Updated Financial Regulatory Bill Misses the Mark on Reform

Press Release

Since the economic meltdown, momentum has been building in Washington to implement a reform bill that, above all else, would prevent our financial system from ever again failing us in the way it did in 2008. Yet amazingly, after two years of debate, the version agreed upon late last week by House and Senate conferees misses that mark by an astounding margin. If this updated bill passes both houses of Congress, American banks and businesses would face a new law that imposes new stifling federal regulations without fixing what went wrong. Small businesses, community banks, and citizens across Nebraska still reeling from the recession and just starting to regain their footing will be met with another punch.

Perhaps the most troubling aspect of the bill is that no one truly knows what the impact will be. Just last week, after the final legislation was announced, Senate Banking Committee Chairman Christopher Dodd (whom the bill is named after) stated, "No one will know until this is actually in place how it works." Hearing this was tremendously disappointing. If endorsing this bill requires not much more than a wing and a prayer, that's a clear sign to me that we're not close to producing legislation to address the right issues.

However, there are some aspects of the bill we do know, and it doesn't look promising for Nebraska, which had little if anything to do with the financial crisis. The bill creates a new federal bureaucracy and empowers it with the authority to arbitrarily regulate any "financial product" it deems "abusive." With such an open-ended definition, there really are no boundaries. If the bill becomes law, this bureaucracy will have an enormous and unchecked ability to regulate almost anything.

Just as troubling are the rules and regulations the law itself imposes on small banks that were victims, not the perpetrators, of the crisis. One Nebraska banker recently wrote to me, "Banks like mine lack the internal resources to adhere to a multitude of new laws and regulations and would have to cut back -- and in some cases terminate -- operations … It will make it dramatically harder for my bank to serve our customers and our local community."

Incredibly, the bill also completely ignores two causes of our current financial woes: Fannie Mae and Freddie Mac. After contributing to the implosion of the housing market, they received billions of dollars in taxpayer-funded bailouts. Giving Fannie and Freddie a free pass puts Americans at risk of future bailouts. A reform bill that ignores these two mortgage giants is simply unacceptable.

The bottom line is that this so-called reform bill is far from true reform: it won't prevent future crises. It will increase the power and number of federal bureaucracies -- the very institutions that failed to foresee and prevent the crisis two years ago; and it will impose crippling new regulations on many Nebraskans who played no role in it. I sincerely believe Congress would be better off recycling this 2,300 page monstrosity and starting over with targeted reforms that address the systemic problems that led to the collapse.

Source