Finding the Right Solutions: What Will the New Congress Do?

By Verdier, Steve; Ence, Ron et al. | Independent Banker, February 2009 | Go to article overview

Finding the Right Solutions: What Will the New Congress Do?


Verdier, Steve, Ence, Ron, Jones, Ike, Stetter, Aaron, Kratovil, Jason, Rappaport, Renee, Merski, Paul, Independent Banker


REGULATORY STRUCTURING, DEPOSIT INSURANCE COVERAGE, CREDIT UNIONS, CREDIT CARD PRACTICES, TAX CUTS AND MORTGAGE LENDING STANDARDS STAND HIGH ON THIS YEAR'S COMMUNITY BANKING CONGRESSIONAL AGENDA.

ICBA STAFFERS WEIGH IN.

[overview]

BY STEVE VERDIER

Your ICBA government relations team has its work cut out for it this year. The financial crisis has put regulatory restructuring, deposit insurance and bankruptcy on the 111th Congress's agenda in a major way. During his campaign, President Obama promised middle-class tax relief, and he and Congress must decide what to do about tax cuts that expire in 2010. So tax reform is a major possibility.

And then there are a series of leftover challenges: closing the industrial loan company loophole; mortgage lending and credit card practices; credit card interchange; and the never-ending battles over credit union mission creep and their unfair tax exemption.

With this lineup of 2009 legislative issues, your involvement in ICBA and your personal relationships with your senators and representatives have never been more important. Every member of Congress-regardless of his or her committee assignments-can affect the franchise value of your community bank. Get to know the members of your congressional delegation and tell them what's important to you and your community.

In the following pages, ICBA's legislative experts highlight the issues community bankers face in the new Congress. Please check your e-mail daily for new developments in ICBA NewsWatch Today and look for special alerts on congressional actions.

[challenge #1]

BY RON ENCE

Revamping Regulatory Structure

To borrow a phrase from the famous movie Network, Congress "is mad as hell and isn't going to take it any more." Members of Congress are looking for someone to blame for our current economic mess-and they have their sights set on the regulatory agencies. And they might not be far off.

After all, if actions have consequences, someone should have seen where "irrational exuberance" would lead.

So one of the top priorities of the 111th Congress will be to take a cold, hard look at our financial regulatory structure with the aim of making improvements that reduce the likelihood of another economic collapse. It's a tall order.

As of this writing, Congress, with its increased Democratic majorities, and the Obama administration have not indicated exactly where they want to go. The Bush administration released the Treasury's Blueprint for a Modernized Regulatory Structure in spring 2008. Let's hope that is not a template for Congress and the new administration. The Blueprint plan would eliminate charter and regulator choice, do away with the dual banking system, permit affiliations between banks and commercial firms, and abolish the community banking system as we know it today. It is a recipe for disaster.

There are two things that we know for sure. First, community banks did not cause the economic collapse. Community banks are prudent, conservative, common-sense lenders that still abide by that old adage-lend money only to people who can pay it back. So we want to be sure that whatever Congress decides to do, it doesn't destroy the one segment of the financial services sector that is actually working.

Second, our financial system has become too concentrated. Today, the four largest banking companies control more than 40 percent of the nation's deposits and more than 50 percent of the industry's assets, according to the FDIC. That is not asking for trouble. It's begging for it.

ICBA has developed a set of core principles which we will be sharing with Congress and the administration:

1 Our financial system is over-concentrated. Systemic-risk institutions should either be broken up or required to divest sufficient assets to no longer pose a systemic risk. And the 10 percent nationwide deposit cap should be tightened. …

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