Florida Representatives Support Deregulating Some of America’s Biggest Banks

Several Florida members of Congress including Alcee Hastings, Stephanie Murphy, and Bill Posey, are cosponsors of HR 3312, the Systemic Risk Designation Improvement Act, which, of course, does not do that. The bill instead loosens controls put in place after the debacle of 2008 to protect consumers from another similar collapse. These members of Congress, in particular, style themselves as protectors of consumers and have actually done that in the past. But this bill is very dangerous to the financial interests of Florida consumers.

The Big Banks

“Super-regional” banks — some two dozen banks that are greater than $50 billion in size but not among the eight largest U.S. banks — are pushing to be set free from key risk controls that were put in place after the crisis. HR 3312 in the House and S. 1893 in the Senate would put unprecedented new restrictions on the capacity of the Federal Reserve to control risks at banks of this size to ensure they can fulfill their obligations without going bust. These restrictions would weaken the authority of regulators even compared to the period before the 2008 financial crisis, undermining safety and soundness protections that go back to the 1950s.

Super-regional banks are among the largest one-half of one percent of banks in the U.S., far larger than community banks, with collectively over $4 trillion in assets. In some regions, they are particularly critical. For example, over 60% of deposits in Ohio are held by super-regional banks. They also played a critical role in the 2008 financial crisis. Countrywide, Washington Mutual, Wachovia, and IndyMac are examples of “super-regional” banks that both fueled the mortgage bubble and collapsed in its wake, putting major strain on the financial system.

After the financial crisis, Congress acted to ensure better risk controls on these big banks. The Wall Street Reform Act instructs the Federal Reserve to strengthen required risk controls on all banks over $50 billion, ensuring that these few dozen banks receive a greater level of supervision than the nation’s thousands of smaller community banks. It also requires the Federal Reserve to tailor new risk controls to the size and risk of the various banks, putting in place stronger requirements for the very biggest global Wall Street banks than for super-regional banks. The Federal Reserve has done this, strengthening risk controls on these banks since the 2008 crisis. In doing so, the agency complied with the mandate to differentiate between different types of banks, writing different and stronger rules for the eight global mega-banks defined as “systemically significant” as compared to somewhat smaller super-regional banks between $50 and $250 billion.

But now, big bank lobbyists are seeking to roll back post-crisis risk controls on “super-regional” banks — and they are trying to tie the hands of the Federal Reserve so that regulators could not take action to control risks at these banks even if they saw a problem. HR 3312 and S 1893 would require the Federal Reserve to get approval from two-thirds of Federal financial regulators and the Secretary of the Treasury if it wished to write new controls on risks at super-regional banks in general. If the Federal Reserve wanted to take action to mandate required risk controls at a single super-regional bank, it would have to determine that issues at this individual bank alone could cripple the U.S. financial system — a test that no single super-regional bank would be likely to pass.

The Federal Reserve’s authority to address risks at large banks dates back to the Bank Holding Company Act of 1956. The restrictions in HR 3312/S 1893 would place drastic limits on this authority, making bank regulation even weaker than it was before the crisis. These dangerous bills must be rejected. FCAN urges you to contact Rep. Stephanie Murphy, Rep. Alcee Hastings, and Rep. Bill Posey to urge them to stand up for consumers and not the big banks.

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