Banks don’t need Cyclops as regulator

As a country, the United States long ago rejected monolithic rule and instead created a balanced, multi-branched government well suited to our heritage and diverse population.

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Our financial system is a reflection of this rich diversity — it, too, is best governed by multiple regulatory bodies that reduce the systemic implications of any one regulator failing to provide sufficient prudential oversight or becoming captive to those it regulates.

Those who propose a single banking regulator as a solution fail to take into account that the financial crisis was precipitated to a great extent by financial institutions outside the purview of federal banking regulation working in partnership with Wall Street. Rather than addressing the real problems, the single-regulator remedy would mark the beginning of the end for the dual banking system with both national and state-chartered banks, a system which recognizes this country’s banks aren’t suited to a one-size-fits-all approach to banking regulation.

A single banking regulator would also eliminate important supervisory functions of the FDIC and the Federal Reserve. The FDIC would no longer be able to maintain a robust system for monitoring banking risks in order to establish appropriate risk-based deposit insurance premiums. Similarly, the Federal Reserve, in losing its supervisory role, would also lose an efficient way to gauge the soundness of the banking sector and gather information important to the development of monetary policy.

The objections of the Independent Community Bankers of America (ICBA) are not grounded in guarding turf or protecting the status quo; that may make for interesting drama in Washington, but what matters to community bankers is what’s happening beyond the Beltway. If created, inevitably, a single regulator would focus on the largest banks.  Main Street banks and our customers would be at a disadvantage. Our customers could lose access to affordable credit. And the communities we serve by providing substantial credit for small-business development would decline, and with it those local economies that are the very backbone of our country.

Community bankers agree that we need to close existing regulatory gaps and safeguard consumers from abusive and improper practices. We support efforts to streamline overly complicated and ineffective banking regulations. We believe in making sure consumers have the information they need to understand banking products and services, because the best-informed consumers tend to bank with us.

Now, at this moment in time, we have the opportunity to create smart and sustainable reform. We need to get it right for the long term. ICBA, representing 5,000 community banks across the United States, supports the Obama administration’s proposal to maintain multiple federal regulators and the dual banking system as the best way to meet our responsibility, restore consumer confidence and ensure that we have a balanced, healthy and vibrant financial system we can pass on to future generations.

Fine is president and CEO of the Independent Community Bankers of America.