Toyota, Toyota, Toyota … oh what a feeling! OK, now that I have your attention let’s get back to the “great” government takeover of 2010. With the national and world media focused on the BP oil spill and the World Cup and our local headlines most appropriately following the latest Toyota announcement, Congress is conferring this week on two bills that could have a major negative impact on community banks without the usual media microscope.
First in full disclosure, I’m employed by a Main Street community-focused bank and take full responsibility and advantage in taking our side versus big government’s side in this column. However, in a community that boasts two of the state’s largest banks as well as being home to many other traditional retail banks, it’s very important that Congress is held accountable for the overreaching action it is about to take while the world is distracted.
The federal legislation about which I’m writing was supposed to address the causes of the recent financial breakdown and reorganize the way Wall Street does business to protect taxpayers from a future crisis. While the legislation does address some important concerns, it imposes tremendous new burdens and restrictions on traditional Main Street retail banks that had absolutely nothing to do with causing the crisis in the first place.
In short, the bills being harmonized in Congress, the Wall Street Reform and Consumer Protection Act (H.R. 4173) and the Restoring American Financial Stability Act (S. 3217), really hit our community, our banks and you as a banking consumer hard. Their impact will not be positive.
By taking the widely recognized and agreed upon need for financial reform for Wall Street financial institutions and directing it more at traditional banks, the legislation undermines the very banks that are needed to support economic growth and job creation in our community. The bill that passed the Senate contains 30 new or expanded regulations that apply to community banks, and many of these regulations are not even remotely connected to the financial crisis. All of these new burdens and restrictions will make it harder for banks to make loans to consumers and small businesses in our local market economy.
For example, the Senate bill contains the Durban amendment that mandates government controls on the price retailers pay for accepting debit cards from their customers. This has absolutely no connection to the financial crisis and is little more than a subsidy to giant retailers at the expense of community banks and consumers. It’s another major government intrusion into our supposed free market economic system.
Another example is the proposed new consumer financial regulator. The authority granted to this new federal bureau is so broad and ill-defined that it essentially puts government in the business of deciding what services are right for banking customers. A bank in our community could reasonably conclude that it is not worth offering some banking services that are specifically designed for our customers because the services don’t have some far off bureaucrat’s stamp of approval.
This kind of invasive oversight undermines the essence and strength of community banks – namely, the relationships we all have with our customers. Some may need crop loans, agri-loans and other financial products specific to Mississippi’s traditional industries. How can Main Street banks serve our communities if we can’t tailor products to meet the specific needs of our customers?
Then there is the fact that even though the new consumer rules would apply both to banks and non-bank lenders, enforcement against non-banks would be weak or non-existent in many cases. What’s even more hilarious is that big Wall Street players like Goldman Sachs and Bank of America are actually supporting the bill. The dirty little secret is that they know small and medium sized community retail oriented banks will have trouble meeting the costs, time burdens and people needed to comply with these new rules. There is not a strong system for examination and enforcement of rules for non-banks like the one state and federal regulators use to examine strong banks like the ones in North Mississippi. How will this legislation protect consumers from mortgage brokers or other financial entities outside the traditional banking industry?
Even more astonishing is that this new consumer bureau is given no authority over securities transactions. This bears repeating: the very essence of what separates Wall Street from traditional banks – the buying and selling of stocks and bonds – is not even covered by the new agency. It is very difficult to see how this legislation can be referred to as a “Wall Street reform bill.”
We support financial reform, including some of the key provisions in this legislation. But, this bill goes way beyond these needed reforms and heaps ever more red tape and restrictions on relationship-minded retail banks. Congress has missed the target of reforming Wall Street firms and brokers that caused the recent financial crisis and have instead hit the traditional banks. As a result, our customers and communities will suffer. This is not the kind of big government reform consumers had in mind and that our community banks need.
John Oxford is a banker in Tupelo and a community columnist. Contact him at John_oxford@hotmail.com or Twitter:@johnoxford1.