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Obama Banking Regulation Bill Does Not Go After Big Banks

Op-Ed: Too Politically Connected to Fail

Eric Sandberg, President & CEO, Texas Bankers Association, Austin
Mason County News
Thursday, April 22, 2010

The Obama Administration and Democratic Congressional leaders are misleading the American public. Their financial regulatory reform bill, which could soon reach the Senate floor, is promoted as protecting consumers from fat cat bankers. Unfortunately, the bill takes aim at the wrong parties and comes down against the state’s traditional community banks—the ones that did not cause the economic mess in the first place—and exempts most of the investment bank and broker dealer activities that were responsible for the financial collapse.

In touting their bill, proponents have made several statements that, upon further analysis, are misrepresenting the legislation. For example:

. Proponents say the bill will prevent future bailouts. As passed by the Senate Banking Committee, the bill allows for endless taxpayer bailouts of Wall Street banks. Currently, there is a provision in the bill that would create a $50 billion resolution fund to pay for the liquidation of at-risk organizations.

. Proponents say the bill will put an end to “Too Big to Fail.” While it addresses “Too Big to Fail,” the bill still leaves loopholes for the government to prop up faltering institutions it deems to be systemically important. Any big banks in the future with connections, like Fannie Mae, Freddie Mac or Goldman Sachs, could lobby Washington to bail them out.

Here’s what the bill will do:

. It will create a huge new bureaucracy in the form of the Consumer Financial Protection Bureau. This new entity would conflict with safety-and-soundness regulators, and it would not afford the same regulatory scrutiny to non-banks — non-regulated and non-FDIC insured financial institutions.

. It strips the Federal Reserve of its regulatory role of state member banks, a costly and unnecessary change for affected banks.

. Because of the broad authority granted to the CFPB, its regulatory czar could have the authority to dictate the products and rates banks offer to customers, to the point that a person with excellent credit could be charged the same rate as another with poor credit.

. The bill fails to address one of the major factors that led to the excessive amounts of foreclosures: The pressure the past few Administrations have placed on lenders to ensure all Americans realize the dream of homeownership at any cost.

Most Texas banks are financially healthy and sound. They did not engage in risky lending practices. They did not make subprime loans. They have, instead, been the economic engines of recovery by continuing to make credit available to businesses and consumers in a very difficult economy. Yet, this bill takes aim at community banks by subjecting them to numerous new and costly regulatory requirements, often on issues that have nothing to do with the financial crisis, while ignoring the investment banks that caused the mess in the first place. Because of this, Texas bankers oppose the Administration’s regulatory reform legislation.

While Texas bankers are in favor of sensible regulatory reform that addresses critical issues such as too big to fail, adequate regulation of non-bank lenders and revisions in consumer protection rules, the bill that is soon coming to the Senate floor fails to do any of that.

The Texas Bankers Association (, founded in 1885, is a statewide association that represents 86 percent of Texas banks, from the smallest to the largest banks in the nation.

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