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ICBA: Congress Must Focus on Systemic Risk Banks

Community Banks Ready to Help Economy Recover

Washington, D.C. (March 17, 2009)—The Independent Community Bankers of America (ICBA) today said policymakers should focus on solutions to the significant risks of too-big-to-fail institutions, while supporting the efforts of community banks to aid in economic recovery efforts.

“Many community banks, like mine, stand ready to aid in our economic recovery,” said C.R. “Rusty” Cloutier, a past chairman of ICBA and president and CEO of MidSouth Bank, Lafayette, La., in testimony to the House Judiciary Committee. Cloutier noted that while the nation’s more than 8,000 community banks are common-sense lenders that generally did not participate in the risky practices that led to the current recession, the slow demise of many too-big-to-fail institutions places a burden on the entire system and must be addressed.

Cloutier called for the creation of a strong systemic risk regulator and urged Congress to direct the FDIC to impose systemic risk premiums on those institutions that pose a disproportionate risk to the deposit insurance fund. At the same time, he cautioned policymakers to be mindful of the unintended consequences overreaching legislation could have on community banks.

“Those community banks that chose to participate in the Troubled Asset Relief Program (TARP) and the Capital Purchase Program (CPP) did so with the conviction to put those funds to good use through loans to small and mid-sized businesses and consumers,” he said. “It would be a shame if new conditions forced us to withdraw from the program. Policymakers should be encouraging the participation of more community banks that are willing and ready to be active leaders in our economic recovery.”

Cloutier recommended that systemic risk institutions that are too unwieldy to manage or regulate should either be broken up or required to divest significant assets. “Government interventions necessitated by the too-big-to-fail policy have exacerbated rather than abated the long-term problems in our financial structure. It is clearly not in the public interest to have so much power and concentrated wealth in the hands of so few,” he said. “This inequity must end, and only Congress can do it. The current situation – if left uncorrected – will damage community banks and the consumers and small businesses that we serve.”

ICBA appreciates Chairman John Conyers’ (D-Mich.) and subcommittee Chairman Hank Johnson’s (D-Ga.) leadership in bringing attention to the core problems facing the financial services industry. ICBA looks forward to working with the chairman to find solutions to our nation’s current economic crisis while protecting and supporting a vibrant community banking sector.

Read the full testimony, at www.icba.org.