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ICBA to Congress: Address Excessive Concentration in Financial System

Washington, D.C. (Oct. 21, 2008)—The Independent Community Bankers of America (ICBA), in testimony today to the House Financial Services Committee, outlined a series of steps Congress should take to improve federal financial regulation. Michael Washburn, vice chairman of ICBA’s Policy Development Committee, urged Congress to stem excessive concentration and promote diversity in the financial sector. Washburn also called for enhanced oversight of unregulated institutions as lawmakers consider regulatory restructuring.

“The current crisis has made it painfully obvious that the financial system has become too concentrated, and—for many institutions—too loosely regulated,” said Washburn, president and CEO of Red Mountain Bank of Hoover, Ala. “The doctrine of too big—or too interconnected—to fail, has finally come home to roost, to the detriment of American taxpayers.”

ICBA outlined a series of recommendations to improve financial regulation. In addition to reducing the size of institutions that present systemic risk and imposing more rigorous supervision on the highest-risk financial institutions, ICBA also urged requiring non-bank financial institutions to adhere to standards comparable to those imposed on FDIC-insured institutions.

ICBA also encouraged lawmakers to maintain: multiple banking regulatory agencies to avoid a monolithic federal financial services regulator; a dual banking system of state and federal charters with access to FDIC insurance; and the role of government-sponsored enterprises such as the Federal Home Loan Banks, Fannie Mae and Freddie Mac to provide liquidity to community banks. ICBA also reiterated its opposition to any policy that would allow commercial entities to own banks—maintaining the long-standing separation of banking and commerce.

“Community banks play a vital role in the economic wellbeing of countless individuals, neighborhoods, businesses, organizations and communities throughout the country,” Washburn said. “It is vital to the economy that public policy promotes the competitiveness and efficiency of community banks and supports and encourages a diverse financial system.”