Wall Street bankers and massive, often multinational financial institutions were at the center of the U.S. subprime lending catastrophe that triggered the global recession. But legislation ostensibly intended to rein in the errant behavior on Wall Street is worrying banking interests on America’s main street, including in Oklahoma, where banks avoided the pitfalls of risky lending and financial products. While legislators who crafted the legislation that prompted the crisis collect their federal pensions, while Fannie Mae and Freddie Mac – the largest players in the crisis – still remain flush with public dollars, and while Wall Street bankers have enjoyed banner years in terms of personal bonuses, the nation’s smaller, regional banks brace themselves for massive new federal intrusion.

“Back then, ‘bank’ was a dirty word, even though it wasn’t traditional banks that brought about the collapse,” says former Oklahoma governor Frank Keating, now president of the American Bankers Association (ABA). “We were assured only large financial institutions would be affected by the Dodd-Frank Act. There are now 7,226 pages of proposed and approved Dodd-Frank rules, and the average community bank is looking at this and it absolutely does affect them.”

Brad Krieger, executive vice president and regional manager for Arvest Bank in Oklahoma and Kansas, certainly agrees.

“Most of the discussion was about investment banks, which weren’t regulated like regular banks – or with whom regulatory power was not used,” Krieger says. “We made an effort to make sure people know that ‘investment banks’ and ‘banks’ weren’t the same thing. The legislation started in paragraph one referencing ‘investment banks’ but by the third paragraph it became just ‘bank.’ And Fannie and Freddie aren’t mentioned at all in Dodd-Frank.”

Krieger says that the smaller the bank, the more compliance “you have to put on people. They’re adding additional expenses without corresponding income.

“We in the banking industry have dealt with regulation a long time and much of it is necessary,” he continues. “Just let us know what to do so we can support our constituency and provide a reasonable return to stockholders. Dodd-Frank creates an impediment to taking care of our customers. A lot of consequences have more of an affect on regular and small community banks than they do on larger players.”

“The short term effects are already visible on our income statement.”

A simple example Krieger offers involves the federal government’s arbitrary decision on appropriate fees for ATM use. While it adversely affects many banks, larger players are better able to offset it than are smaller banks that rely on such fees for income.

Keating points out that overdraft fees are also heavily scrutinized, which could be disastrous to smaller banks.

“For some banks, particularly smaller and community banks, that’s a big portion of their income,” Keating says.

Federal interests also would prevent banks from providing a home loan to an applicant who – despite demonstrated financial wherewithal – had defaulted on a student loan.

“That’s $1.6 trillion in loan opportunities being sucked out of banks, particularly small banks, because of liability from Dodd-Frank,” Keating says.

With waves of new regulators under command of the new Consumer Financial Protection Bureau, which has virtually no limit in terms of power and for which there is no checks and balance oversight, conducting standard banking business becomes far more expensive, according to Keating. Small and mid-size banks will have to pay more to monitor and guarantee compliance and all transactions are subject to bureaucratic oversight.

“There will be no character taken into consideration – everyone will be put in the same box,” Keating says.

Krieger says that bank customers are already noticing changes.

“Many banks have eliminated free checking and moved to a minimum balance, fee-based system,” he says. “You hear a lot about lending and some of its not true. Banks do have liquidity. But many customers aren’t requesting things because it’s shrouded in uncertainty. It’s paralysis by uncertainty.”

 Krieger says that with community banks and small to mid-size banks, it’s customers like farmers and ranchers being beset with unintended consequences. Regulations regarding mortgage compliance have already driven some banks to get out of the mortgage business.

“The federal government is taking some income away, increasing our expenses, squeezing margins and making it much harder to do business,” Krieger says.

The full effects and long term influence of Dodd-Frank remain unclear.

“The long-term impacts of Dodd-Frank on banks like BOK Financial are yet to be seen, but the short term effects are already visible on our income statement,” says Pat Piper, executive vice president, Consumer Banking, at Bank of Oklahoma Financial. “Our organization has been preparing for this so it’s nothing we can’t overcome. Our mission now is to continue to seek greater efficiencies internally, while balancing customers’ expectations for both high service and technology, as well as reasonable charges. Ultimately, Dodd-Frank has changed the world of banking, both for bankers and for customers.”

Keating says that the ABA has several bills being looked at now that could help shore up the deficiencies of Dodd-Frank. The problem is that any of them might accentuate the fact that the legislation’s backers – including most Democrats and the White House – are capable of making mistakes.

“I know many Democrats feel that if they amend the rules it will be proof they didn’t know what they were doing,” Keating says. “Could be that we have to hunker down in the storm shelter and wait to see what happens.”

Krieger says that historically those in the banking industry are optimists.

“That optimism says we can make changes in the right way,” he says.

As for the massive multinational banks characterized as “too big too fail” and blamed for the nation’s banking crisis, however, business has never been better. Two years after being verbally targeted by President Barack Obama, and while main street institutions struggle under massive new regulation, the nation’s five largest banks hold assets equal to 56 percent of the U.S. economy ($8.5 trillion-plus). That’s up from 43 percent of the U.S. economy just five years earlier, according to Businessweek.

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