Lloyd Hendricks Something happened on the way to Wall Street reform. The legislation now in the final stages of Congressional approval was supposed to address the causes of the financial crisis and reorganize the way Wall Street does business to protect taxpayers from future crises. And important concerns like ending too–big–to–fail, creating a council that monitors potential risks to the broader economy, and closing some regulatory gaps are indeed addressed.

But the legislation also imposes tremendous new burdens and restrictions on traditional banks in South Carolina that had nothing to do with causing the crisis in the first place.

In short, this bill really hits Main Street, and its impact will not be positive.

By taking the widely recognized and agreed upon need for financial reform and directing it more at traditional banks, the legislation undermines the very banks that are needed to support economic growth and job creation. The bill that passed the Senate contains 30 new or expanded regulations that are applicable to community banks, and many of these regulations are not even remotely connected to the financial crisis. All these new burdens and restrictions will make it harder for bankers to make loans to consumers and small businesses in their local communities.

For example, the Senate bill contains an 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.

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 products are right for bank customers. Banks could reasonably conclude that it is not worth offering free checking accounts, lowcost savings programs, or other products that are specifically designed for local markets because they don’t have the bureau’s stamp of approval.

This kind of invasive oversight undermines the essence and strength of community banks — namely, the relationships they have with their customers.

Then there is the fact that even though the new consumer rules would apply both to banks and non–banks, enforcement against non–banks would be weak or nonexistent in many cases, since a strong infrastructure for examination and enforcement of rules for non–banks does not exist. How does that protect consumers from mortgage brokers or other financial entities outside the traditional banking industry that made a disproportionate share of toxic loans?

Even more astonishing is the fact that this new consumer bureau is given no authority over securities transactions. This bears repeating: the very essence of what separates Wall Street from Main Street—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 credibly be referred to as a Wall Street reform bill.

Bankers support financial reform and the current legislation contains some key provisions that the industry is behind. But the bill also goes well beyond these needed reforms and heaps ever more red tape and restrictions on banks that have always put customers first and had no hand in causing the financial crisis. Is this the kind of reform consumers were hoping for?
Contact: Lloyd I. Hendricks or
Penny D. Cothran
SC Bankers Association
Phone: 803-779-0850
Hendricks@scbankers.org or
PennyCothran@scbankers.org
PO Box 1483, Columbia, SC
29202 (2009 Park Street, Columbia, SC
29201)