This particular reform will hurt banks

The following is an editorial from Doug Tippens, president and CEO of the Bank of Commerce in Yukon.

Most Oklahomans have heard about “financial reform” being hotly debated in Washington. We're being led to believe this effort is solely directed at Wall Street. We're told it will end our unofficial national policy of banks being “too big to fail.” They say the reform will protect consumers from the bad guys who caused the collapse of the housing market.

It isn't. It doesn't. It won't. And it has huge implications for Oklahoma's Main Street businesses and consumers.
Everyone agrees that financial reform is necessary. We all watched in amazement as the cataclysmic meltdown of some of the largest financial firms in the United States nearly toppled our economy in September 2008. But how many traditional community banks in Oklahoma caused the problems? None.

So why would Oklahoma bankers oppose the financial reform bill pending in the Senate. Simple: As presently drafted, the bill doesn't end “too big to fail” and would increase the costs and reporting obligations of traditional community banks and their customers.

For example, the creation of the consumer protection bureau applies to traditional community banks and their customers, but it exempts entities regulated by the Securities and Exchange Commission. In other words, it applies to every bank, savings bank and credit union in Oklahoma, but lets the bad guys skate. This is wrong.
It's the “non-banks” and securities firms that brought us all of the gimmicks that should be the focus of this new agency, but they are exempt from the reach of the new agency.

Moreover, the Senate proposal adds 27 new or expanded types of regulation to more than 17,000 pages of regulation with which traditional community banks struggle to keep up with every day.

One of the most egregious sections is the “skin in the game” provision. It mandates that banks originating home mortgage loans must keep 5 percent of the loan on their books. Commercial banks can't put 30-year, fixed-rate mortgages on their books because it is impossible to match the bank's deposit pricing with such long-term assets. More importantly, it was precisely this mismatch of assets and funding that caused the collapse of the savings and loan industry in the mid-'80s.

If commercial banks in Oklahoma are forced to exit the home mortgage business, it will mean fewer options and higher costs for consumers.

It's curious that Fannie Mae and Freddie Mac aren't covered by this legislative proposal, considering that they were front and center of the nation's mortgage crisis and ensuing financial meltdown. The reason is simple: The government wants to control the mortgage business, much like it now controls student loans.

All of this places Wall Street and Main Street at odds. We think Wall Street and its executive bonuses, complex derivatives, credit default swaps and collateralized debt obligations need reform. Our country's financial structure needs review so our country doesn't experience another crisis. But what we also need is to leave traditional community banks along to help Main Street recover.