Pub. 3 2015 Issue 1

15 Spring 2015 The Community Banker Fine Points A LOOMING TRUTH By Camden Fine, President and CEO of ICBA I t’s an unsettling and plain truth: The nation’s largest Wall Street megabanks are larger and more complex today than they were before the financial firestorm they helped to ignite seven years ago. Today the 12 largest U.S. banks (composed of less than two-tenths of 1 per- cent of all banks) control nearly 70 percent of the nation's bank- ing assets. The top example of financial overconcentration, JPMorgan Chase had nearly $1.6 trillion in assets just before the Wall Street crisis. Now it controls nearly $2.6 trillion in assets and, despite multiple financial scan - dals, we’re still counting. Too-big-to-fail remains and has only dug dangerously deep- er into the economic ecosystem of America. While lawmakers attempted to address financial overconcentration through the Dodd-Frank Act, they now know they have much more work to do. Financial meltdowns and taxpayer bailouts, imprudent lending and operational practic- es, and regulatory indifference from too-big-to-manage and too-big-to-jail managements are all symptoms of the too-big-to- fail disease. And we certainly can’t overlook unnecessary and counterproductive regulatory burdens that fall disproportion- ately on community banks. All these megabank dangers and regulatory fallouts will persist if Congress fails to take further action. The free-market financial system we cherish will never be truly free, safe or fair until too-big-to-fail is dealt with and eradicated. Directly breaking up the megabanks and other system- ically risky entities, akin to the successful trust busting of the giant oil and railroad oligopo- lies from a century ago, would provide the most straightfor- ward, sensible solution, which ICBA wholeheartedly favors. But bipartisan policymaking in Washington doesn’t normally follow such a clear-cut path. For that reason, ICBA also actively supports various legislative and regulatory alternatives that, taken together, could achieve a final, practical end result. For that reason, ICBA also actively supports various legislative and regulatory alternatives, which, taken together, could achieve a final, practical end result. Those range from imposing higher capital and leverage require- ments on megabanks, enforcing concentration limits and estab- lishing a swifter, more reliable megabank resolution process. Specific ICBA-endorsed mea - sures include Federal Reserve rules to require “systemically im- portant” financial institutions to divest their assets if they do not file credible receiver liquidation plans, as well as FDIC Vice Chair- man Thomas Hoenig’s widely respected proposal to restruc- ture megabanks so that FDIC-in- sured deposits cannot be used to fund highly leveraged and high-risk financial activities such as the infamous "London Whale" investment scheme. They also include support for legislation already introduced in the House as H.R. 888 that would require the very largest megabanks to set aside core capital equal to the market subsidy enjoyed by their too-big-to-fail status. And, of course, ICBA supports the very direct approach taken by Sens. Sherrod Brown (D-Ohio) and David Vitter (R-La.) to require the six biggest megab- anks to hold significantly more leverage capital. Congress and the regulatory agencies have several construc- tive and viable policy options to consider. But ICBA’s message, delivered loudly and forthright- ly, is that time is running out for observing and debating this ongoing threat. The time is right—and the clock is ticking— for further concrete, consequen- tial policy action. It is the moral duty of policymakers to address this conspicuous threat before another financial crisis occurs. So we have no choice. On this issue ICBA and commu- nity bankers will continue to speak the truth. We won’t be distracted or silenced. We won’t stop until this looming threat no longer exists. Because if we don’t, who will?