On July 15th , the Full committee of the House Financial Services Committee held a hearing on the banking industry perspectives on the Obama administration’s financial regulatory reform proposals. Testifying were Steve Bartlett-Financial Services Roundtable, John A. Courson- Mortgage Bankers Association, Chris Stinebert- American Financial Services Association, Steven I. Zeisel- Consumer Bankers Association, Professor Todd J. Zywicki- George Mason University, Denise M. Leonard- National Association of Mortgage Brokers, Edward L. Yingling- American Bankers Association, R. Michael S. Menzies- Independent Community Bankers of America.
In his opening statement, Chairman Barney Frank explained that there are lots of opinions and complaints with regard to the Obama administration’s financial regulatory reform proposals. He believes that these opinions and complaints are important during the establishment of this new regulation. He anticipated today’s discussion from the banking industry perspectives could contribute to the better regulation. The testimony is summarized below and copies of the written statements are available on the committee’s web site at
The witnesses are the recognized voices on banking, securities, insurance companies and mortgage broker industry. Most of the witnesses support “the bold, comprehensive financial regulatory reform to strengthen the ability of our financial markets to serve consumers and support the economy.” said Steve Bartlett, President and Chief Executive Officer, The Financial Services Roundtable.
However, the witnesses also offered their opposing points on Obama administration’s proposal:
Consumer Financial Protection Agency
Most of the witnesses strongly oppose the establishment of the new agency. “We strongly oppose the creation of a separate, free-standing Consumer Financial Protection Agency” because in part he believes that “consumer protection and safety and soundness should not be separated.” said Mr. Bartlett.
“Establishment of a regulator along the lines proposed would worsen the patchwork of federal and state laws resulting in uneven protection and increased costs for consumers.” said John A. Courson, President and Chief Executive Officer, Mortgage Bankers Association. Also, he worried that the CFPA could not give enough attention to mortgage products. “Because the new regulator would not be solely focused on mortgage regulation and products, there is a very real danger that mortgage products may not receive sufficient priority.” said Mr. Courson.
“There is no evidence that consumer ignorance was a substantial cause of the crisis or that the existence of a CFPA could have prevented the problems that occurred.” said Professor Todd J. Zywicki, George Mason University Foundation Professor of Law and Senior Scholar, Mercatus Center at George Mason University. “I have no affiliation with the “banking industry” except as a customer.” said Mr. Zywicki.
Sophisticated, Customized Derivatives
“The Roundtable recommends that standardized derivatives are cleared through a regulated clearinghouse to provide more transparency and to reduce systemic risk within the industry. However, clearing sophisticated, customized derivatives should not be required because they allow flexibility for institutions to meet their customers’ needs.” said Mr. Bartlett.
The Authority of Federal Reserve Board
“We must emphasize, however, that the Board should not be an additional super-regulator. Rather, it should work with the prudential regulator in non-emergencies to address potential systemic risks. Moreover, the Board also should not publicly identify systemically significant institutions (“Tier 1 Financial Holding Company”), as proposed by the Administration; it should focus its priorities and focus on activities and practices across the entire financial system, not individual institutions.” said Mr. Bartlett.
“Further, requiring each Tier 1 FHC to comply with the nonfinancial activity restrictions of the Bank Holding Company Act does not address a cause of the current credit crisis or threat to the safety and soundness of the financial system.” said Mr. Bartlett.
Resolution Regime for Insolvent Nonbank Financial Institutions
“The Administration’s legislative draft, relies too heavily upon the FDIC to act as a receiver or conservator for such institutions…We also oppose funding such an authority with assessments of all systemically significant institutions.Furthermore, the FDIC's Deposit Insurance Fund, the Securities Investor Protection Corporation, and the state insurance guarantee funds should be retained and protected for their original intended uses.” said Mr. Bartlett.Clearly,there are concerns that under the requirement of the proposal the deposit insurance fund of FDIC will be jeopardized.
Restriction of the Activities of Financial Institutions
“The Roundtable supports increased regulatory oversight of the financial affiliates of commercial companies to assure that such finance companies continue to provide this much needed credit in a safe and sound manner, but cautions against proposals that eliminate or severely restrict the activities of such institutions.” said Mr. Bartlett.
Plain Vanilla Mortgage
“The proposed regulator has the potential to roll back the clock 30 years, when consumers only had plain vanilla borrowing options.” said Chris Stinebert, President and Chief Executive Officer, American Financial Services Association.
“However, mandating the offering of some type of “plain vanilla” mortgage product would have the impact of reducing consumer choice and increasing costs for consumers. A better approach would be to continue to improve and clarify the current effort to ensure strong underwriting by ensuring the ability to repay a loan by prospective consumers. Strengthening underwriting is a more effective approach than attempting to proscribe specific products for consumers.” said Mr. Bartlett.
“NAMB is worried about the unnecessary additional costs of developing new products, questionnaires, and opt-in disclosures that would likely be passed-on to consumers if institutions’ product offerings are overregulated.” said Denise M. Leonard, Vice President, Government Affairs, National Association of Mortgage Brokers.
Industrial Bank Charter
“We do not believe that the elimination of the industrial bank charter is warranted to benefit customers. To the contrary, it would be the worst time to eliminate the charter, as this would lead to further job loss.” said Mr. Stinebert.
The financial reform proposes that companies that own an FDIC-insured thrift, industrial loan company (ILC), credit card bank, trust company, or grandfathered depository institution are required to become BHCs. However, lots of conflicts of interest involved in the industrial bank charters. Bankers can use bank charters primarily to access payment systems and avoid state usury laws.
“The CFPA grants broad authority to impose fees and assessments on “covered persons.” NAMB is concerned that those regulated on the state level, such as mortgage brokers, may be forced to pay more to do business, which will place such entities at a competitive disadvantage and will ultimately increase costs for consumers.” says Ms. Leonard.
Thrift Holding Companies
“Thrift institutions have taken the lead in re-establishing economic growth – whether it is the thrifts that are lending to help rebuild New Orleans, or those that are leading community development plans from coast to coast to put Americans back to work.” said Edward L. Yingling, President and Chief Executive Officer, American Bankers Association.
On the other hand, the elimination of thrift holding companies may hurt the bankers's profits.Financial reform proposes to eliminate thrift holding companies because “significant differences between thrift holding company and BHC supervision and regulation have created material arbitrage opportunities. “
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