Tags: Senate | bank | credit union | regulation

Senate Banking Committee Looks at Small Banks

By    |   Tuesday, 30 Sep 2014 08:01 AM

The Senate Banking Committee, chaired by the retiring Sen. Tim Johnson, D-S.D., held a long hearing recently titled "Examining the State of Small Banking Institutions." Two panels of witnesses testified, representing regulators and the industry. This article will cover the panel of regulators.

In this election year, Senators are eager to produce legislation that will please constituents and clients in the community banking industry. Therefore, they spoke of the importance of community banks to small-town and rural economies and repeated complaints by bankers, voiced perennially, that they are subject to virtual persecution by regulators but afraid to complain for fear of retribution.

The witness for the American Bankers Association spoke of an "avalanche" of regulation, ignoring for the moment the "avalanche" of government benefits that go with a banking charter. With those benefits goes a measure of examination and supervision by regulators who are generally quite sympathetic to the industry.

A considerable amount of time was devoted to credit unions, which can claim 100 million members but have a modest impact on the economy. Their business is based on a "cooperative" format, and traditional bankers have waged a cold war against them over the issue of favorable tax treatment as nonprofit entities. However, their lobbying clout is formidable, and it used to be that a good way to pass a banking bill was to lead with a provision supported by credit unions.

Credit unions are regulated by the National Credit Union Administration (NCUA), which is seeking authority similar to what the FDIC already has to examine the activities of third-party vendors whose services might entail risks such as identity theft. An industry witness on the second panel objected that these firms are run by credit unions themselves and are already subject to examination by the NCUA.

No cliche of platitude was left behind at this hearing. In his opening statement, Johnson spoke of the need to "strike the right balance" between providing regulatory relief and taking account of the lessons of the financial crisis. The senior Republican, Michael Crapo of Idaho, spoke of his experience in 2006 working on a regulatory relief bill and being disappointed with the results.

Several Senators spoke of their hopes that Congress would pass more meaningful legislation this time around, and the scope of such a bill is likely to be one of the major issues Congress considers during the "lame duck" session that will convene after the election. The bill could be very perfunctory, could include some surprise amendments on any subject or could be put off again until the next Congress.

In response to a question from Johnson as to the biggest risk facing community banks, Maryann Hunter, deputy director of the Division of Banking Supervision and Regulation at the Federal Reserve, departed from the theme of platitudes and gave a sober assessment of the state of the industry when she responded that the biggest risk is in lending in the present low-interest-rate environment as community banks face increased competition from nonbank lenders.

(Archived video can be found here.)

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The Senate Banking Committee held a long hearing recently titled "Examining the State of Small Banking Institutions." Two panels of witnesses testified, representing regulators and the industry. This article will cover the panel of regulators.
Senate, bank, credit union, regulation
507
2014-01-30
Tuesday, 30 Sep 2014 08:01 AM
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