Community banking leaders aren't so sure the "too big to fail" banks situation is any better than it was leading into the recent recession.
A recent survey of community bankers in the Midwest by Creighton University, of Nebraska, found that only 4 percent believe "too big to fail" banks are a smaller problem today than in 2008.
Almost half said they are a bigger problem.
"Too big to fail" was the title given to banks bailed out by the government -- and taxpayers -- after the subprime lending market collapsed and recession ensued.
Since then, the federal government has taken several steps aimed at preventing a repeat of that, including passing the Dodd--Frank Wall Street Reform and Consumer Protection Act.
The act, signed into law last July, aims to change the nation's economic regulatory structure, prevent more taxpayer bailouts and protect consumers from abusive financial practices.
Whether the act will have any teeth in it remains to be seen.
That's how local banker Don Burwitz, vice president of commercial loans at American Bank in Le Mars, sees it.
"It's still evolving," he said. "I'm anxious to see the specifics. They talk in generalities, but you never know how they're going to interpret them until the end."
Who is named to lead different directives and how they decide to interpret and enforce rules will play a major role, Burwitz said.
The new rules come down to American Bank through the U.S. Office of Comptroller of Currency, he said.
Locally, the new oversight is translating into more regulations for community banks to follow.
"It's going to be more responsibility for the banks to come into compliance," Burwitz said. "Unfortunately, it will add cost to the overall product. It will probably cost borrowers higher dollars, and checking accounts may see some changes."
Staying up to date with the new rules is easy enough for the large, money center banks, because they can have a staff person whose job is to ensure the institution is following each new law's requirements, Burwitz said.
"Small banks, you're wearing about four or five hats on top of everything else," he said.
Some banks smaller than American Bank may have trouble juggling it all, Burwitz said.
"I don't know how smaller community banks are going to handle this down the road," he said. "I don't know how they can keep track of all the new regulations and procedures and still try to do banking and keep in compliance."
Will the Dodd-Frank Act and other government action prevent the U.S. from having to bail out banks that are "too big to fail" in the future?
"It all depends if the examiners are able to somehow influence those banks. I don't know if they've made a lot of headway," Burwitz said.
That's something we'll see over time, he said.
Burwitz isn't the only local banker who is eyeing the trickle-down effect of new regulations.
"The federal government has written legislation that would keep large investment banks from taking excessive risks that can have a negative impact on our national economy," said Matt Ahlers, Primebank president and CEO. "An unfortunate byproduct of the federal legislation is the creation of additional compliance issues for community banks. Primebank has worked very hard to limit the impact our customers see from the additional regulation."
At Kingsley State Bank, in Le Mars, Don Hoogeveen, vice president and office manager said he's been watching how the situation plays out.
"I'm interested in how it affects the local situation -- local businesses and ourselves," he said.
Hoogeveen said there has been a disconnect between community banks and the money center banks.
"It seems like a lot of the larger banks were doing things on the holding company level where the examiners would kind of look the other way," he said. "They weren't scrutinized the same way your community banks are. We pride ourselves on being healthy."
Kingsley State Bank hasn't had a lot of loan losses, he said.
"That's a reflection of the community we live in. The ag economy is strong, and a lot of the local businesses have held in there real well," he said.
Still, the bank recently had to pay more than $500,000 in FDIC assessments beyond what it normally pays, Hoogeveen said.
"I think a lot of that money functionally has gone into the sub-prime problem and banks that have failed," he said. "We're not real happy about that."
Hoogeveen said that prior to the crisis, regulators didn't do their job as well as they should have, especially with the subprime derivatives that went sour.
"I'm not really convinced that, to this day, they have fixed that problem," he said.
Like other local bankers, Hoogeveen pointed out that the new government regulations have translated into more work for community banks.
"The local community banks weren't involved in that process whatsoever," he said of the subprime mortgage crisis and ensuing troubles. "But everything is regulated now to a much greater degree because of it. Even though we don't feel like we're any part of the problem, we have all these new regulations we have to deal with."
For example, the housing debacle caused new regulations about banks' disclosure documents when it comes to housing loans.
"It makes the home loan documentation a lot tougher to deal with," he said. "Now we have these procedures you have to follow, and if you don't follow them, the examiners will make your life pretty miserable."
Kingsley State Bank has hired a full-time person just to deal with new regulations, he said.
"It's probably costing us $100,000 a year to deal with the new regulations," Hoogeveen said. "Rather than making the economy move smoother, it seems like these regulations just have made it more onerous. I don't think the money is flowing as easily as it used to."
That makes for a lose-lose situation for community banks and their customers, he said.
When it comes to the new regulations designed to rein in the "too big to fail" banks, Hoogeveen isn't sure the government is on the right track.
"In fact, it probably works the other way," he said. "It probably helps the 'too big to fail' banks because they know that these regulations have a much heavier burden on the small community banks to keep up with, whereas they can absorb those costs much easier."