However, many people would agree that additional regulation is needed at this time to deal with harmful banking activities. Beyond any anti lobbiest measures, influences from larger banks is inherent. Even if we compare a situation of no new regulations to avoid larger bank influences or having the CFPA, I believe that most would agree that regulation is required.

So in effect, the community banking concerns are important in crafting legislation, but irrelevant in if there should be a CFPA plan. (just saying, even though no one seems to be opposed to new regulation here)

That in practice proposed “reforms” usually are is because the real goal is not reform, but to further the disaster capitalist agenda of using (self-created) problems and crises to further entrench big-business privilege and power, and to drive out smaller competitiors.

So the question in this case is whether proposed banking reforms (pathetically meager as they are) would be real reforms, in which case small banks should in theory benefit from them, or whether they’d fall into the normal pattern which ends up advantaging monopoly in the name of restricting it.

For example,

Fred Becker of the National Association of Federal Credit Unions

Camden Fine of the Independent Community Bankers of America

http://www.nafcunet.org/Template.cfm?Section=News&template=/ContentManagement/ContentDisplay.cfm&

http://www.icba.org/files/ICBASites/PDFs/ltr062409.pdfContentID=41465

Many thanks for your informative and enlightening post. :)

Yes, the regulation of actions imposes high cost on enforcement and compliance both. Furthermore, making it easier for Too Big to Fail institutions to become even bigger is crazy. It is better, and cheaper, to build safeguards into the system. In the Wired Age, restrictions on interstate banking may seem outmoded, even quaint, but such structural constraints help to keep the interconnectedness of the financial system within safe bounds.

BTW, in the deconstruction of barriers to interstate banking, do we see the hand of Larry Summers? If so, would he not be a disastrous Fed chairman?

Really? What about William O. Douglas? Actually, I think we could cite more recent examples of people who were not captured, including Alan Greenspan, but we might regard more dispassionately someone who is dead.

This defeatism about regulation is a malaise.

I work in management at a mutual savings bank institution in upstate New York. You are correct in saying that the direction the CFPA would drive regulation is what we are already doing, and I think that is a good thing.

The challenge that legislators and regulators will face regarding support of smaller institutions is cynicism. Financial regulation is extraordinarily expensive for small institutions, as is the provision of deposit insurance. Community banks work hard to meet the expectations of regulators and examiners, and spend a significant amount of money on auditors, consultants, and other professional services to do so.

Yet another layer of regulation, which in the perspective of community institutions will be substantively ineffective in regulating – if not completely ignored and bypassed – by industry gorillas, will undoubtedly add to the regulatory cost of doing business. Making it harder and more expensive to be a responsible and prudent vanilla banker.

Among community banks, there is wide-spread resentment of constantly getting the short end of the stick. In good times, they work hard to make good decisions, sometimes in spite of regulators, and they pay their share for deposit insurance and regulation. In bad times, they are called on to make deposit insurance premiums in multiples of what is ordinarily assessed, and are then burdened with another set of regulatory requirements that will likely end up being a waste of time, energy, and money.

The real winners here are bureaucrats, consultants, ill-trained government examiners, and other professional services – bankers that ignore the rules and make outsized salaries and bonuses notwithstanding.

I think I mentioned in a previous comment that economic growth is predicated on investment in productive assets. An important facet of this discussion to realize is -that without some rationalization of regulation, regulating bodies, and regulatory costs – proposal of far reaching regulation is creating further drag and diversion of resources, reducing our systemic ability to invest in worthwhile projects.

Believe me, I am certain that more stringent controls are necessary to restrain irresponsible behavior in the marketplace. Ordinarily, one would argue that the market should provide those controls – let the imprudent fail. In this case, however, we have allowed for institutions to build to a level at which their failure poses a systemic risk. Further, the document on financial regulation released by the Obama administration calls for deconstructing all remaining barriers to interstate banking, which to me would not address the systemic issue of institution size – it would appear to exacerbate it. Herein lies a problem, regulators propose to regulate actions more stringently, especially for large institutions, but at the same time remove other barriers for these institutions to continue their wild and ill-conceived growth. You can’t have it both ways.

For community bankers to get on board, they need to be convinced that it will be in their interest to do so. It can’t pose higher requirements, increased cost, and restrain them further. It must have the strength to reign in the industry gorillas effectively and substantively.

It seems like a difficult task to me. Especially with the strength of the industry lobby.

And they see that though Goldman became a bank holding company, they cut a deal with the feds that lets Goldman engage in the exact same risky behavior that got us into this mess. (Their spokesman even brags about it – business as usual at Goldman! Why reform when it’s more profitable to risk big and the feds will bail you out no matter what? Even if we don’t need the money – as they keep claiming with the AIG unwind – the biggest recipient keeps claiming they didn’t need the dough.)

Is Geithner’s schedule open for such negotiations with the little community bank in my neighborhood? Does Geithner care a fig for the little community bank in my ‘hood? No and no.

They’re not big enough at all for anyone to care about and perhaps they feel if they cast a stone into the lake of bigness, they’ll lose any opportunity to be snapped up by one of the biggies any time soon.

I wonder why I cannot remember having read explanations as to what the breaking down or up of the big banks would mean for international relations
the only hint I remember is that Deutsche Bank refused German bailout money but took 12 bn TARP but I am still waiting for an explanation what that signifies for political foreign relations, power distribution between countries
- sorry I do not know a term for it but what I mean is what would a failure of the big banks do to Obama’s clout when he sits down at the negotiation table.

“Ask not what the big banks can do for your country, but ask what your country can do for the big banks.”

I think that sums up Paulson/Bush/Geithner/Obama policy so far.

That’s just the issue of specific personnel. Structurally, it’s hard to believe that, even given good faith on the part of this official or that congressman, any real reform can be accomplished within the parameters of this system.

They could enact a nominally rigorous reform with great fanfare, and then the news cycle moves on, electoral campaigns will still allow and depend on private money, lobbyists will still be empowered, and regulatory agencies will still be starved of funds and/or funded by tithes from the very bodies they regulate, and bullied by politicians.

I guess that criticism goes beyond the original question, and maybe there can be exceptions to the pattern, but offhand I can’t think of any.

Also, there’s a pretty good example of setting different rules up for different size banks in the Community Reinvestment Act – really small banks only get examined about once every 5 years, and have much more flexibility in how they meet their CRA requirements.

Perhaps that system could be adapted to the CFPA?

Really? Maybe something else?

I dunno, man. I’m gonna have to see something more convincing than that if I’m a small bank. With all the centralization of regulation in New York/DC, why on earth should a local bank assume they’ll have any influence whatever, or that they won’t get crushed by the NY/DC finance cartel?

I see a future of huge, TBTF NY/DC banks with access to cheap, guaranteed capital dominating the financial future if we keep heading down this path. We’ll keep making it harder to start and run banks at the Federal level, and then wonder why there are a few dominant banks based in the eastern power centers.

Y’all know my solution.

Cheers,
Carson

Doubtful. Probably just that the local loan rep wasn’t as greedy.