Hillary Clinton's seven-point plan calls on regulatory agencies to explain in five pages or less how a regulation will affect small banks and credit unions. | Getty Clinton unveils plan to boost smaller banks in latest sign of lenders' clout

Both Democrats and Republicans are pushing plans to boost community banks and credit unions, the latest sign of the growing political power of the smaller lenders.

Hillary Clinton on Thursday unveiled a plan to pare back regulations for small banks, including simplifying capital requirements and providing expanded legal protection for mortgage lenders if they follow certain good practices.


Next month, House Financial Services Chairman Jeb Hensarling (R-Texas) will introduce a sweeping plan to overhaul the financial system that includes most of what community bankers want.

The bipartisan support for the smaller lenders stands in stark contrast to the predicament of big banks, which have been a target of both parties on the campaign trail.

“Main Street, the town square, the community bank — they’re all the soul of American culture, and that’s what make our issues bipartisan,” said Cam Fine, president of the Independent Community Bankers of America. “It’s no surprise that both the left and the right … agree that the community bank needs to be protected and preserved.”

Donald Trump's campaign has also embraced community lenders. His campaign has repeatedly tried to tie Clinton to Wall Street, while saying the Republican candidate is “supporting the small banks and Main Street.”

Republicans and Democrats point to the group of bills that have cleared in recent years to lessen the regulatory burden on small institutions, such as longer examination cycles and expansion of the pool of small banks that can take on higher-than-normal levels of debt.

The lenders have won so many victories that Massachusetts Sen. Elizabeth Warren, a leader of progressive Democrats, has given indications that she might not have much appetite for lifting more regulations on community banks. Last year, she said the profits at such institutions have been rising, arguing that proves regulations have been well-tailored to them.

She's not alone in that sentiment.

"The question is, what else can provide meaningful relief to actually address the concerns of community banks," a Senate Democratic aide said. "There might be some unfinished business, but much has been done and continues to be done on the regulatory and legislative levels to address concerns."

Still, Clinton's proposal is a clear demonstration of support for more relief for community banks, generally defined as those with assets of up to $10 billion.

Her seven-point plan calls on regulatory agencies to explain in five pages or less how a regulation will affect small banks and credit unions. It also urges those agencies to coordinate more effectively to avoid duplicative bank exams and supervision.

She also emphasizes that loosened regulations for community banks and credit unions cannot be a "Trojan horse" for deregulation of big banks, claiming that's what Republican legislation would do. That's also a concern among progressive Democrats, including Warren.

One Clinton proposal — to shorten the quarterly financial reports filed by small banks, known as "call reports" — was officially set in motion by bank regulators earlier this month in a proposed rule.

Republicans, for their part, are keeping up the drumbeat that community banks are being choked off by excessive regulations. Hensarling’s Financial CHOICE Act contains the vast majority of what ICBA is asking for, but would more generally repeal key parts of the 2010 Dodd-Frank law, a step that would never pass muster in a Democratic Senate.

The Texas Republican recently joked that White House officials must be “using controlled substances” if they think, as the Council of Economic Advisers reported recently, that the landmark law hasn’t hurt community bankers.

“I’m not sure I’ve ever met a community bank who thought that Dodd-Frank was helpful to economic growth and community banking,” Hensarling told POLITICO in a phone interview from his district. The American Bankers Association says 1,708 small banks have closed since Dodd-Frank was enacted — 22 percent of the industry.

But if his legislation isn’t successful, Hensarling is willing to work to pass the parts of the bill that are digestible if there’s a divided government.

“I stand willing to negotiate with any Democrat at any time in trying to provide some life preserver for community banks,” the chairman said. “I’m always willing to take yes for an answer, but I don’t hear yes very often from many Democrats.”

Meanwhile, multiple moderate Senate Democrats who sit on the Banking Committee — Heidi Heitkamp, Jon Tester and Joe Donnelly — face reelection in 2018, potentially giving them extra motivation to deliver for community banks.

The backing for the community lenders has led to some friction between the smaller banks and the bigger financial institutions.

JPMorgan Chase CEO Jamie Dimon called Fine “a jerk” earlier this year after Fine criticized an op-ed that Dimon wrote in The Wall Street Journal calling for differently sized banks to work together.

“When a community banker does something wrong, a misdeed or fraud or something like that, they actually go to jail,” Fine said. “[People] don’t see the same things happening with the Wall Street executives.” Clinton's plan echoes this sentiment.

Indeed, the inspector general for the Troubled Asset Relief Program has gone after shady bankers, resulting in charges against more than 100 individuals. Its list of bankers who have gone to prison over fraud and other crimes in the wake of the financial crisis is filled with executives of now-defunct small banks that received millions in TARP funds.

Yet there isn’t actually much conflict within the industry, said James Ballentine, an executive vice president at the American Bankers Association, which represents banks of every size.

“The priority, from our perspective, is regulatory relief, and that certainly applies to anyone in the industry,” he said. “But there are certain provisions that are closer to what a community bank is interested in,” while others relate more to the activities of bigger banks.

Everybody agrees that regulations should be tailored based on size and activity, he said.

Still, any bill that moves is likely to do so attached to larger legislation, much like a score of financial services bills rode on the highway funding bill late last year, Ballentine said.