In the news

San Antonio Business Journal
Tamarind Phinisee

The proposed financial reform legislation, U.S. Senate Bill 3217, is getting a thumbs down from local community bankers.

With four banks controlling over 50 percent of the country’s banking assets, local community bankers concede that reform is needed to avoid a repeat of the financial crisis that thrust the country into the current economic downturn.

Still, they say, the proposed bill calls for too much regulation and is mainly directed at the “wrong industry,” including community banks.

Steve Scurlock, executive vice president of Austin-based Independent Bankers Association of Texas, says there are some good aspects to the bill. But, he says, ensuring that community banks are as minimally impacted as possible by whatever legislation passes is vital.

“Our fear is that right now, we’re dealing with an onslaught of new rules and regulations and potentially new laws if this thing does pass...,” Scurlock says.

The bill — dubbed the Restoring American Financial Stability Act — seeks to identify and respond to potential risks to the stability of the country’s financial markets and to promote discipline within the industry. It calls for the revision of regulations, standards and examinations of financial institutions, non-bank financial companies and bank holding companies, and it sets concentration limits for large financial institutions.

The legislation also would create a “safe” way to liquidate failed financial firms and imposes new capital and leverage requirements on large financial institutions.

On another front, it seeks to streamline bank supervision by abolishing the Office of Thrift Supervision and transferring its functions to the Office of the Comptroller of the Currency and the FDIC.

Additionally, the bill calls for the creation of an independent watchdog called the Consumer Financial Protection Bureau to regulate the offering and provision of consumer financial products or services.

Chris Cole, senior vice president and senior regulatory counsel with the Independent Community Bankers of America, says his organization has not yet endorsed the bill.

However, Cole says the bill does go a long way to ending the “too big to fail” banks by giving the FDIC authority to resolve and liquidate these institutions, and by setting up a systemic risk council to regulate them and establish a higher liquidity and capital requirements.

What his organization would like to see are more restrictions on the large mega-banks, including limits on their size and the types of activities that they can engage in as businesses.

Melissa Cubria, advocate with the Texas Public Interest Research Group, a consumer advocacy group, says that her organization will work with legislators to take steps to fix deficiencies within the bill. But, she says, so far it has several positive aspects.

“First, we will support amendments to make the Consumer Financial Protection Bureau a stand-alone, fully independent agency with full authority over all firms, including small banks and payday lenders,” Cubria says. “Further, the agency’s actions cannot be subject to a veto by a council dominated by the regulators who failed to protect us. That’s a coalition of the unwilling.”

Cubria says other provisions should include a guarantee that all shadow market players (including derivative, hedge and private equity funds) are clearly and effectively regulated, without exceptions.

Not on target

Broadway Bank President Shaun Kennedy says the proposed bill would add 27 new or expanded types of regulation, much of which would add significant expense to the day-to-day operations of community banks that “did not participate in or cause the current market conditions.”

“Any new regulations that are needed to address the current situations should be directed at mortgage companies and investment banks,” Kennedy says. “The media has done the community banking industry a disservice when it reports on problems in the banking industry. For the most part, these problems stem from investment banks like Goldman Sachs, Lehmann Brothers, AIG, and Bear Stearns, not community banks like Broadway Bank.”

Byron Bexley, chairman and CEO of TexStar National Bank, agrees, adding that the bill has a “much greater impact on the commercial banking industry and penalizes the traditional community banking industry.”

Bexley says he believes the changes proposed in the bill will make it more costly and more complex for community banks to operate.

David McGee, president and CEO of Amegy Bank San Antonio, says the current version of the bill could have a profound impact on many San Antonio banking institutions.

The bill, McGee says, doesn’t adequately address the “too big to fail” issue and does not extend adequate regulation to non-banks. “And it undermines the ability of traditional banks to serve their communities and customers and make more loans,” McGee says.

Outside regulation

In addition to more regulation and additional costs, local bankers oppose the creation of the consumer protection bureau.

Brent Givens, president of The Bank of San Antonio, says he is concerned about the formation of an agency outside of the “safety and soundness” of regulatory structure.

“They would have the power to mandate certain bank products and then enforce the compliance outside our primary regulator,” Givens says. “This has the potential for significant cost increases for the small banks to comply, which will impact community banks’ bottom line and capital going forward.”

Kennedy says the new agency would mandate new regulations that could conflict with other regulatory expectations. “This begs the question: Which regulator should the bank respond to? The new bureau would have authority to dictate the products and rates offered to customers,” Kennedy says.

Bill McCandless, president of Lone Star Capital Bank, says the proposed new bureau is “troubling.”

“The OCC does a proper job of supervising both compliance as well as safety and soundness for community banks. New regulatory bodies are not needed,” McCandless says.

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