Team Capital Bank recently introduced a brand new money market savings account option for its customers. The launch was some five months in the making, and one of those months was dedicated to marketing.
The other four were focused entirely on compliance.
The reason: The onslaught of regulations intended to moderate the lending practices of large banks is slowly but surely trickling down to their much smaller community counterparts.
And that, Team Capital's President and CEO Bob Rupel said, is having a big impact on small banks.
"I have six people doing nothing but making sure that we're doing business the right way," Rupel said.
"There's a cost to that, but you've got to do it because the downside to having an incorrect disclosure, the downside to having a disclosure open to different interpretations, can be pretty significant and severe," he said. "You just can't afford to make a mistake today."
In the wake of 2008's financial crisis, a slew of stiff regulations were enacted to curtail the loose lending practices that had grown rampant. Those regulations are being rolled out gradually, staggering the blows over time. And although big banks were the initial targets, the ripple effects are hitting smaller, community banks particularly hard.
The bigger banks, such as Wells Fargo, Bank of America and PNC Bank, are able to absorb the impact — and affiliated costs — steadily, and internally, with substantial resources at hand.
PNC, for example, has made major organizational investments in recent years to make sure that those regulatory changes are seamless for customers, said Thomas Sebok, PNC's senior vice president and business banking manager for the Northeast market.
"The current major regulatory environment affects the bank more than our individual customers," Sebok said. "It has forced us to think about how we operate our business and change the way we do business internally."
But for the smaller community banks, the Team Capitals, those regulations are threatening their ability to do business as a whole.
John McWeeney, president and CEO of the New Jersey Bankers Association, said the volume of new regulations is difficult for all banks to deal with, but the problem is particularly severe for community banks, which need to have people on staff or to work with outside providers to help them wade through the regulations and identify which ones they need to worry about.
"That adds cost and time," he said. "For community banks, they're smaller. They don't have the level of resources that larger institutions have."
And some are being driven to merge as a result, McWeeney said.
The past year or so has been particularly active in terms of mergers and acquisitions in the banking sector, and a number of deals either already have closed or are in the process of getting approval to close.
"We're concerned now that more banks are being forced to merge," he said. "We don't think that's a good thing, that they should be forced out of business by over-regulation."
And the value of those community banks cannot be overstated, McWeeney added.
Those banks provide around 60 percent of all small business lending, and numerous studies point to small businesses as drivers of economic growth.
"Therefore, community banks are really important to small businesses. And we've been trying to get the message across to legislators as well as regulators that you've got to be careful of all the stuff you're piling on community banks," McWeeney said.
Rupel, of Team Capital Bank, agreed wholeheartedly.
Every week, he said he receives another 15-, 20-, 30-page document with new government-issued rules and requirements that his staff then has to sort through and analyze. He can't help but wonder if it all applies.
"A lot of this regulation is geared at the $10 billion and over banks," he said. "But that trickles down to my $900 million bank."
"My fear is regulation in general is going to drive community banks out of business," he added.
"The reality is you're going to have to figure out how to deal with it because it's not going away."
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