Wisconsin Bankers Association: Congress fails to address root causes in financial reform

For more information, contact:

Eric Skrum, Wisconsin Bankers Association

608/441-1216, eskrum@wisbank.com

Legislation will punish “Main Street” along with “Wall Street”

MADISON, WI – The financial regulatory reform overhaul passed by the U.S. Senate yesterday fails to address the root causes of the housing collapse and subsequent financial crisis, according to the Wisconsin Bankers Association (WBA), which represents 300 federally insured banks of all sizes and their 30,000 employees. The result is that consumers will remain vulnerable to predatory practices that led to the crisis in the first place, while already heavily regulated and examined traditional banks that are the foundation of economic development and job growth will be burdened with more compliance costs and production restrictions.

“The nearly 2,000-page bill passed by the U.S. Senate yesterday, and similar legislation passed by the U.S. House last year, punishes innocent community banks along with guilty Wall Street investment banks and other financial firms,” commented Kurt R. Bauer, WBA’s president/CEO. “Wisconsin’s FDIC-insured banks didn’t make subprime loans and didn’t speculate with risky derivatives, a fact acknowledged by many key federal lawmakers and even the president throughout the reform debate.”

Although blameless, community banks will nonetheless suffer from at least 30 new or expanded regulatory requirements under the Senate bill, Bauer explained. “Banks have already seen their compliance and other operational costs skyrocket over the last two years, which have impaired their ability to lend.” The bill, Bauer said, will unnecessarily make the burdens far greater and will further restrict bank lending to businesses and consumers. “If bank lending is the lifeblood of job growth and economic recovery, then this bill will act as a tourniquet.”

Bauer said that while he doesn’t think Congress intentionally targeted Main Street community banks, they nevertheless became acceptable collateral damage in the effort to punish Wall Street. “Congress failed to heed our repeated warnings that smaller banks are more vulnerable to new burdens than the mega Wall Street firms.”

Bauer said that many of the provisions included in the reform bill address issues completely unrelated to the financial crisis. “The bill degenerated into a vehicle for special interests to achieve long sought after policy objectives.” A provision that places government price controls on the debit card interchange system is one example. “Big box retailers wanted the price controls to reduce their costs and increase their profits at the expense of consumers who will inevitably pay more.”

Bauer was also critical of including traditional banks under the jurisdiction of the Consumer Financial Protection Bureau (CFPB), a new government bureaucracy that is estimated to cost taxpayers at least $500 million a year. “Banks aren’t guilty of systemic violations of consumer protection laws because federally insured depositories are the only sector of the financial industry to face regularly scheduled in-house exams. Why add another costly and unnecessary regulatory layer on top of what already exists,” he asked.

CFPB should focus exclusively on lightly regulated and completely unexamined lenders, like mortgage brokers, Bauer said. “Giving CFPB any jurisdiction over banks will only distract it from creating a sorely needed nationwide regulatory and examination system for nonbank lenders – the same lenders that are guilty of most of the mortgage lending abuses that led to the housing bubble and collapse.”

“Wisconsin banks recognize and support the need for financial regulatory reform that, among other things, ends too-big-to-fail and closes the regulatory and examination loopholes that left consumers exposed to predatory and, in some cases, fraudulent practices,” Bauer said. “Unfortunately, the bill passed by the Senate yesterday and the one passed by the House last year must be considered a missed opportunity to achieve meaningful and targeted reform.”