Rich Kirchen
The Business Journal of Milwaukee
December 4, 2009
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Wisconsin bank executives are alarmed that they may have to stave off new headaches in the form of new federal regulations that they fear would add to their costs and limit their ability to make loans.
The Wisconsin Bankers Association last week alerted its nearly 300 member financial institutions to contact U.S. Sen. Herb Kohl (D-Wis.) and their congressional representatives to express their concerns about separate financial industry reform proposals in the U.S. House of Representatives and the U.S. Senate. Kohl sits on the Senate Banking Committee.
Kurt Bauer, president and CEO of the Wisconsin Bankers Association, calls the proposals in Congress potentially the most drastic changes to financial industry regulation since the creation of the Federal Deposit Insurance Corp. in 1933. The FDIC is doing an excellent job of monitoring and regulating banks and further regulations could be disastrous to the industry, he said.
“This is the difference between the banking industry thriving or the banks slowly being driven to the brink of extermination,” Bauer said.
The Bankers Association is most concerned about proposals in both houses of Congress to create a Consumer Financial Protection Agency. The new agency could replace the major industry regulators including the FDIC, the Federal Reserve, the Office of Thrift Supervision and the Office of the Comptroller of the Currency with a single regulatory entity.
“I just don’t see the need for that legislation,” said Jim Podewils, president of Westbury Bank in West Bend. “It’s so detrimental to us and customers.”
While such an agency could theoretically streamline and unify regulations, it’s not needed because the existing agencies already run stringent operations that catch bad actors, bank executives said.
Furthermore, the giant new agency would regulate banks and savings institutions that already are heavily regulated while missing the unregulated financial firms that caused the current financial mess, bank executives said.
Adding to the intensity of bank executives’ concerns is that they already have plentiful problems to address in their institutions’ loan portfolios. The proposed reforms in the pending legislation would add to compliance costs and launch regulations that would dampen banks’ ability or appetite for lending, they said.
The public and Congress are rightfully upset with the actions of AIG, Wall Street investment banks and purveyors of sub-prime mortgages that help deepen the current economic downturn, Bauer and others said. The problem is, the proposed bills have yet to address hedge funds, investment banks, Ponzi schemes and other unregulated segments of the industry, bank advocates said.
“We are certainly being cast as the villains in this situation,” Podewils said. “Most of the legislation is geared toward banks.”
Dealing with problems
Kohl, in a statement Nov. 19, said he is pleased that the Senate, led by Sen. Chris Dodd (D-Conn.), is addressing flaws in the American financial system “that put our economy on the brink last fall.” Kohl said current financial regulations failed to protect the economy and financial regulators have been hesitant to confront the practices that led to the crisis.
“This legislation is focused and targeted so we can prevent another taxpayer-funded bailout of Wall Street, protect consumers from the predatory financial practices and support the financial institutions that have always focused on the financial well-being of their customers and communities,” Kohl said.
While Kohl’s remarks may be somewhat reassuring to bank executives in his home state, the debate is creating uncertainty among bankers as they plan their strategies for surviving the recession, said Russ Weyers, president of Johnson Bank in Racine.
Bank executives don’t know what the financial risks will be if the new regulations pass, he said. If a new federal agency raises capital requirements or dictates the type of lending and products banks can offer, it will add costs, Weyers said.
Those costs will be passed along to consumers and businesses and ultimately hurt the very people the legislation is designed to help, Weyers said.
“At the end of the day, the consumer will be punished if we price them out of the market and drive up costs,” he said. “There are already stringent mechanisms in place for banks that don’t follow the rules.”
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