It should direct systemic risk authorities to develop procedures to downsize the too-big-to-fail institutions in an orderly way.
Washington, DC (Vocus) July 16, 2009
The Independent Community Bankers of America (ICBA) today urged Congress to craft a financial services regulatory reform program that reduces systemic risk to our nation's financial system, protects America's consumers and establishes an FDIC fee for systemic-risk institutions.
"Our nation's more than 8,000 community banks continue to be well-capitalized, common sense lenders because they didn't participate in the risky practices that caused the economic crisis," said R. Michel Menzies, ICBA chairman and president and CEO of Easton Bank and Trust Co., Easton, Md. in his testimony before the House Financial Services Committee. "Still, community banks -- the cornerstone of our nation's local economies -- have suffered the effects from the recession and from the steps the government took to deal with the crisis, such as subsidizing too-big-to-fail institutions. It is now this committee's job to craft a program that will reduce the chances of risky and irresponsible behavior by large or unregulated institutions and to ensure that an economic crisis--like the one we now face--doesn't happen again."
Menzies applauded the Obama administration for tackling the ICBA-priority issue of reducing systemic risk. He said taking measures to reduce systemic risk and eliminate too-big-to fail is the best way to protect consumers. Rather than burdening well-regulated community banks and other banking institutions that have always treated their customers with respect and fairness, he said, consumer protection measures should target less-regulated nonbank financial entities that betrayed the trust of their customers. Additionally, he said that ICBA strongly recommends that rule-writing and supervision for community banks remain with existing agencies that coordinate both safety and soundness reviews and consumer-protection enforcement.
Menzies said that systemically-risky holding companies should pay fees for their supervisory costs and fund--in advance--a new systemic-risk reserve fund. He also said that ICBA strongly supports the Bank Accountability and Risk Assessment Act of 2009 (H.R. 2897) introduced by Rep. Luis Gutierrez (D-Ill.) that would require the FDIC to impose an additional fee on federally insured banks affiliated with systemic risk institutions. The additional systemic-risk fee would better account for the greater risks the largest institutions pose to the Deposit Insurance Fund. "To truly prevent the kind of financial meltdown we faced last fall, and to truly protect consumers, the plan must go further," Menzies added. "It should direct systemic risk authorities to develop procedures to downsize the too-big-to-fail institutions in an orderly way."
Menzies also urged Congress to establish an assistant Treasury secretary for community financial institutions position to provide an internal voice within the department for Main Street concerns, specifically the Administrative Support and Oversight for Community Financial Institutions Act of 2009 (H.R. 2676) introduced by Rep. Dennis Cardoza (D-Calif.). Additionally, he said that any final bill should maintain the thrift charter so community bankers can select the charter of their choice and follow business plans that are best adapted to their local markets and pose no systemic-risk.
"Even in the midst of this economic crisis, the nation's community banks continue to help their customers and communities recover," Menzies said. "It's vital that Congress do its part by ending too-big-to-fail and reduce systemic risk in order to protect consumers, local communities, and our entire financial system from the destabilizing effects that occur when a giant institution runs into trouble."
ICBA thanks House Financial Services Committee Chairman Barney Frank (D-Mass.) for holding the hearing and looks forward to working with Congress and the Obama administration to ensure that regulatory reform makes our nation's financial system and community banks even stronger than before the current economic crisis began.
The Independent Community Bankers of America, the nation's voice for community banks, represents nearly 5,000 community banks of all sizes and charter types throughout the United States and is dedicated exclusively to representing the interests of the community banking industry and the communities and customers we serve. For more information, visit http://www.icba.org.