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ICBA Calls for an End to Too-Big-To-Fail Institutions

Washington, D.C. (March 17, 2009)—The Independent Community Bankers of America (ICBA) today urged policymakers to address excessive concentration in the banking sector by tightening supervision of too-big-to-fail institutions, imposing new systemic risk premium assessments, and facilitating the orderly break-up of systemic risk institutions over a five-year period.

“The only way to maintain a vibrant banking system, where small and large institutions are able to fairly compete, is through appropriately and aggressively regulating and assessing those institutions posing a risk to our entire economy,” said Terry Jorde, ICBA immediate past chairman and president and CEO of CountryBank USA, Cando, N.D., in testimony to a House Financial Services Committee hearing on regulation of systemic risk institutions.

Jorde said that for years, she and her community bank colleagues recognized the potential pitfalls of the so-called “supermarket” approach to financial services that has now proven not only ineffective, but harmful to the global economy. Because the nation’s more than 8,000 Main Street community banks stuck with their common-sense business practices and stayed away from the risky practices of the Wall Street institutions that led to the financial crisis, the vast majority remain well-capitalized.

When deciding how best to proceed in overhauling the nation’s financial regulatory structure, Jorde urged caution. “A monolithic federal regulator such as the United Kingdom’s Financial Service Authority would be dangerous and unwise in a country with a financial services sector as diverse as the United State,” she said. “Congress 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. That is the sector Congress must fix.”

Jorde said it is critical to properly identify systemic risk institutions and place appropriate tools in the hands of banking regulators, including the ability of the FDIC to address the burden placed on the deposit insurance fund by systemic risk institutions through special fees and premiums, as well as the means by which to expediently resolve a failed systemic risk institution.

ICBA appreciates House Financial Services Committee Chairman Barney Frank’s (D-Mass.) leadership in working to find solutions to our nation’s current economic crisis while supporting a vibrant community banking sector. ICBA looks forward to working with the chairman and members of the committee to develop legislation to regulate, assess and ultimately break up institutions that pose unacceptable risks to the nation’s financial system.

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