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ICBA Outlines Core Principles for Financial Regulatory Reform

Plan Should Address Systemic-Risk Institutions, Maintain Dual Banking System

Washington, D.C. (June 11, 2009)—The Independent Community Bankers of America (ICBA) today outlined in a letter to Treasury Secretary Timothy Geithner its core principles for financial services regulatory reform and called on the Treasury Department to address systemic-risk institutions and unregulated entities, support multiple federal banking regulators, maintain the nation’s dual banking system and reform the FDIC risk-based assessment system. The association also called for the FDIC to have resolution authority for systemic-risk institutions and expressed concern over a separate consumer protection commission for financial products.

“Our nation’s more than 8,000 community banks are generally well capitalized, extensively regulated and have fewer problem assets than other segments of the financial service industry because they didn’t engage in the kind of reckless lending and leveraging practices that are at the root of this current economic crisis,” said R. Michael Menzies, ICBA chairman and president and CEO of Easton Bank and Trust Co., Easton, Md. “ICBA asks that Treasury support meaningful and reasonable regulatory reform focused on unregulated entities and products and on institutions that pose the systemic risks that led to the financial crisis. The reform plan should reduce the dangerous concentration of financial and economic assets, support multiple federal banking regulators and maintain the dual banking system.”

ICBA is adamantly opposed to consolidating the existing regulatory regime into a single, monolithic federal banking regulator for all banking institutions. Multiple regulators bring balance and perspective and provide for checks-and-balances over the use (and sometimes abuse) of power. ICBA strongly believes in maintaining the dual banking system, with banks selecting either a federal or state charter, because it allows for a diversity of financial institutions, is sensitive to financial institutions of various complexity and size and promotes consumer choice.

In its letter, ICBA made specific recommendations for addressing systemic-risk regulation, including placing systemic-risk institutions under immediate prudential supervision by a federal agency, and vesting the FDIC with authority to resolve and unwind these large institutions should they fail. ICBA also recommended imposing special fees, a special fund and a systemic-risk premium, as well as higher capital and stronger risk-management requirements.

“The Administration need not waste time rearranging the regulatory boxes to change the system of community bank regulation. That system has worked, is working, and will work in the future. The failure occurred in the too-big-to-fail sector. This is the sector that must be fixed,” said Camden R. Fine, ICBA president and CEO. “Proportional regulation based on risk is long overdue.”

ICBA also has serious concerns about establishing a financial products safety commission since it does not address the core problem that led to the financial crisis—lack of supervision of non-bank lenders—and may cause consumers to have less access to financial products at a higher cost. Instead, the current system allows for protection of consumers and ensures the safety and soundness of the financial institutions. “The establishment of such a commission unwisely would separate consumer policy from enforcement and safety and soundness when all of these elements must coexist and be balanced for effective financial services regulation,” said Fine.

In its letter, ICBA also made the following recommendations for regulatory reform:

  • Reform the FDIC risk-based assessment system by creating a systemic-risk premium and broadening the assessment base to all assets minus tangible equity.
  • Reduce or strengthen the 10 percent deposit insurance concentration cap.
  • Support the savings institutions charter and the Office of Thrift Supervision.
  • Preserve the GSEs liquidity role.
  • Maintain the separation of banking and commerce, and close the industrial loan company loophole.
  • Establish an Office of Community Financial Institutions within Treasury.

ICBA looks forward to working with Treasury and Congress to ensure regulatory reform preserves and maintains our nation’s financial system so it and our nation’s common-sense community banks are even stronger coming out of this economic crisis.

To read ICBA’s letter to Treasury, visit www.icba.org.