BankNews

Beware of Friends Bearing Gifts

By: Bill Poquette

On Dec. 11, the U.S. House of Representatives, magnanimously eager to bestow year-end gifts on the citizenry, unwrapped The Wall Street Reform and Consumer Protection Act (H.R. 4173). Unfortunately, there were some lumps of coal for bankers in this package.

Predictably and appropriately, the American Bankers Association and the Independent Community Bankers of America were quick to criticize the proposed Consumer Financial Protection Agency.

“The breadth of authority granted to the director of the proposed new consumer financial regulator is unprecedented,” said ABA President and CEO Ed Yingling in a strongly worded statement, “and this new regulator would not be responsible for considering institutional safety and soundness along with consumer protection.”

ICBA Chairman R. Michael Menzies was more circumspect, saying his group has concerns about the creation of a Consumer Financial Protection Agency; however, “We are pleased that the House voted to establish a special unit within the proposed agency to ensure that common-sense community banks are not disproportionately affected by its regulations.” Menzies is president and CEO of Easton (Md.) Bank and Trust Co.

The ABA remains opposed to the legislation in its present form; both associations said they will continue to work with Congress and the administration on needed reform.

At least two other onerous items in the legislation should give pause. One is the requirement for an audit of the Federal Reserve Board and Federal Reserve Banks to be completed by the Comptroller General within 12 months of enactment of the Financial Stability Act of 2009. The second needlessly prohibits an institution subject to an enforcement action initiated by its primary regulator from applying to switch charters.

ABA’s Yingling was pleased with one item not included in the package: the decision by the House of Representatives not to approve an amendment that would give bankruptcy judges broad authority to unilaterally modify the terms of mortgages.

So what’s in this package to cheer bankers? Maybe these nuggets will:

• A council of regulators that will identify financial firms that are so large, interconnected or risky that their collapse would put the entire financial system at risk. These systemically risky firms will be subject to increased oversight, standards and regulation.
• An orderly process for shutting down large, failing institutions in a way that ends bailouts, protects taxpayers and prevents contagion to the rest of the financial system.
• Strengthen the powers of the Securities and Exchange Commission so that it can better protect investors and regulate the nation’s securities markets.
• Regulate the over-the-counter-derivatives marketplace.
• Require registration of hedge funds.

This bill is damaged goods, although not the train wreck assembled by Senate Banking Committee Chairman Christopher Dodd, D-Conn. Both need serious work, as the trade associations have warned. Thus, bankers must stay alert, active and involved in 2010, lest they be run over by the excessive regulatory reform zeal of Congress and the administration.

Bill Poquette is editor-in-chief of BankNews.

Copyright © January 2010 BankNews Publications

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