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ICBA: Systemic-Risk Regulator Must Be Objective, Nonpartisan, Shielded from Political Influence

Washington, D.C. (March 4, 2010)—The Independent Community Bankers of America today sent a letter to Senate Banking Committee Chairman Christopher Dodd (D-Conn.) and Ranking Member Richard Shelby (R-Ala.) urging that any systemic-risk regulator be objective, nonpartisan and shielded from political influence. The letter comes after recent reports that the senators are leaning toward naming the Treasury Secretary as the head of the systemic-risk council. ICBA is vigorously opposed to this, as well as proposals to strip the Federal Reserve of its supervisory powers.

“Our nation needs a strong and robust regime of systemic-risk regulation and oversight to monitor too-big-to-fail institutions whose failure would pose a threat the stability of our financial system,” said ICBA President and CEO Camden R. Fine in the letter. “Moreover, ICBA has no problems with the proposal to create a council to serve in this capacity. However, the chairman must not be tainted by partisanship, which could be the case with the Treasury Secretary, who is a political appointee.”

In the letter, ICBA says that independence helps prevent the politicization of bank supervision and regulation and avoids politically motivated direction of policies. Independence is essential for the smooth functioning and safe and sound operation of the banking system and, in turn, the health of the national economy. These factors take on even more significance in the case of a systemic-risk regulator. ICBA also said that the systemic-risk council should be chaired either by the chairman of the Federal Reserve or revolved among the heads of regulatory agencies represented on the council because these agency heads are generally nonpartisan, though appointed by the president and confirmed by the Senate.

Furthermore, ICBA voiced support for the Federal Reserve maintaining its broader bank-supervision responsibilities. ICBA said that limiting the Fed’s oversight to only the largest or systemically dangerous banks could lead to the appearance of bias in favor of the largest financial institutions, which is a risky approach to financial reorganization.

ICBA also said that the local nature of regional Federal Reserve banks, working in harmony with state bank regulators, gives them a unique ability to serve as the primary regulator for state member banks—the vast majority of which are community banks serving consumers and small businesses. ICBA said that this, in turn, gives the Fed an efficient means for gauging the soundness of the banking sector, information that is critical to developing and implementing sound monetary policy.

ICBA reiterated that state-chartered community banks played no role in the current financial crisis and no one has criticized the Federal Reserve’s supervision of community banks. ICBA said it is not logical to strip the Federal Reserve of its authority over community banks and their holding companies when the record shows that it has done a good job in this area.

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