Why We Fight for Community Banks
“Why We Fight” is the title of a series of films created during World War II to explain what was at stake for Americans. Now that the first congressional committee took formal action yesterday on financial reform, it is a good time to explain why ICBA fights so hard for an equal voice, equal treatment and the rightful place for community banks in this very hectic and critical time in our nation’s financial history.
Simply put, ICBA’s twin goals are to 1) minimize—hopefully to zero—additional regulatory burdens on community bankers and 2) impose strong regulation and supervision on financial companies that got us into this current mess. A double victory is critical to your place in the market and is also vital to consumers and the economy. If we fail, mega-Wall Street firms and the unregulated mortgage brokers, payday lenders, check cashers, auto financers, credit unions and finance companies will continue to compete against you on Main Street with unfair advantages, abuse consumers and eventually cause another financial meltdown.
And that is just the way they want it. Make no mistake about it, powerful forces in Washington want you—the community banking industry—to remain third-class passengers on the financial ship. And as we have all witnessed in this current financial crisis, there were no lifeboats for you when the ship hit the iceberg. The forces arrayed against the community banking industry would like to see financial reform fail—either with no bill at all or one so weak that it doesn’t offer real reform. They want to block both key elements of financial reform: meaningful systemic-risk regulation and, for consumers, protection against the predators.
In completing its markup of the Consumer Financial Protection Agency Act (H.R. 3126), the House Financial Services Committee included an ICBA-advocated amendment that offers important relief for depository institutions with assets of $10 billion or less. But we still have a long way to go before ICBA is satisfied with the final product. Therefore, ICBA still does not support the bill as it now stands.
CFPA legislation is still in its early stages, and there will be many twists and turns along the legislative highway before this proposal becomes law. House Financial Services Committee Chairman Barney Frank’s (D-Mass.) plan is to pass separate bills addressing consumer protections (CFPA); systemic risk (including too-big-to–fail institutions); resolution authority; hedge funds; derivatives and so forth. After each of these bills is passed out of committee, Frank and the House leadership will likely fold them all into one big financial services reform act that will be debated by the full House. After debate and passage by the House, the entire package will be sent to the Senate.
Of course the Senate will have its own financial reform bills. However, at this time, it is unclear whether Senate Banking Committee Chairman Christopher Dodd (D-Conn.) will present separate bills or opt for one comprehensive and all-encompassing act dealing with financial reform and regulation. Many believe the Senate Banking Committee will propose a comprehensive bill. Either way, the Senate will have a very robust CFPA bill or a separate title within its financial services reform proposals.
Also, we anticipate that Dodd will propose a single federal regulator to oversee ALL financial services firms, stripping the FDIC and Federal Reserve of their supervision and examination authority. (Of course the Office of the Comptroller of the Currency and Office of Thrift Supervision would disappear in favor of the National Bank Supervisor.)
WHAT HAPPENED YESTERDAY
Let me briefly review the highlights of what happened yesterday in the House Financial Services Committee. Several community bank-friendly changes that were strongly endorsed by ICBA were made to the original proposal.
Community bankers were rightly outraged about the initial version of the Consumer Financial Protection Agency. We did not cause the financial crisis, and none of our customers needed “protection” by another government agency. ICBA leadership was repeatedly quoted in interviews with major media outlets as saying that the CFPA as proposed was a bad, bad, bad idea for community banks. That is why it is worth noting the changes that we fought so hard and successfully for the committee to adopt:
1. All depository institutions under $10 billion will remain with their primary federal regulator for examination and enforcement purposes. (I know that the little community bank I formerly owned did not need another full team of CFPA examiners unleashed on its 13 employees.)
2. The CFPA may impose NO fees or other charges on banks under $10 billion to pay for the agency.
3. All credit unions over $1.5 billion will be fully subject to CFPA (a significant victory—for the first time Congress has recognized the difference between large and small credit unions).
4. The Federal Home Loan Bank system is fully exempt from the CFPA (a big relief for community banks).
5. The “plain vanilla” requirement has been dropped.
6. The requirement for “reasonableness standards” in products and disclosures has been dropped.
7. Nonbank financial services providers are subject to CFPA regulation. (This levels the compliance playing field between community banks and nonbank financial firms that compete against already-overregulated and -overburdened community banks.)
8. Community Reinvestment Act regulation and compliance stay under the full authority of the bank regulatory agencies.
While these are important concessions for community banks, ICBA is far from satisfied with the current bill and will continue to push for additional community bank-friendly changes.
ICBA recognizes that CFPA is a top presidential priority and a top priority of House and Senate leaders, with large majorities in each chamber backing them up. Taxpayers and consumers (read voters) are angry and want some form of legislative action as payback for the abuses and more than $2 trillion in taxpayer money that was directly injected into or used as guarantees to prop up the nation's largest financial firms. Therefore, in one form or another, additional consumer regulation is likely to be enacted. That is why ICBA is working hard to ensure that any CFPA that might be established be properly structured and directed to impose meaningful supervision on the financial bad actors that triggered the financial crisis, and not on the community banks that acted responsibly.
Just as you will always have bank examiners visiting you every 12 to 18 months, the nonbank financial firms should also have regular examinations. CFPA could do that if properly focused. That is why we opposed the auto dealers’ exemption amendment. All lenders, whether banks or nonbanks (including the subsidiaries of the too-big-to-fail financial firms), should compete under the same rules. Achieving that is part of ICBA’s plan.
The important thing is that ICBA is at the table and has the ear of policymakers, as our successes thus far show. We have avoided some real burdens for community banks, and we will continue to work very hard to avoid even more. Together with our member community banks, state association affiliates and ICBA leadership bankers, we can achieve more.
At ICBA, we are focused on only one thing—community banks! The megabank, too–big-to-fail crowd and unregulated financial brokers can take care of themselves. They have huge individual lobbying shops and several national trade groups that represent them.
ICBA will continue to represent community banks proudly and aggressively, so that when this is over community banks will stand on equal footing with Wall Street and unregulated firms—no longer third-class passengers on the financial ship. We are a nation of laws, we should all be subject to the same laws, and those laws should be equally enforced—on big and small alike.
ICBA is proud to be the voice for community banks because we are proud of our community banks and our great nation. I know you are proud to be a community banker, and I hope you will help us secure your bank’s franchise and future in this nation’s financial industry.