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Small banks decry crush, cost of Dodd-Frank regulations

Bob DeAlmeida

Bob DeAlmeida, president of Hamilton Bank, said that federal regulations, such as Dodd-Frank, are treating banks like they are “one size fits all.” (The Daily Record/Maximilian Franz)

A new wrinkle has been added to the weekly senior staff meetings at the Baltimore-based Harbor Bank of Maryland: regular briefings on the latest in the avalanche of new regulations under Dodd-Frank.

“We have to keep our people up to date,” said Joseph Haskins, chairman and chief executive officer of Harbor Bank. “We’ve been bombarded by a lot in a very short time. … We’re trying to keep on top of it.”

Formally known as the Dodd-Frank Wall Street Reform and Consumer Protection Act, Dodd-Frank is a complex, far-reaching set of banking regulations — the most sweeping financial reforms since the Great Depression.

Passed by Congress in July 2010 and named after its two main sponsors, former Sen. Christopher Dodd of Connecticut and former Rep. Barney Frank of Massachusetts, the law was aimed at preventing another recession like the one that battered consumers during the 2000s.

But four years after being enacted and with the economy still on the rebound, many small, community banks say they are being unfairly hampered by the reforms.

Without the resources available to larger banks, small bank officers say, they are being forced to spend more and more time, effort and money to keep track of and comply with the regulations. Moreover, they worry the new rules will alter and hurt the way they do business — perhaps even force smaller banks to merge.

“These [regulations] are probably best practices … but they’re treating us as one size fits all,” said Bob DeAlmeida, president of Hamilton Bank, a community bank based in Towson, and chairman of the Maryland Bankers Association.

“Every time we turn around, there’s another regulation to worry about,” he added. “I’m sure there are going to be community banks that merge. I think Dodd-Frank is encouraging people to think about that.”

To cope with Dodd-Frank, DeAlmeida said, Hamilton Bank, with $300 million in assets and 63 employees, has quadrupled the number of employees working full-time on compliance issues, from one to four.

Similarly, Haskins said Harbor Bank, with $250 million in assets, has hired the equivalent of two more full-time people to keep up with the regulations.

“We don’t have the luxury of a legion of people [already on staff] to take care of compliance and oversight,” Haskins said. “It’s been costly. And it’s annoying to me, because we were not” the financial institutions that sparked the recession.

That’s a frequent refrain these days, nationally and in Maryland.

“Dodd-Frank weighs heavily on community banks because of the sheer number of changes and the sheer volume of regulations they have to wade through,” said Kathleen Murphy, CEO of the Maryland Bankers Association. “They just don’t have the resources of the major banks.”

She said one association member has told her that his staff spends 30 to 35 percent of its time dealing with Dodd-Frank.

Making matters worse, banking industry leaders say, are additional tighter regulations unrelated to Dodd-Frank — stricter underwriting guidelines for loans, for example — imposed in the wake of the recession.

Murphy said another local banker told her that keeping up with the torrent of changes “is like trying to drink from a fire hose.”

DeAlmeida said community banks have long prided themselves on offering personal services tailored to individual needs. But that sort of approach could be in jeopardy, he said, as the new “cookie-cutter” regulations impose strict standards on, for example, mortgage loans.

“It’ll be harder to find that little niche,” he said.

To help Maryland banks deal with the new rules and regulations, Murphy said, the Maryland Bankers Association has been offering workshops and seminars, both online and in person.

Nationally and locally, meanwhile, smaller banks and their advocates also have been lobbying Congress to exempt them from some of the more onerous rules.

They’ve had some success. The mandated “stress tests” meant to evaluate how banks will withstand difficult economic times are now required only for banks with at least $10 billion in assets, for example.

Still, small bank executives say the relief has been minor.

“There’s no stress [test] for us,” Haskins said. “But you can be sure that when the regulators roll into our shop, we’re being stressed.

“I’ve been in banking more than 40 years, and I can’t think of any time in my career I’ve seen as many regulations come in at any one time.”

The state’s community bankers see little hope for relief soon — not with about half of the 398 new rules mandated by Dodd-Frank not even adopted yet.

“We’re still in a state of flux,” DeAlmeida said. “There’s so much confusion. … It’s like we’re walking on eggshells.”