Overhaul to even playing field, Bernanke tells small banks

Posted: March 24, 2011

WASHINGTON - Federal Reserve Chairman Ben S. Bernanke told executives from smaller banks Wednesday that the 2010 financial-overhaul law would level the playing field for them with the industry's giants.

It will be important, he told an annual convention of small and medium-sized banks, for them to adapt to the changing regulatory environment - and he said most of the new law's requirements were aimed at the country's biggest banks.

Congress passed the regulatory overhaul in an effort to prevent a repeat of the 2008 financial crisis, in which many banks nearly collapsed under the weight of growing numbers of loans that were defaulting. Small-bank executives have complained that it will cost them a lot of money to meet the new rules, even though they were not responsible for causing the crisis.

Bernanke said the hundreds of community banks - those with assets below $10 billion - would be vital in the overall economic recovery because they were a key source of loans for small businesses.

"Although we are not yet where we would like to be, the good news is that many community banks have already been doing their part to meet the credit needs of their customers, notably including small-business customers," Bernanke said in his speech to the Independent Community Bankers of America.

He noted that smaller banks still faced challenges, including a difficult economy, continued uncertainties in real estate and other key markets, and a changing regulatory environment.

"But community banks have faced difficult times before, and the industry has remained vibrant and resilient," he said. "I am confident that community banking will successfully navigate these new challenges as well."

In response to an audience question, Bernanke said the Fed understood that Congress wanted to shield smaller banking institutions from the effect of a new law that requires large banks to trim debit-card fees. At stake is the $16 billion each year that, according to the Fed, stores must pay banks and other credit-card issuers when customers use the cards.

The Fed, which must implement a rule to put the law into effect, understands that banks with assets of less than $10 billion should be protected from losing the fees they now receive, Bernanke said.

Bloomberg News contributed to this article.

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