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Friday, Mar 29, 2024

Bank Leaders Say Financial Reform Misses the Point

Reform Nearly two years after the financial meltdown, the financial services sector is now facing 2,500 pages of financial reform that would impose new regulations on banks. The Dodd-Frank Wall Street Reform and Consumer Protection Act includes provisions that aim to protect consumers, prevent firms from getting too big to fail and also seeks to better police risky activities that may leave taxpayers on the hook. While it’s not all bad, many local banks are concerned that the bill adds regulations and rules about many activities that had little or nothing to do with the crisis. “There’s a lot of concern because a lot of items on the legislation will have a significant negative impact on banks’ earnings,” said Jim Hicken, president and CEO of Bank of Santa Clarita. For starters the bill establishes an independent Consumer Financial Protection Bureau housed inside the Federal Reserve, which would police lending and take powers now exercised by various bank regulators. Although many of the provisions will have little or no impact on community banks, Hicken said increased regulatory oversight may translate into higher operating costs for some small banks. “From my perspective as a community banker, it puts an excessive burden on us. People say ‘Life’s not fair’, we are obviously paying the consequences for somebody else’s abuses.” Root of the problem According to Hicken, the financial meltdown of 2008 was mostly caused by large financial institutions and many community banks had no part in the fiasco. The banking industry is already heavily regulated and more regulation could hurt some community banks financially, he said. The fact that the bill essentially says nothing about Freddie Mac or Fannie Mae, two institutions involved in the mortgage crisis that took place, is also leading some bank insiders to say that the reform effort “completely missed the point.” “I think the one thing that has been missed in financial reform which is astounding to me is there isn’t any proposed regulation relative to Fannie May and Freddie Mac who are the big mortgage warehousing entities in the U.S. and they are kind of the safety valve in terms of what kind of mortgage products can be delivered in the marketplace,” said Dave Malone, President and CEO of Community Bank. “I think from my perspective, the bulk of the financial crisis occurred in large part because those two entities were not regulated properly. To have this financial reform and not have any regulation for those two agencies seems to be missing the point.” Overkill? While they agree that there were areas of abuse that needed to be dealt with and are in favor of consumer protection provisions that are included in the bill, bankers like Hicken believe the bill is an emotional reaction to what took place two years ago. “What’s coming out of Washington is absolute overkill,” he said. First Private Bank & Trust President Charles Jackson called it a populist reaction to the financial crisis of 2008. “I’m worried that we’re now going to go beyond consumer protection into social legislation,” he said. According to Malone, the bulk of the programs that banks have rolled out in recent years are beneficial to customers and he is concerned new regulations might not be in the best interest of people who find these products useful. “I would say perhaps there’s an overreaction on the part of Congress for consumer related regulation which basically addresses kind of the extreme aspects of what’s happened,” he said.

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