I highly encourage community bankers to read this week’s report from
Bloomberg Markets Magazine on the financial assistance provided by federal regulators to the nation’s largest and riskiest financial institutions at the height of the recent financial crisis.
The report uncovers trillions of dollars in secret Federal Reserve Board “no strings attached” loans that allowed these too-big-to-fail institutions to net $13 billion in profits—at exactly the same time they were bringing our economy to the brink of collapse. Meanwhile, the American people—many of whom saw their life savings wiped out—were footing the bill.
And Wall Street wonders why there is an Occupy Wall Street movement? Duh!
The Bloomberg report reads like a horror story, or more accurately a crime novel, for community bankers and taxpayers in general. It reveals the special, secret and duplicitous world of Wall Street.
It also demonstrates why community banks need a strong, independent voice in Washington. ICBA—the only national trade association exclusively representing the nation’s community banks—consistently advocates a level regulatory playing field. As highlighted by this report, we have good reason. Community banks do not receive the kind of favorable regulatory treatment made available to the nation’s largest financial institutions.
The report also notes what ICBA has long argued—that too-big-to-fail financial institutions have a direct and adverse impact on community banks. The implicit government guarantee for these mega-institutions allows them to access funds at a lower cost than is available for community banks. This is, in part, why ICBA fought so hard to reform the FDIC assessment base to save community banks billions in assessment premiums. It’s also why ICBA has supported breaking up too-big-to-fail financial institutions to reduce their risks to the financial system and to the American taxpayer.
ICBA is routinely criticized for speaking out forcefully on behalf of the nation’s community banks. Or worse, we’re criticized by other trade groups for introducing community bank–focused legislation, such as the Communities First Act (H.R. 1697 / S. 1600). The Bloomberg report is further evidence of why we will not waiver in our support of fair and proportional regulations that distinguish Main Street community banks’ business model from Wall Street’s.
Community banks enjoy a sterling reputation with policymakers and the public, and we should not be lumped together with the too-big-to-fail crowd, whose irresponsibility and greed caused the financial crisis (as headlines trumpet almost daily).
ICBA and the community banking industry will continue to fight for regulatory parity, for even-handed treatment, and for downsizing the systemically riskiest financial firms. Community banks and taxpayers should never have to read horror stories like these again.
