Regulators and small bank advocates seem to be losing the psychological battle over the Dodd-Frank Act, despite recent efforts to calm bankers.

Significant parts of Dodd-Frank law will not affect small banks, and some of these banks' main concerns, including new overdraft protection guidelines, tougher regulatory exams and higher capital requirements, are technically unrelated to the law. Still, scary claims from big banks about what might result from the law are whipping community bankers into a frenzy, said Cam Fine, the chief executive of the Independent Community Bankers of America.

Big banks "keep pumping out poison after poison and it just scares the willies out of" community bankers, he told reporters at the ICBA's annual convention in San Diego. "They just read the headline and say, 'Oh my God, this is what's going to happen and this is terrible,' but not a thing has happened to a community bank related to Dodd-Frank yet."

Aside from a proposed cap on interchange fees, Fine said very little will impact small banks. More than half the bill's 16 titles, or 85% of the text, have virtually nothing to do with small banks, he said.

Such assurances are doing little to take the fight out of some bank executives, who remain convinced that the law's unknowns and negatives outweigh any positives.

"All they do is pinch guys like me and you're gone, you disappear," said Tony Costa, the chairman and chief executive of the $160.7 million-asset Empire State Bank in Newburgh, N.Y. "It's not even a ripple on the ocean," he added. "I think sometimes you need to fight. You just need to dig your heels in and say 'no.' "

Legal experts say Fine's claims are mostly true.

"A lot of it really does not apply to run-of-the-mill community banks, at least not right now," said Sanford Brown, a managing partner at Bracewell & Giuliani LLP in Dallas. "Neither Congress nor the regulators have shown any great propensity to repeal laws or regulations."

Those regulations have a way of trickling down, industry observers said, doubting whether the intended protections for small banks will stand the test of time.

"Not one of the supposed exemptions for small banks is worth the paper it's printed on," said Steve Wilson, the chairman of the American Bankers Association and the chairman and CEO of LCNB National Bank in Lebanon, Ohio.

"There's nothing there that is helpful to small community banks," Wilson added.

"I think what historically happens to community banks is that ultimately the things that are expected of the big banks are going to be expected of the community banks," Brown said.

As it stands, the law is decidedly harsher on big banks, some experts said. Provisions relating to the Volcker Rule; creation of a Financial Stability Oversight Council; orderly liquidation authority; regulation of advisers to hedge funds; greater oversight of derivatives; and state and federal insurance reform would largely impact large banks and non-banks.

Scott Anenberg, the co-head of Mayer Brown LLP's financial services and regulatory enforcement practice, said the law is a mixed bag for community banks.

It includes a number of specific carve-outs for small banks. Those under $10 billion of assets will not have to be examined by the Consumer Financial Protection Bureau — though they will still be subject to its rules — and they will be exempted from parts of the Sarbanes-Oxley Act that requires a public company's auditors to attest to its internal controls. Under a grandfathering provision, certain small banks can keep trust-preferred securities as regulatory capital.

It also includes a number of tangible benefits for community banks, including a permanent increase in the deposit insurance limit, to $250,000, lower assessments for smaller institutions and temporary blanket coverage for transaction checking accounts.

"How you evaluate it from a community bank perspective probably depends on your frame of reference," Anenberg said.

"If you're comparing it to big banks, I think community banks probably did relatively better," Anenberg added. "If you look at it from a zero sum game ... I suspect the vast majority of community banks would say 'no.'"

Fine and others, including Sheila Bair, the chairman of the Federal Deposit Insurance Corp., and Elizabeth Warren, the architect of the Consumer Financial Protection Bureau, have argued that, while the law is flawed, the benefits that ICBA fought to include still outweigh the positives.

"Dodd-Frank is not a perfect law," Bair said in her speech at the ICBA convention last week. "There are many things in it that I would like to change. But, on balance, it is a good law, and one which I think will strengthen, not weaken, community banks."

Bankers, and a number of their consultants and lawyers, say the law contributes to a never-ending increase in regulatory burdens.

"Even if there's specific provisions ... that obviously don't impact community banks directly, the general thrust of Dodd-Frank is anti-banking and pro-regulation," which hurts small banks, said Kip Weissman, a partner at Luse, Gorman, Pomerenk & Schick.

"Arguably it hurts them disproportionately, because they don't have the resources the big guys do to deal with these regulations," Weissman added.

Though bankers at the convention gave Bair two standing ovations, Weissman said their public reactions do not square with what they are saying privately. "I promise you, they were on their feet because they're a polite group, and she was saying positive things and they were trying to encourage her on that," he said. "I haven't met any community bankers — and our firm represents hundreds — that said, 'Oh boy, Dodd-Frank, what a good thing for our industry.' They just don't feel that way."

Bankers bristled at Fine's suggestion that they are simply afraid of the unknown. Some said they are already feeling the law's effects.

"When the regulators come and talk to you, the first thing they say is, now Dodd-Frank is going to be implemented, there are going to be new rules," Costa said.

"Every time they've got some new program, whether it's bank safety and soundness, whether it's enterprise risk, BSA, AML, they want you to hire somebody to manage it."

French Hill, the chairman and CEO of Delta Trust & Banking Co., said the law's size makes it tough for bankers to sort through its impact, leading many to assume the worst.

"I think that the average banker has a hard time getting around even the impact this legislation will have on their bank, because so much of it is put off to regulatory rule-writing," Hill said.

Hill said there are enough concrete provisions, such as creating the CFPB, to inspire real fear. "I think where there's smoke there's fire on the subject of increased burden and costs," he said.

Why isn't the message to look on the bright side resonating?

Philip Smith, the president of Gerrish McCreary Smith, a Memphis consulting firm, said he doubts many bankers know enough about the provisions that help them. He suspects they would rather hear about provisions that will penalize larger banks.

In the meantime, Smith said small banks are approaching the law with a skepticism. "I think the pessimism and the skepticism that community banks bring to it may ultimately be helpful," he said. If their skepticism helps identify unintended consequences, "then we have the ability before it's embedded in us to go back and tweak it accordingly to make it better for community banks.

"We all know once it gets rolling then it's very difficult to go back and undo it," he added.

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