Are community banks too small to survive Dodd-Frank rules?

Eddie Creamer, president of Prosperity Bank in Florida, which has 165 employees, said the thicket of new regulations drafted by regulatory agencies apply to small $750 million banks like his own in the same way they would apply to a $750 billion bank.

The rules, drafted to satisfy requirements of the Dodd-Frank financial reform law, were aimed at ending the risky lending and investment practices blamed for the recession.

But critics say it is the smaller banks – the ones without teams of lawyers, lobbyists and compliance officers – that are hit disproportionately hard by the regulations.

“When you over-regulate something, it hits the little guys first,” said Rep. John Duncan (R-Tenn.) “It’s only going to get worse if we don’t do something about it.”

Community banks, along with credit unions, have sought to be treated differently than the Wall Street giants and are proposing a tiered regulatory system.

But Democrats, while agreeing some rules should distinguish big and small institutions, said other standards should be uniform across the industry. 

Former Rep. Brad Miller, (D-N.C.), now a senior fellow at the Center for American Progress, suggested that consumers should be protected from bad actors, regardless of the size of the bank where they work.

“George Bailey was a community banker,” Miller said, referring to Jimmy Stewart’s character in the film “It’s a Wonderful Life.” “But so was Mr. Potter.”

But Republicans on the panel contended that smaller institutions are vital to the economy, especially in rural areas, and pointed to the fast-falling number of community banks in operation. Many have been forced to merge with larger banks, in part because of the increasing number of regulations.

Creamer, whose bank is preparing for such a merger, said the institution suffered from “regulatory fatigue.”

“We simply do not believe that a bank our size can attract and maintain the resources necessary for compliance with regulation going forward,” he lamented.