Our Opinion: Federal red tape strangled Wilson’s Cornerstone Bank

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Complex rules designed to prevent risky lending at the nation’s trillion-dollar titans of “too-big-to-fail” finance likely cost Wilson its only locally owned community bank.

Rocky Mount-based Providence Bank plans to acquire Cornerstone Bank, executives announced Aug. 1, paying a fire-sale price of 23.5 cents per share. The merger requires shareholder and regulatory agency approval, but boards of directors for both banks have already signed off on the $11.2 million deal.

Cornerstone President Mark Holmes put a positive spin on the sale, explaining that it will expand options for bank customers and noting that not all shareholders will absorb big losses. But his public advocacy against the Dodd-Frank banking reform bill indicates Cornerstone and its peers are straining against federal red tape.

In May, Holmes represented the Independent Community Bankers of America at White House summit detailing Dodd-Frank’s punishing regulatory consequences for small banks like Cornerstone with assets of $1 billion or less.

The Wilson bank leader met with President Donald Trump, Vice President Mike Pence, National Economic Council director Gary Cohn and Small Business Administration director Linda McMahon. Trump pledged support for community banks, but repealing Dodd-Frank faces an uncertain future in Congress.

The law requires higher capital reserves and more regulatory accountability for banks in order to prevent a repeat of the 2008 mortgage crisis, but Dodd-Frank “snares community banks in an increasingly complex web of rules designed for larger banks,” Marshall Lux and Robert Greene of Harvard University’s John F. Kennedy School of Government wrote in an April 2016 New York Times op-ed.

Dodd-Frank’s 22,000 pages of rules “force well-managed institutions to unnecessarily divert resources to compliance,” they wrote. While banking behemoths can absorb the regulatory cost, community banks were left reeling.

Cornerstone Bank’s common stock was sold at an initial offering price of $11 per share in 1999. The stock was recently valued at 79.3 cents per share.

Shareholders who bought into Cornerstone at its inception stand to lose nearly 98 percent of their investment. Those who bought at the peak price in 2004-05 could lose even more. However, investors who picked up the stock for around 25 cents a share in 2012 would recoup most of their money.

Proxy statements are on their way to shareholders, and it isn’t clear whether the majority will decide to cut their losses and allow the merger to proceed or whether there’s a path for Cornerstone to remain independent if owners reject the acquisition.

Cornerstone opened on March 15, 2010 and was the first bank chartered in Wilson in more than 85 years. According to the Times archives, its organizers included Tom Brown, David Woodard, Buren Williford, Chris Williford, W. Coalter Paxton III, Buddy Bedgood and Jimmy Womble.

The founders of Cornerstone Bank couldn’t have predicted the lending crisis and recession that would shake the banking industry to its core. Resulting regulations meant to shore up lenders who were too big to fail wound up hurting those too small to navigate the maze of red tape.

Whatever the future holds, we thank Cornerstone’s incorporators and shareholders for giving Wilson a bank founded on the values of local ownership, community investment and customer service.