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ICBA to Congress: Focus Regulatory Reform Efforts on Root Cause Of Crisis—Too-Big-To-Fail and Unregulated

Washington, D.C. (September 23, 2009)—The Independent Community Bankers of America (ICBA) today urged Congress to create a financial system that supports small businesses by focusing regulatory reform efforts on the root cause of the financial crisis—the unregulated and the too-big-to-fail, systemic-risk institutions that jeopardized the very core of our nation’s financial system.

“Just over one year ago, due to the failure of some our nation's largest institutions to manage their highly-risky activities, key elements of the nation’s financial system nearly collapsed,” said James MacPhee, ICBA chairman-elect and CEO of Kalamazoo County State Bank in Schoolcraft, Mich., in testimony before the House Committee on Small Business. “Yet community banks like mine stick to common-sense lending and serve our customers and communities in good times and in bad. Financial restructuring must support robust small business lending, not jeopardize community banks’ ongoing ability to supply credit to small businesses, and for that reason, misplaced, unduly burdensome and onerous new regulations on the nation’s 8,000 Main Street community banks must be avoided.”

While mega-banks have pulled in their lending and credit, the nation’s community banks are lending leaders. In fact, community banks, which represent about 12 percent of all bank assets, make over 30 percent of all small business loans less than $1 million, and over half of all small business loans under $100,000.

In addition, a year after the credit crisis began, too-big-to-fail institutions, a root cause of the financial crisis, have gotten even bigger. Today, just four mega-firms control nearly half of the country’s financial assets. MacPhee said that this financial overconcentration is a recipe for future disaster and not in the best interest of small businesses and the economy.

“Ending too-big-to-fail is one of the most critical issues facing our nation. If a firm is too-big-to-fail it should be deemed too-big-to-exist,” MacPhee said. “The only way to truly protect consumers, small businesses, our financial system and the economy is by finding a solution to rein in too-big-to-fail institutions.” MacPhee said that large complex financial firms should pay a systemic-risk premium and that FDIC deposit insurance premiums should be assessed more fairly to reflect a bank’s true risk. ICBA strongly supports the Bank Accountability and Risk Assessment Act of 2009 (H.R. 2897 introduced by Rep. Luis Gutierrez (D-Ill.), which would better account for the risks these institutions pose and strengthen the Deposit Insurance Fund.

MacPhee said that community bankers agree that consumer protection is a cornerstone of our financial system, but ICBA has concerns with the proposed Consumer Financial Protection Agency (CFPA) as crafted. Such a far-reaching expansion of government will unduly burden community banks that did not engage in the deceptive practices targeted by the proposal, jeopardizing the availability of credit and consumer choice, and shrinking business activity. Instead, Congress should focus CFPA-type reform on the unregulated bank and non-bank entities, which were at the heart of the current crisis.

Finally, MacPhee called on Congress to oppose reform that will result in a single federal bank regulatory agency. “A diverse and competitive financial system with regulatory checks and balances will best serve the needs of small business,” he said. “Any financial reform must retain the dual banking system of federal and state bank chartering and not create a single, monolithic federal regulator. It would be too risky to our national and local economies to empower only a single agency with all bank regulatory authority. ICBA is pleased that the Administration’s plan maintains the state banking system and believes that any final bill should also maintain the thrift charter.”

ICBA thanks House Small Business Committee Chairman Nydia Velazquez (D-N.Y.), Ranking Member Sam Graves (R-Mo.) and the other members of the committee for holding the hearing and looks forward to working with Congress and the Obama administration toward thoughtful regulatory reform that strengthens our financial system so that America and its Main Street community banks emerge even stronger from this economic crisis.

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