Sal Marranca, chairman of the Independent Community Bankers of America, warned lawmakers this week of overburdening smaller banks with Wall Street reform.

Marranca told the Senate Banking Committee he backs a handful of new rules that would ease increased regulatory pressure.

"The pendulum has swung too far in the direction of over-regulation," Marranca said. "I’ve met with thousands of community bankers from every part of the country in recent years, and I can tell you there is an unmistakable trend toward arbitrary, micromanaged and unreasonably harsh examinations that are suffocating lending."

Federal Deposit Insurance Corp. Senior Deputy Director Christopher Spoth testified at the hearing, as well. The FDIC supervises more than 4,300 community banks, and Spoth warned these institutions still face lingering problems in their real estate loan portfolios.

"Asset quality is not deteriorating as before, but volumes of troubled assets and charge-offs remain high, especially in the most affected geographic areas," he said. "The FDIC supervisory responses are scaled according to the severity of the weaknesses that a bank may exhibit. Banks with significant loan problems require close supervisory attention."

Marranca, who is president and chief executive of Cattaraugus County Bank in western New York, supports three bills, each introduced by House Republicans.

The first, the Communities First Act or H.R. 1697, would raise the maximum number of shareholders a bank can have to 2,000 from 500 before being required to register with the Securities and Exchange Commission. The bill, sponsored by Rep. Blaine Luetkemeyer (R-Mo.), would also extend the five-year, net-operating-loss provision to help free up more capital at smaller banks.

Marranca also backed the Common Sense Economic Recovery Act, H.R. 1723, introduced by Rep. Bill Posey (R-Fla.) that would prevent regulators from assigning non-accrual status to performing loans.

He also supports legislation from Rep. Sean Duffy (R-Wis.) that would give more power to the Financial Stability Oversight Council when reviewing rules written by the yet-to-open Consumer Financial Protection Bureau.

Michael Foley, senior associate director for banking supervision at the Federal Reserve, testified at the hearing that as liquidity began to disappear at these smaller banks during the crisis, the Fed adjusted its focus to making sure these firms had contingency funding plans.

Foley said since the crisis, the central bank looked at the smaller financial institutions that survived and found they had well-diversified loan portfolios and limited reliance on "noncore funding." The Fed established outreach efforts with community banks and a special supervision committee to oversee the smaller firms.

"While the crisis has made it clear that some tightening of supervisory expectations was needed, we are also mindful of the risks that excessive tightening could have on banks' willingness to lend to creditworthy small businesses and consumers," Foley said.

Write to Jon Prior.

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