September 21, 2008
The Honorable Barney Frank
Chairman
House Financial Services Committee
2129 Rayburn House Office Building
Washington, DC 20515
Dear Mr. Chairman:
The Conference of State Bank Supervisors (CSBS) is increasingly concerned about the impact
the Treasury’s plan will have on the safety and soundness and long-term competitive posture of
community and regional banks. Indeed, investment banks and very large retail banks, which have
far greater culpability in the mortgage mess, appear to benefit the most. Community and
regional banks, which did not generally participate in high risk lending or the securitization of
these loans, have been greatly impacted by the resulting slow down in the economy, sustained
significant losses relative to their holdings of Fannie Mae and Freddie Mac preferred stock, and
now face the prospect of large bank competitors eliminating their bad assets and investment
firms competing directly for funds with federally insured higher yielding money market
accounts. In fact, if unaddressed, without offsetting provisions, the Treasury's intervention to
address systemic failure will cause collateral damage that could devastate our community
banking industry.
Therefore, in an effort to preserve our community and regional banks and the diversity of our
nation's banking system, we request Congress to consider the following:
1. All changes should be temporary to allow Congress more time to address the issues
directly.
2. Community and regional banks should also be provided with the opportunity to
sell problem loans to the government. In many instances, the ability to move a few
construction or commercial real estate loans will return community and regional banks
to a more stable and profitable condition. To ensure that larger financial institutions do
not immediately use all of the proposed appropriation of $700 billion, a certain set aside
or specific program should be designated for purchasing the distressed assets of
community and regional banks.
3. The inequity of "too big too fail" treatment and the need to protect the payment system
should be addressed by providing the FDIC with more flexibility under prompt corrective
action, suspending broker deposit rules, and providing full deposit insurance coverage for
demand deposits (this will be especially important for small and medium sized
businesses).
4. Congress should specifically authorize the insurance of money market mutual funds,
ensuring an FDIC like administrative process. Moreover, any coverage should be subject
to the same limits and industry funding requirements as required of insured depositories.
5. This is not the appropriate time for regulatory restructuring. Regulatory reform deserves
Congress’ thoughtful deliberation outside of a crisis environment.
Community and regional banks have served as a source of strength during this period of
economic turmoil. They have provided local market stability, by providing continued access to
financial services and meeting the needs of small and medium size businesses. They are also
feeling the pressure from a rapidly changing economy and an overall lack of confidence. As
Congress moves rapidly to craft a solution of significant magnitude, we must not further
exacerbate the economic pressures felt by community and regional banks by only offering
avenues of assistance to the large systemic players. Congress can take reasonable and
meaningful steps to support community banking. CSBS General Counsel, John “Buz” Gorman,
will be available to offer any technical advice on these issues and can provide immediate access
to state bank Commissioners with expertise in these complex areas.
Best personal regards,
Neil Milner,
President & CEO
On behalf of CSBS Officers who are all state regulators
CONFERENCE OF STATE BANK SUPERVISORS
1155 Connecticut Ave., NW, 5th Floor • Washington DC 20036-4306 • (202) 296-2840 • Fax: (202) 296-1928