Barr: Community Banks to Gain ‘Level Field’ with Reform

Michael S. Barr, Assistant Treasury Secretary for Financial InstitutionsA U.S. Treasury official told a group of community bankers today that they have much to gain from regulatory reform being considered in the Senate because it will “level the playing field” and prevent bigger banks from “shopping” for the weakest consumer protection standards.
Michael S. Barr, Assistant Treasury Secretary for Financial Institutions, stated the Obama Administration’s case for smaller banks to see the benefits of sweeping oversight provisions primarily aimed at their larger rivals.
The reform also targets the investment and trading houses labeled as players in the “shadow banking system,” made up of institutions involved in the banking business but not regulated as banks, Barr said.
“The Senate bill offers significant benefits to community banks,” Barr said in prepared remarks for the Independent Community Bankers of America. “First, the bill contains strong measures to put an end to the perception that some firms are ‘too big to fail.’  This perception has given the largest firms an unfair funding advantage over smaller banks.”
Barr spoke to the bankers hours before a procedural vote on the reform bill seemed headed for defeat in the Senate.
Sen. Richard Shelby, the top Republican on the Senate Banking Committee, said he expects today’s cloture vote to be defeated with all 41 Republicans opposing it. The vote is an attempt by Democrats to fast-forward debate on the legislation and avoid a filibuster. Sixty votes are needed for approval.
Shelby, though, said he is continuing to negotiate with reform bill author Sen. Christopher Dodd, Senate banking chairman, and is confident that a deal will be reached within days.
Barr said in his remarks that larger firms, not taxpayers or smaller banks, would bear the costs of the resolution of a failed firm and associated losses, he said. Dodd’s bill calls for an oversight council of regulators with the power to initiate an orderly dismantling of a failing institution.
“The bill would level the playing field for traditional banks by applying the same minimum standards to the unregulated financial firms in the shadow banking system that compete with them,” Barr said. “Today, more than 15 times as many federal dollars are spent on consumer protection oversight of banks as on nonbank financial service providers.”
The Bureau of Consumer Financial Protection, with rule-making authority over credit cards and mortgages, is a controversial component of Dodd’s reform bill. It would be housed within the Federal Reserve, but retain autonomy.
Consolidating consumer protection in a “single, accountable” entity would prevent the larger bank from “shopping” for the weakest protection standards on loans and other financial products.
“Community banks would continue to follow the federal consumer financial laws they follow today, but with assurances that their competitors would be held to the same minimum federal standards,” Barr said.

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