Three Cheers for Community Banks
Yesterday, ICBA and community banks won passage of three landmark ICBA-inspired and -backed amendments that go far toward creating a fairer and more-balanced banking and financial services system for the nation’s community banks and for Main Street America.
As you know, over the past 30 years community banks have become more and more disadvantaged vis-a-vis their megabank brothers. In numerous ways the deck has become unfairly stacked against the community banking industry in favor of the Wall Street barons.
Yesterday, the House Financial Services Committee took meaningful steps to reverse these imbalances—and injustices—by passing a series of amendments that would bring greater fairness to the deposit insurance assessment formula; prefund a systemic-risk fund so that your community bank and all community banks never again are punished for the sins of the megafirms that were reckless or overtaken by greed; and set up a procedure to actually dismantle systemically dangerous financial firms. These three amendments are at the heart of ICBA's "too-big-to-fail" agenda and advocacy efforts.
First, Rep. Paul Kanjorski (D-Pa.) offered his systemic-risk amendment that would create a formal process for reining in, and in certain cases dismantling, financial firms that are deemed systemically dangerous to our nation’s economy. Rep. Kanjorski’s amendment passed with the public support of ICBA, and despite the open opposition of several financial trade groups in Washington. ICBA has been the only national trade group calling for the dismantling of systemically dangerous firms should they become unstable.
Next, Rep. Luis Gutierrez (D-Ill.) offered two important ICBA-inspired and -supported amendments. Both amendments were essential features of the FDIC Fairness Act (H.R. 2897) introduced by Rep. Gutierrez earlier this year. The first of the two amendments, which is cosponsored by Rep. Donald Manzullo (R-Ill.), would change the FDIC assessment formula to be based on total assets minus capital—a change that ICBA has strongly advocated since the financial crisis and megabank bailouts began. This amendment passed the committee on a voice vote with no opposition. The amendment’s provisions alone will save the community banking industry $4.5 billion dollars over the next three years.
Even better, the ICBA-advocated FDIC assessment formula is in the base text of the financial reform package introduced last week by Senate Banking Committee Chairman Christopher Dodd (D-Conn.). Therefore, the FDIC assets-based formula is now included in both the House and Senate reform bills.
The second Gutierrez amendment to pass the committee would prefund a systemic-risk resolution fund that all financial firms over $50 billion in assets would be required to pay into. This ICBA-priority amendment was the other core provision of H.R. 2897. The purpose of this systemic-risk fund—which, critically, would be administered separate and apart from the Deposit Insurance Fund—is to force systemically dangerous financial firms to pay for their own failures, rather than continue the current system where the community banking industry must contribute to staggering and burdensome special assessments and prepaid levies for megafirm failures. The amendment also would protect taxpayers from having to bail out systemically dangerous firms.
All three amendments, which passed by strong margins, essentially would enact ICBA’s core principles to deal with and end the destructive policies of too-big-to-fail.
I want to express my deepest gratitude to the thousands of ICBA community bankers who rallied to support these amendments and made yesterday a banner day for community banking. Your voices are indispensable to our industry’s public policy successes.
I also want to thank our many state banking association affiliates for their unwavering support and courage in backing the Gutierrez amendments when many critics said the measures could never advance through the Congress. Those associations energized community bankers in their states, and the impact was felt greatly in Washington.
Working together the community banking industry can accomplish great things, for our industry and for all of America. Yesterday was a testimonial to that fact.
As we enter the Thanksgiving holiday period, community banking has much to be thankful for. As the result of a team effort, our beloved community banking industry is on more solid and even ground today with the Wall Street megafirms. We have taken big steps toward closing the competitive and regulatory gaps that have been unfair to community banks and have severely harmed our nation.