As new Wall Street rules trickle down to Main Street, it's a mixed bag for smaller banks and consumers.

Sweeping new regulations aimed at averting another financial meltdown will soon change the way Central Ohio banks--and perhaps their customers--do business.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law in July by President Barack Obama, lays out the most significant changes to financial rules since the Great Depression. The legislation aims to police Wall Street through the new Financial Stability Oversight Council, a sort of systemic risk watchdog. The act also provides a framework to liquidate large institutions, limits fees, places new regulations on mortgage originators and limits certain institutions from investing in hedge funds, among other things.

Most changes take effect in 2011, though some specifics aren't finalized, says Jeff Quayle, senior vice president and general counsel with the Ohio Bankers League. "To really understand how it's going to impact banking, a lot of the bankers are waiting on the rules," says Quayle, who has read all 2,200 pages of the bill. "The implementation of the rules will be important."

Because Congress deliberated on certain features up until the last minute, some tweaks are likely, says Bob Palmer, president and CEO of the Community Bankers Association of Ohio. "We believe that there's going to need to be technical revisions to the bill, meaning that there are language issues in the bill that aren't clear," he says.

In the meantime, banks are reviewing the act, beefing up compliance staffs and training employees. Those tasks are more difficult for community banks, whose entire staff may be outnumbered by big banks' compliance employees. "For those guys, facing however many pages and dozens and dozens of new regulations-it's not an overestimation to say more than 100-that's a challenge," Quayle says.

"Right now, [community banks] are having to add additional staff and put additional resources toward this," Palmer says. "We're spending an inordinate amount of time trying to comply with the requirements. That takes away from our ability to focus on the customer and the cost association has to be borne in some manner. I think the consumer is going to see change in disclosure statements and fee structures of community banks based on the fact that it will be mandated and required in order for this revenue loss to be offset."

Gahanna-based Benchmark Bank has one full-time and one part-time employee dedicated to compliance issues, says Chairman Jerry Caldwell. "If you're Chase bank in New York City, you have a compliance department of 400 people," he says. "Community banks can also engage some outside consultants on this, but when you do that it costs money. A lot of the time, well-intended regulation that protects consumers ends up increasing the cost."

Compliance issues aside, local bankers say the bill has pros and cons. Both Quayle and Palmer oppose the Durbin amendment, which requires the Federal Reserve to regulate interchange fees. "Those are fees that banks charge merchants that accept debit cards. They have been an important revenue stream for every bank in Ohio," Quayle says. Banks have used the monies to pay for software, hardware, fraud protection and other costs. Limiting those fees could swing the cost to the consumer-counter to the amendment's intent.

"It will prevent the successful pricing of debit-related services. It also is likely that the merchants will not pass the financial benefit on to the consumer," Palmer says. "The consumer may likely benefit from the standpoint that it will limit some of the restrictions on which cards can be pushed by the merchant or promoted by the merchant." Banks with less than $10 billion in assets are exempt, but community banks are concerned about matching larger competitors' rates.

Other regulations put up barriers to lending at a time when many banks are being criticized for not lending enough. "[The bill includes] mandates that require more capital for financial institutions, with more capital being equated to more conservative and more safety and soundness," Quayle says. "For every dollar retained in capital, that's a dollar that's not available for lending. That will be reflected in higher loan requirements."

Consumers with large deposit accounts will benefit from a provision that increases Federal Deposit Insurance Corp. (FDIC) coverage from $100,000 to $250,000 per customer, per institution. The provision also changes the way the FDIC assesses dollar values for coverage, Palmer says. While the base was previously domestic deposits minus tangible equity, Dodd-Frank uses total assets minus average tangible equity. The end result is that larger institutions will pay a larger percentage of the aggregate insurance assessment.

A rule that allows the FDIC to liquidate large institutions that pose a threat is largely supported by bankers. "The big institutions must now create a ‘living will' on what they would do if necessary to self-liquidate. We believe that's a proactive approach. We don't think it went far enough, but it was a positive," Palmer says.

Even if the Dodd-Frank Act does ultimately stabilize the financial system and better protect consumers, Quayle wonders if it's worth the cost.

"Congress has responded to the 2008 issues in the marketplace," Quayle says. "One of our very large concerns is that crisis was a very Wall Street-dominated phenomenon and, unfortunately, there are new costs and burdens on Main Street banks. Some of the very large banks in Ohio-Huntington, Fifth Third and others-are focused on Main Street services and Main Street lending," he says. "The bill will impact those banks whether or not those barriers and protections on Wall Street on things like hedge funds and capitalization work in the future."

Reprinted from the December 2010 issue of Columbus C.E.O. Copyright © Columbus C.E.O.