November 9, 2009 The Honorable Christopher J. Dodd Chairman, Committee on Banking, Housing & Urban Affairs United States Senate Washington, DC 20510 Dear Chairman Dodd: On behalf of the Conference of State Bank Supervisors (CSBS) and the 55 state bank supervisors we represent, I am writing to express our strong opposition to legislative proposals creating a single, monolithic federal regulatory agency bestowed with supervisory authority over all our nation’s banks. Such an approach will inevitably produce further industry consolidation and eliminate necessary regulatory checks and balances that have helped to strengthen our nation’s financial system. This is not a debate about “turf,” as it is so often characterized, but rather it is about the future of state and local economies and the accountability of our financial system to the needs of the average citizen and small business. A single regulator as proposed creates greater opportunities for regulatory capture, further distances financial regulation from the public and would create conflicts that threaten the viability of state chartering and regulation which is the source of the diversity of our financial system. The federal government policies and actions of the past eighteen months have already produced a more consolidated industry -- with a handful of “haves” benefitting from explicit and implicit federal backing and with the rest of the banking industry relegated to “have not” status. Further concentration of regulatory power will do nothing to either address this or improve market discipline. Excessive regulatory consolidation will only perpetuate this dichotomy by subjecting the nation’s over 8,000 banks – most of which are state-chartered community banks – to a regulatory regime designed to accommodate the needs and business priorities of handful of the nation’s largest and most politically prominent institutions. The result of this would be a dramatic consolidation of the banking industry. For our nation, such a result would be nothing short of catastrophic. The diversity of our banking industry— which boasts approximately 8,000 institutions ranging in size from $3 million in assets, to well over $1 trillion in assets—is one of our country’s greatest strengths. It is this diversity that kept credit flowing in our economy and throughout the country, even as our largest institutions all but ceased lending to preserve the capital necessary to survive the collapse of the capital markets. To reward the legions of community and regional banks that kept our economy afloat in our darkest days with a regulatory regime that would at best ignore their needs, and at worst, seek to merge them out of existence altogether, would be a waste of one of our nation’s greatest resources and would unjustly punish those very institutions that sustained our nation.
CONFERENCE OF STATE BANK SUPERVISORS
1155 Connecticut Ave., NW, 5th Floor • Washington DC 20036-4306 • (202) 296-2840 • www.csbs.org
The Honorable Christopher J. Dodd November 9, 2009 Page 2
CSBS is also very concerned that consolidating the federal bank regulators into a single agency would eliminate the checks and balances that are currently inherent in our system of supervision. It would be dangerous to place all regulatory authority under one agency, which would remove critical layers of financial supervision. A single federal regulator, contrary to improving regulatory accountability, would increase the likelihood of regulatory capture by eliminating checks and balances. It is no coincidence that the nation’s largest banks support regulatory consolidation, while the community and regional banks oppose your proposal. The mega-banks support the creation of a monolithic regulator because they fully expect to enjoy greater access and greater influence if such an agency is created. Despite the stated objective of creating an efficient and seamless system of financial supervision, CSBS believes the creation of a single federal regulator would have a disastrous impact upon our nation’s banking industry and economy as a whole. Smaller institutions, the very banks that prevented a complete collapse of our economy, would be further disadvantaged, to the point where we would eventually be left with an industry consisting of nothing more than a handful of mega banks. We strongly encourage Congress to craft a regulatory system which requires greater coordination between state and federal regulators. Such a system would benefit from the local perspective, experience, and field resources of the state system and the broad economic and policy view of the federal government. Consumers and the industry are ultimately best served by a more coordinated system of financial supervision that enhances the diversity of the industry and the checks and balances that have served our nation so well since their introduction in the Constitution of the United States. Thank you for your time and consideration. Sincerely,
Neil Milner, CAE President & Chief Executive Officer Conference of State Bank Supervisors
cc:
The Honorable Richard C. Shelby Committee on Banking, Housing & Urban Affairs United States Senate Washington, DC 20510
CONFERENCE OF STATE BANK SUPERVISORS
1155 Connecticut Ave., NW, 5th Floor • Washington DC 20036-4306 • (202) 296-2840 • www.csbs.org