Seven takeaway thoughts on Dodd-Frank's impact on community banks

In a recent speech to community bankers in Iowa a couple of weeks ago, I reviewed the current state of the banking economy and the implications of the Dodd-Frank legislation on community bank operations. While the precise impact of this legislation on community banks will only emerge directly and indirectly over the next three or four years, some basic consequences seem inevitable. Here are seven possible key long-term impacts on the future of community banking in this new regulatory environment:

1. Greater capital funding and liquidity requirements will emerge due to increasing and interrelated worldwide instability and regulation;

2. Costs of operation will rise (e.g., new regulations) and income will be challenged (e.g., reduced interchange fees);

3. The separation of product regulation (e.g., Consumer Protection Bureau) from safety and soundness regulation may lead to fewer products for customers and higher fees;

4. There will be more need for specialized employees or consortium bank subsidiaries to deal with more complex rules and world (e.g., compliance);

5. The new definition of community banks as those under $10 billion may relieve Iowa banks of some future regulation as this should become the demarcation;

6. Anticipate redefinitions of valuation terms and risk criteria by governing bodies that may create challenges (e.g., loan loss reserves and FASB); and

7. Expect the unexpected and plan for it with contingency resolution processes (e.g., pensions and counterparties).

Whether these predictions come to fruition is anyone's guess, but the rules of engagement are about to change for better or worse. Generally, it is better to be engaged in dealing with and planning for the anticipated changes than not.

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.