Fighting a Two-Front War:
Why We Fight for Financial Reform
I attended the Virginia Military Institute. At VMI, I was taught that one of the basic principles of war is to avoid a two-front war. Unfortunately, for many years community banks have been fighting a two-front war, and it has been eating away at our industry from both sides.
On the one front, we have the megafirms eating away our market share with favored government treatment (too-big-to-fail), easier access to cheaper funding and unprecedented political influence. On the other front, the unregulated "shadow" banking industry has been picking away at community banks for years with lower or no compliance costs, little oversight and much greater flexibility to offer practically any sort of financial product to a consumer. The net effects on community banks from years of fighting a two-front war are that our funding costs are higher, our margins are much lower, our compliance burdens are staggering and our flexibility is restricted—putting community banks exactly where the shadow industry and the megabanks want us.
Now comes a determined effort by the administration and the Congress to enact financial services reform, and community bankers everywhere need to realize that this is their moment. We have a chance to strike hard on each front and finally achieve a measure of parity with the Wall Street megafirms, while bringing the “shadow” financial industry under the same rules that we are forced to play by. Of course, the megafirms and the “shadow” financial industry don't want that, so they use their own national trade groups and allied associations to carry their water to confuse, obscure and blur the issues—anything to prevent a real reform bill from passing. These two groups create "boogeymen" to scare community bankers into thinking that somehow real reform means vast new burdens, restrictions and costs, when what it really means is that if nothing is done then the staggering burdens remain on your backs while the unregulated financial industry and megafirms continue to enjoy the status quo—which is little or no regulation, cheaper access to funding and fewer restrictions. In other words, they continue to enjoy enormous competitive advantages.
Is that really the result you as a community banker want? Do you want to continue to fight the two-front war until you are so beaten up from each direction that there is little value left for you, your franchise, your family and your community? At ICBA, we are focused on only community banks, and our objective is to bring parity, equal access, flexibility and par funding for community banks. If we must stagger under consumer protection regulations (which we are), then all financial market participants—bank and nonbank credit providers alike—should have to follow the same regulations. If Wall Street can access funding at cheap price points, then community banks should have the same opportunity. If stakeholders at too-big-to-fail megafirms are totally protected by the government, then community bank stakeholders should enjoy the same privileges—or none of us should.
In short, all firms should be treated equally under law—if it is good enough for the Declaration of Independence, it certainly should be good enough for the financial services industry of the United States. That is why ICBA really wants a financial reform bill that will bring fairness for community banks.
Urge your congressman to vote for financial reform that brings real parity to the financial services industry and no longer tilts against community banks. Real reform is good for you, your bank, your investors and your community. Get a hold of your congressman and your senators and tell them to support real financial reform. Let’s end too-big-to-fail; let’s bring meaningful regulation to the shadow industry and the nonbank subsidiaries of the megabanks that caused this economic train wreck; and let’s have equal access to funding and credit and liquidity programs. Let’s put Main Street on the same footing with Wall Street and truly have a nonbiased financial system—not one that favors one sector over another. Let’s pass meaningful regulatory reform.