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Yingling testifies before House Financial Services Committee on consumer protection agency


     The American Bankers Association responded today to the Obama administration's proposal for financial regulatory reform in testimony before the House Financial Services Committee.
      ABA president and chief executive officer Ed Yingling told the Committee members that the banking industry recognizes change is needed and that it supports several aspects of the proposal.  However, Yingling also stressed that whatever changes are enacted, they must improve the ability of banks to continue serving their communities and be mindful of unintended consequences that have the opposite effect.
      “It is clear that change is needed,” said Yingling. “The ABA believes that reforms need to be grounded in a real understanding that traditional banks, operating under the current regulatory structure, did not cause this crisis but are the primary solution to the economic problem and will continue to be the source of financial strength in their communities in both good times and bad.”
     Yesterday Yingling told the Senate Banking Committee that the Administratin's proposal to create a new consumer agency for all traditional banks and other financial services providers (except entities regulated by the Securities and Exchange Commission and the Commodity Futures Trading Commission) would complicate the existing regulatory structure without addressing the underylying problems that brought the nation to this point.
      Yingling said that financial regulatory reform should focus on three main priorities: creation of a systemic risk regulator; creation of a mechanism for bringing orderly resolution to troubled systemically important non-bank financial firms; and the need to address gaps in the regulatory system.
      “The ABA strongly supports the creation of an agency to oversee systemic risk,” he said.  “The subprime crisis demonstrates clearly that our current system is inadequate.”
      Yingling offered some thoughts as to the role and structure of the agency, stating that it must be “focused and nimble,” and that its emphasis should be on identifying potential problems and then putting forth solutions, rather than regulating specific institutions.
      "It is about looking at information and trends on the economy,” said Yingling.  “Involving the new agency in day-to-day regulation could be a distraction.”
      Yingling further stated that to be effective, a systemic risk regulator must have some authority over the development and implementation of accounting rules, and he urged Congress to follow the general recommendations of the Group of 30 report, the G-20 report and the Administration's financial regulatory reform proposal relating to accounting policy.
      With respect to resolution of systemically important non-banks, Yingling said the recent examples of Bear Stearns and AIG point to an “extreme need” to create a mechanism for resolving institutions that are deemed “too big to fail.”
      “The 'too big to fail' concept can have unintended consequences and raises competitiveness issues,” he said.  “The goal should be to eliminate as much possible moral hazard and the unfairness to all the non-systemically important competitors.”
      As to plugging regulatory gaps, Yingling maintained that a major cause of our current economic problems is the fact that some entities were able to completely escape effective regulation.  He recognized that there has been a logical move to begin applying bank-like regulation to the less-regulated and unregulated parts of our financial system in an effort to address these gaps.
      However, Yingling urged Congress to be careful not to impose new, unnecessary regulations on banks.
      “Thousands of banks of all sizes, in communities across the country, are scared to death that their already-crushing regulatory burdens will be increased dramatically by regulation aimed primarily at their less-regulated or unregulated competitors,” he said.
      Finally, Yingling addressed the proposal to create a consumer financial regulator and said that ABA opposes the proposal on the grounds that regulation of a company and its products cannot be separated and that the grant of authority to the proposed agency is dangerously broad.
      “It is one thing to identify holes in existing regulation and close them,” he said, “it is another to take out the entire body of laws, developed over decades, on which consumer finance is based and, in effect, replace it with a broad general regulatory authority.”
     In another speech this morning, Assistant Treasury Secretary Michael Barr said that, in essence, Yingling is wrong about his objections to the Consumer Financial Protection Agency:   

"A successful regulatory structure for consumer protection requires mission focus, market-wide coverage, and consolidated authority," Barr told the Exchequer Club in Washington.  "Today's system has none of these qualities. . . ." (emphasis added).

            "Our proposal ensures, not limits, consumer choice; preserves, not stifles, innovation; strengthens, not weakens, depository institutions; reduces, not increases, regulatory costs; empowers, not ignores, consumers; and increases, not reduces, national regulatory uniformity," Barr concluded. 



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