing that all by themselves.

As strange as this may sound, I’ve always been a fan of Kurt Vonnegut, with his bizarre sense of imagination and very unique writing style.  He refers in one of his books to “peepholes,” and how the same situation or event can be perceived differently based upon the perspective of those watching events unfold.

Consider the following observations on the current state of play with the Dodd bill, (S. 3217) as being through my “peepholes…”

The American public is mad at “banks”, and our industry has very much become a political target.  There has been plenty of bad behavior over the years, primarily among the largest banks, both commercial (or “traditional” or whatever) and investment, to incite this anger.  And this economic crisis is the latest in a long saga.  The only possible silver lining?  Community banks are finally being seen as the “good guys” by the lawmakers, the press and the public.  In this environment, we’re pretty happy not to be perceived as “one industry.”  Can’t really imagine how aligning with the giant banks (most of whom have substantial investment banking operations as well) and their ample baggage benefits community banks in the present environment.

Case in point is the Durbin amendment on interchange.  We, along with every other banking trade group, fought this thing as hard as we could.  We spoke with “one voice” . . . community banks, big banks and yes, even credit unions.  I would submit that the abuses of some in the industry no doubt contributed to the passage of this awful amendment, the latest example being the rush by some of the large issuers to raise interest rates and change terms on credit card agreements prior to effective dates of the CARD Act.  The $10 billion exemption is obviously an unworkable scenario and really no exemption at all, but the promise that these provisions wouldn’t impact small institutions was apparently enough to persuade a number of Senators to jump on and support this horribly misguided “consumer” amendment.  Once again, community banks are caught up in the backwash of a “fix” for a problem we neither created nor in which we participated.

By all indications from a wide array of insiders and experts, financial reform legislation is going to pass in some form.  There are Democratic majorities in both Houses of Congress and a Democratic President.  We are in an election year.  The Republicans cannot afford to be painted as the party of Wall Street going into the November elections.

The public and the politicians aren’t mad at Main Street and community banks.  But they’re plenty upset with the antics of Wall Street and the biggest banks in the country.  The Dodd bill went to the Senate floor by unanimous consent (there were no objections) not because of a particular position on the part of any trade association, but because of a political reality that something had to be done, especially in light of the (coincidentally timed?) Goldman charges, the hyper-charged political climate and clamoring by the press and constituents.

We have a choice.  First, we can recognize reality and work to make a bill as good as it can be.  There are some very positive provisions for community banking in the bill, and they didn’t happen by accident.  The change in insurance assessments is a huge win for community banks.  Not for the big banks, who will soon begin to pay their fair share, but for community banks.  Finally addressing too-big-to-fail is a huge win for community banks, who have dealt with an unlevel playing field for way too long in so many areas.  IBAT remains strongly in support of both of these provisions and can do so because we represent our members and only our members.

Or in the alternative, we can just be against moving forward at all.  It’s infinitely easier and sells well to “just say no.”  But in the end, if “no” isn’t a viable option, what exactly has been accomplished?

There is plenty to hate in this bill for everyone.  Please know that the large institutions have substantially more to hate, as is evidenced by recent rhetoric and attacks seeking to lay blame on community banking organizations.

IBAT is on record as being opposed to the passage of the House version, and have made our serious concerns very clear to both our Senators as well.  We have maintained throughout the process, however, that there are some significant changes that need to be made to present law, especially as it relates to community bank competitiveness and fair treatment.  The too-big-to-fail keep getting bigger, the investment banks keep doing what they’ve always done and the community banks get MOUs and C&Ds . . . and more and more regulations and burdens to deal with.

We have great apprehension regarding a number of provisions in both bills, with the CFPA/B at the top of the list.  Unless otherwise directed by the IBAT Board, I don’t see a position other than continued opposition without some very meaningful changes.  We will continue to work with our national association, which has done a remarkable job representing their only constituency, community banks, and others who share our passion to protect community banking interests in this very messy process.

Who, after all, wants to shackle their hands and ankles to the “too big to fail” banks and their unregulated affiliates and subsidiaries and jump off the 14th Street Bridge into the Potomac?  But that’s precisely what some bankers and their trade associations would have you do; dismissing the efforts of the community banking lobby as nothing more than a “distraction” and chastising us for our divide and conquer mentality to protect our unique interests. They would go as far as making claims that a unified industry with a unified message is the only true way to move a political football.

