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Community banks seem to have come out in decent shape from the financial-overhaul bill signed into law this past week by President Obama.

They get what they see as a fairer way to assess the fees they pay to the Federal Deposit Insurance Corp.

Expanding account-holders’ FDIC coverage to $250,000 is good for these institutions that depend heavily on individual depositors.

Many regulations that community bankers feared didn’t make the final legislation.

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Yet when I discussed this with John Collins, president of the Community Bankers of Washington, he was cautious.

“Until the new regulations are interpreted by the regulators, we don’t know. The devil’s in the details.”

The Great Recession and its hangover have been nasty for community banks, roughly defined as institutions with less than $1 billion in assets. (JPMorgan Chase, by comparison, has about $2 trillion). Nearly 100 have failed this year, including seven in Washington state.

Failure means little for depositors, thanks to the FDIC — one of the reforms that grew out of the banking crisis that helped cause the Great Depression. But bank failures can still jostle communities and reduce competition.

The American banking system has bifurcated, thanks to deregulation. The midsize regional banks such as Seafirst disappeared into behemoths such as Bank of America. That left thousands of smaller community banks nationally that handle large amounts of banking for average people and provide loans for small businesses.

Collins, who calls himself a “recovering banker,” spent 30 years in the industry before joining the trade group.

Asked how his members are faring now, he said, “They’re holding on. Are they strong? Not really. Will some fail? Maybe.”

Yet this is the system as it was designed to work. Community banks aren’t too big to fail. When they get in over their heads, regulators shut them down in an orderly fashion, depositors wind up at a new bank, the imbalances are worked out and the risk-taking cowboys punished.

The giant banks bailed out by the Bush and Obama administrations and the Federal Reserve, costing us $1 trillion or more, were never envisioned by the Depression-era reformers.

Scott Jarvis, director of the state Department of Financial Institutions, oversees 70 state-chartered banks that hold one-third of the deposits here in Washington. He said in a speech last month that “Each failed bank had behavioral quirks that led to its demise.”

Still, a few common denominators stand out: High amounts of commercial real-estate loans; a portfolio with preferred stock in Fannie Mae or Freddie Mac that was more risky than anticipated; troubled collateralized debt obligations (CDOs); and the inability to raise new capital.

The troubled commercial real-estate market has especially slammed community banks. At some failed banks, the concentrations of these loans totaled more than 300 percent of total capital. A veteran bank examiner once told me these loans are like “banking steroids.”

Once a small bank gets into the cycle, it’s difficult to back out. They produce big profits that can’t be replaced by anything else — then comes the inevitable bust.

Even small banks need to make some large loans, and here they are at a big competitive disadvantage. For example, one $10 million loan is much more efficient than making 500 car loans worth $20,000 each.

Middle-market commercial businesses usually already have a large bank that offers an array of services. The other potential source for larger loans is commercial real estate, and hence the danger of getting caught in a lending mania with undercapitalized developers and builders.

Jarvis complained that “after 25 years of deregulation we don’t have the tools to get involved until there’s trouble.”

Indeed, on a national level state-chartered banks have been a hot spot of failures. In addition to lacking proactive regulatory tools, starting in the 1980s many states made it easier for a new bank to get a state charter than a national charter.

America and the Northwest arguably have too many small banks. So a shakeout is inevitable. And some well-run, strong community banks are surviving.

These will be vital to restarting lending to small businesses, as well as giving customers choices (as do credit unions). Lending is still tight.

Some help might come if the Senate passes the Small Business Jobs and Credit Act. It would establish a $30 billion fund to enable community banks to boost lending to small companies.

After all the American treasure spent to rescue Wall Street, this is the least we could do to help the biggest engines of job creation.

You may reach Jon Talton at jtalton@seattletimes.com