Small Banks Upset With Reform Plan

The Bush Administration’s bank reform proposals, expected to be unveiled this week, are arousing small bankers’ animosity toward their gigantic counterparts.

Community bankers said in interviews Monday that consumers will suffer if large banks are unchained and allowed to set up branches across the nation.

The small bankers said proposals for deregulation, coming at a time of the industry’s worst crisis since the Depression, have eerie similarities to the seedlings of the savings and loan scandal.

The savings and loan industry begged for looser regulation in the early 1980s to generate more business. When deregulation came, many thrifts strayed from their mortgage-lending roots and used federally guaranteed deposits to finance risky investments, ranging from speculative real estate to low-grade junk bonds.

Savings and loans “were saying let us do this and let us do that and make more income. It didn’t work out that way,” said Jeff Gerhart, president of First National Bank of Newman Grove, Neb.

Tonight, President Bush is expected to discuss reforms of the nation’s banking system in his State of the Union Address.

Administration officials have said the proposals will include:

* Streamlining the banking bureaucracy.

* Injecting money into the starving federal deposit insurance fund.

* Letting banks deal in securities.

* Allowing banks to operate across state lines with fewer restrictions.

Small bankers strongly object to loosening interstate banking regulations. The regulations were first designed to prevent large banks from absorbing their smaller competitors and moderate the disruptive effects of too much competition in the industry.

David Ballweg, president of Community State Bank in Union Grove, Wis., said large banks would siphon funds from local communities for use outside the community.

“It would have a severe negative impact on the availability of credit for the consumer, local business and farms,” said Ballweg, also president-elect of the Independent Bankers Assn., a trade group of small banks.

“I think the track record of larger financial institutions for serving the credit needs of smaller customers and smaller businesses is not very good,” said Ballweg.