Tell that to Barney Frank, Chairman of the House Financial Services Committee.  In a recent Washington Post article describing how community banks are central to the current regulatory reform proposal, Chairman Frank describes the big bank lobby this way:  “The larger financial institutions have the opposite of political clout today.  They’re radioactive. The only way the big banks can win is if they get the community banks to be their troops.”  And the Chairman is not unique in his views.  Texas’ Congressional delegation understands it too.  I know because I hear it in every office we visited in Washington this week and every time we make calls in the wake of this whole economic mess.  “You guys are the good guys in the industry,” they tell us.  “We would like to find a way to make sure we don’t disenfranchise the community banks as we debate this.”

The current Obama regulatory reform proposal is enough to scare the crap out of any of us.  All we need is another regulator to get a broad legislative mandate to regulate products and services in the name of consumer protection, relegating us to “cookie cutter” and “plain vanilla” products and services.  That proposal, courtesy of the unregulated “shadow” banking industry would translate into nothing more than socialized banking designed to eliminate customer convenience and choice while raising costs. That’s not how the greatest economic system in the world has evolved, nor how it will be strengthened in the future.  You can bet if we can carve community banks out from under this Consumer Financial Protection Agency, we damn sure will do it.

So don’t tell us to get in line and leave the lobbying to groups that have divided interests and hope that somehow you will fairly represent the interests of community banks.  We didn’t cause this mess and we are tired of helping the big banks clean it up in the form of higher regular and special FDIC assessments, suffocating new regulations and bad industry public relations.

We will continue speaking with one voice…a community banking voice.

It was music to all community bankers ears this week to hear three respected economists, one a 2001 Nobel prize recipient, tell a Joint Economic committee of Congress to break up the too-big-to-fail institutions and disassemble the oligarchy they have created.  I say Amen, too.

Breaking up the behemoth banks would mean recalibrating the disproportionate influence they have had on public policy.  Translated for community bankers…a bifurcated banking regulatory system just might be within our reach.  Community bankers are tired, and rightfully so, for paying for the sins of Wall Street in the form of higher FDIC insurance costs, and their owned tarnished credibility in the eyes of the general public and lawmakers.

There are obvious immediate benefits that will accrue to all community banks if Congress has the guts to set about a systematic plan to break up the big banks.  Deposits will funnel back to local communities where they were extracted and rightfully belong into the hands of the more than 8,000 community banks to be put to work for the local folks.  More money will be available for small business and consumers.

But perhaps the most significant benefit that could result from this is a reduction of the many hidden costs of regulatory burden…a burden that has most community institutions drowning in cesspool of paperwork.

Last month I heard one of the more sensible solutions to reducing the regulatory burden on community banks.  It was sensible to me because it is precisely what my colleagues and I have been advocating for the past ten years.  And, it came from a bank regulator no less.  He advocated that two charter types should be created; one a commercial charter for those institutions that choose to venture out of traditional banking services into exotic and risky product lines, and  a community bank charter for those institutions that wish to operate more on traditional banking product and service lines.  Each would be subjected to different regulatory and examination specifications proportionate to risk.

We are a long way from realizing the dream that one day community bankers would be rescued from over regulation…regulation that has largely been created thanks to the greed and corruption of the mega banks.  The testimony of  the three economists this week however was a good start.  It is nice to see that someone is hurling the stones precisely where they need to be hurled.

You never know when one just might bring the mighty behemoths down.

I am struck by the irony of this announcement.  Is this not exactly what Treasury originally intended to do by creating the Troubled Asset Relief Program (TARP) late last year to clear the balance sheets of the too big to close?  That plan was abandoned almost immediately after its development for fear that purchasing troubled assets from banks would expose the Treasury and taxpayers to paying too low a price for their acquisition.  Instead they opted for direct investments in the banks themselves.

Now they design an almost identical plan with one exception…private investors will have skin in the game alongside the government and they have guaranteed a market price  by allowing for competitive bids by pension and hedge funds and other would be investors.

I commend the Treasury and Geithner for this initiative… in my view it was precisely what was needed all along, the way TARP was originally intended.  Apparently the Street likes it too.  Markets are wildly up in heavy trading today following the announcement.

Finally, we have an action by the Treasury that just might save (at least for now) the sinking ships.  And all along, all they needed to do was simply rearrange the deck chairs.

It is clear that Treasury will do everything in its power to save the too big too close banks.  And once it is evident that they have, let’s hope a future initiative will be to break those suckers up so they can never be too big to close again.