Tags: Dodd-Frank | bank | financial | crisis

Sen. Warren Tangles With Banking Lobby

By    |   Friday, 13 February 2015 07:57 AM

The Senate Banking Committee, chaired by Sen. Richard Shelby, R-Ala., held a hearing Feb. 12 titled "Regulatory Relief for Community Banks and Credit Unions." The industry got a bill through near the end of the last Congress, and now, with the turn of the year, it is back with a more comprehensive agenda.

In his opening statement Shelby called for a bipartisan effort to produce a bill to provide further relief, because in his view, "Something substantive must be done to relieve the regulatory burden on institutions that provide essential banking functions to communities all across this country."

This writer would suggest that changes in the economy and the advent of technology have clouded the issue of whether banks are essential or "special" to the economy to the extent they were when the economy was dominated by agriculture. However, given two years of control by one party, and indications of support by the minority, it is almost inevitable that a product will emerge, perhaps even one that the president will sign.

However, a cautionary note was sounded by Sen. Sherrod Brown, D-Ohio, who stressed that the provisions of a bill should go through a thorough vetting process. Prudence is also in order given the more outspoken remarks of Sen. Elizabeth Warren, D-Mass., who seems to be gaining some traction as a potential presidential candidate in part by working with Brown on legislation that would require the largest banks to raise additional capital, cut out some activities and submit to accountability for alleged fraud and corruption that Warren and other critics blame for the 2008 episode of the ongoing financial crisis.

Warren declared herself "very skeptical" that community banks face a crushing regulatory burden when they are "doing great," with earnings increasing by an average of 11 percent compared with 7 percent for the largest banks. She went on to accuse the main lobby represented, the American Bankers Association (ABA), of sending a community banker to make the case for relief from mortgage regulation when the ultimate beneficiaries of relief will be the riskiest, "too big to fail" banks at the center of the 2008 mortgage bust.

Among the witnesses, two represented a couple of the most powerful lobbies in Washington, the ABA and the Independent Community Bankers of America. The ABA has within it a group that also represents small banks, and many banks belong to both associations. The credit unions also had two witnesses. This industry is tiny as compared with the banks but very influential politically. The fifth witness, evidently named by the Democrats, represented the Center For Responsible Lending, a North Carolina enterprise that was very influential in the debate about the Dodd-Frank Act, particularly with regard to mortgage regulation. This panel as a whole contends that if regulatory relief is overly broad it will benefit the nonbank competitors of traditional lenders.

At the big picture level, this writer predicted from the outset that most of the flawed Dodd-Frank Act would never be implemented. A regulatory relief bill has the potential to chip away further at what little is left of Dodd-Frank and set the stage for the next episode of the ongoing financial crisis.

(Archived video and witness testimony can be found here.)

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The Senate Banking Committee, chaired by Sen. Richard Shelby, R-Ala., held a hearing Feb. 12 titled "Regulatory Relief for Community Banks and Credit Unions."
Dodd-Frank, bank, financial, crisis
Friday, 13 February 2015 07:57 AM
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