December 15, 2009
Art Johnson, ABA Chairman
Regulatory Reform – An Update and a Call to Action
On December 7, I sent you a “Halftime Report” in which I said ABA thought the House would pass narrowly the financial regulatory reform bill. That is what happened last Friday, when the bill passed 223-202, with all Republicans and 27 Democrats voting against it. However, there were some important developments I wanted all of you to be aware of. More important, we need all bankers to commit to contacting your Senators early and often about this legislation, which now moves to the Senate.
The House: Where We Stand
ABA was one of the first to support much needed reform. For example, we support the creation of a systemic oversight council and the closing of regulatory gaps, such as in the case of derivatives and hedge funds. We support a strong resolution system for failed institutions that ends too-big-to-fail. However, we have consistently opposed the House bill, and for good reason.
As I previously reported, during the committee process we were able to block some negative amendments and add some good ones, including an exemption (although not a complete one) for banks under $10 billion from examinations by the Consumer Financial Protection Agency (CFPA) and an amendment requiring that the powerful new systemic oversight agency review FASB’s proposed rules. We were able to protect charter choice through the retention of the thrift charter, although we have clean-up work to do there.
On the House floor, we also had some positive results. One important change adopted on the floor was the ABA-supported Melissa Bean (D-Ill.) amendment that restored, for the most part, federal preemption for national banks and federally chartered thrifts. Your state association executive will tell you that preemption is important for all banks; if it is removed, as the Administration wants, it will set off an avalanche of state and local laws and regulations that will apply to all banks.
An amendment to add mortgage bankruptcy cramdown to the bill was defeated on the floor by a strong majority. Given that this amendment had passed the House earlier this year, our win is a strong reflection of the hard work of the state associations and grassroots bankers last week. Since the cramdown concept has now been defeated in both the House and Senate this year, hopefully it will not be brought up again.
Also defeated was an amendment that would have removed the ABA-supported provision that exempted publicly traded firms of less that $75 million in market capitalization from the infamous Section 404 of Sarbanes-Oxley. Therefore the exemption from 404 remains in the bill.
An ABA-supported amendment on the CFPA narrowly failed, 223-208, in the face of strong lobbying by the House Democratic Leadership and the Administration. This amendment, offered by Rep. Walt Minnick (D-Idaho), would have changed the CFPA’s structure to a council of existing regulators and removed its unprecedented powers to control bank products and the way they are offered. While we are disappointed it was defeated, the narrowness of the vote sends a strong signal to the Senate that the CFPA is a bad idea.
Although there are positive provisions in this bill — some that will help the bottom line of community banks, at least in the short term, and some that will set up a better and fairer regulatory system — overall it is a negative bill for our industry. It will increase our regulatory costs dramatically, make it much more difficult to compete, and undermine institutions that are critical to our financial system. While we made important improvements, the CFPA is still a huge problem — an agency that seems set up to turn banks into utilities, with massive power to write regulations over our products, the manner in which we offer them, and even how we compensate our employees. As I outlined in my last report, the bill also undermines the role of the FDIC as an insurer of bank deposits, weakens the FHLB System, and runs the risk of destroying the independence of the Fed. And don’t underestimate the unintended consequences of this truly massive bill.
Throughout this year, ABA and all the state associations have been united in our opposition to this bill and in our strategy on it. We worked night and day to improve it and to block bad amendments, with the help of grassroots bankers across the country, who we estimate have sent 300,000 letters to Congress this year. After this bruising House battle, we are ready for the Senate, where our positions seem to have stronger support, as we had thought they would.
The Senate: What’s Ahead and What You Can Do
To be successful in the Senate, we must have a united message. And that is why I am truly saddened by what I am about to report to you. I do this not to cast blame, but in the hope we can fix this and be united as we go to the Senate.
Last week, I was on the daily conference call of the ABA lobbying team and the state associations when it was announced that ICBA was supporting the House bill going to the floor. I must say there was shock and disbelief because all the states had just reported that their bankers remained strongly opposed to the bill. All of ABA’s officers are community bankers, as are many members of the ABA Board, which voted unanimously to oppose the bill. Many of the states had recently had similar formal votes. A number of the state associations are jointly affiliated with ABA and ICBA, and they all oppose the bill, as apparently do some of the ICBA state associations.
Others were surprised as well. Roll Call, the Capitol Hill newspaper, said the Republican leadership “specifically called the Independent Community Bankers of America on the rug for supporting the regulatory reform legislation.” The same newspaper then quoted a top ICBA lobbyist as saying about the bill: “It’s got the balance we’re looking for, regulating the unregulated and leaving community banks more or less alone.”
This split message, with ICBA indicating support for the bill and ABA opposing, hurt us in the House. We had several close votes we lost, such as the one on the Minnick Amendment. Had the message been unified, we could well have had a better bill. I am hopeful we can be united in the Senate. Right now, Republicans are firm in their opposition to the Dodd draft bill, which is much worse than the House-passed bill, and contains the full CFPA. A number of Senate Democrats are also raising questions about the CFPA and other provisions. We reached out to ICBA, and we sent a joint letter opposing the single regulator concept in the Dodd draft, a concept that could eventually kill the dual banking system. We are optimistic the single regulator will be defeated. But if we have a conflicting message in the Senate — a message that says some in the industry can support a bill like the House bill — we will lose our ability to achieve much more workable regulatory reform, and we will invite the enactment of a bill that will truly hurt us badly for years to come.
ABA will reach out to ICBA; we will work for unity. Joined by our state association colleagues who have done so much, we will work tirelessly for the future of our industry. But we will need all of you to help. So as one of your New Year’s resolutions, please vow to do everything in your power to show, and to have your colleagues in your bank show, your Senators the right path to true reform.
Thank you for your support