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November 13, 2012

Wall St Hiding Behind Community Banks to Avoid Regulation

Wall Street will do anything to avoid regulation and they are now hiding behind community banks to avoid critically important capital rules that will make the financial system more stable and less to prone to crisis and failure.

These capital rules (often referred to as Basel III) were issued in December 2010 and updated in 2011.  The global effective date of January 1, 2013 was in the initial proposal in December 2010, two years ago.  But that doesn’t stop the too big to fail banks from complaining that they haven’t had enough time to get ready for the rules (which they have been relentlessly lobbying against from the start). 

Since the US banking regulators issued rules earlier this year to comply with the international rules, community banks have raised a number of objections, which have been supported by many public officials.  The Senate Banking Committee is holding a hearing on these concerns on Wednesday, November 14th and the House Financial Services Committee is holding a hearing on Thursday, November 29th. 

Just a few days before the Senate Banking Committee hearing, the three federal banking regulators on November 9th postponed the rules indefinitely without in any way distinguishing between community banks and Wall St’s too big to fail banks.

However, the too big to fail banks are unique, grave and proven threats to our financial system and economy and should not be treated the same as community banks.  Banks with $10 billion in assets or less comprise about 98% of all banks.  Those are community banks.  Wall Street’s too big to fail banks are not and must not be allowed to exploit and hide community banks’ concerns regarding the proposed capital rules and avoid regulation essential to protecting the American people from another financial collapse.  

Better Markets, in a letter to the Chairman and Ranking Member of the Senate Banking Committee, is urging that community banks and Wall St’s banks be treated differently and that any appropriate delay in the rules only apply to community banks.  

As stated in the letter (a full copy is attached below), “a desire to account for the specific circumstances of community banks is no reason to delay the implementation of these rules for the 2% of banks that are not community banks.”

“Strengthening capital requirements will make individual banks less likely to fail and will reduce the risk of another systemic financial crisis.  These requirements need to be put in place as soon as practicable.  Any delay in implementation should under no circumstances be applied to all banks regardless of size, risk or circumstances.  If concerns expressed by community banks merit a delay or possibly a revision to the rules or their application — and Better Markets believes that they do — then community banks and community banks alone should be granted such a delay.”  

It has been more than 4 years since the 4th largest investment bank in the US, Lehman Brothers, went bankrupt and precipitated the financial crisis.  The economic crisis that it caused continues to this day, with the economic wreckage inflicted on the American people remain evident from coast to coast.  (See Better Markets Cost of the Crisis Report here.)  Strong capital rules must be imposed on Wall Street and the too big to fail banks to reduce that threat and no delay should be tolerated.  



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