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CSBS Statement on President’s Financial Regulation Proposal

Jan 25 - Below is a statement by Joseph A. Smith Jr., commissioner of banks in North Carolina and chairman of the Conference of State Bank Supervisors, on behalf of the CSBS regarding  on President’s financial regulation proposal.

State regulators are encouraged by President Obama’s announcement yesterday that the Administration is stepping up its efforts to address the growing problem of a handful of too-big-to-fail institutions.  While details remain vague, we are hopeful that the new plan will broadly confront the systemic risk and moral hazard that will corrupt our banking system if unaddressed.

Addressing the issue of too-big-to-fail should not be seen as “bank bashing,” but rather as a much needed policy shift to re-establish market discipline putting all financial institutions on equal footing and rooting out the emerging oligarchic system that will not serve our nation’s economic interests and will erode public confidence in our banking system and government.  The Administration and Congress cannot fail to act and follow-through on the promises delivered yesterday.

For decades Washington-centric policy has facilitated and encouraged the growth of the largest institutions and ignored or given lip service to the impact of policies on the diversity of our banking system.  Exacerbating this has been federal responses to the financial crisis which, to prevent economic collapse, have given advantages to the very biggest banks.  These banks have exploited this opportunity and through their Washington connections are seeking to institutionalize these advantages to the extreme detriment of the long-term health of our banking system and the U.S. economy.  To address this disparity is not “anti-bank” but rather in the interest of the vast majority of our nation’s 8,000 banks and the integrity of our free-enterprise system.

What has been far too absent from the debate over regulatory reform is an overarching focus on how to encourage and reward the behavior of the thousands of banks who remain healthy and have served the best interests of their customers and communities by focusing on their economic health and success.  As state officials closest to the impact banks have on small business, consumers and communities, we believe reform must be measured by whether it makes the industry more competitive, more sustainable, and more locally accountable.

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