Letters and Opinion

Volcker Rule was regulatory overkill

January 25, 2014

Ken Skarbeck opined [Jan. 13] that federal regulators should continue to pile more regulation on the financial services industry. Specifically, he faults the American Bankers Association for suing federal banking regulators over implementation of the Volcker Rule of the Dodd-Frank Act.

Skarbeck claims that the rule at the crux of this suit applies only to 300 banks and wonders how the other 7,700 banks view the lawsuit.

The Volcker Rule was intended to apply solely to the very largest banks in the country as guidance for where to direct their proprietary investments. The provision that the ABA sued on affected 275 (not 300) small community banks, 16 in Indiana.

Had the rule been enacted, these banks would have had three weeks to sell their securities at significant loss, robbing them of $60 million in investments that are improving daily. In that case, brokers would have purchased and held these securities, reaping the fortune that banks would have lost.

Further, there are only about 6,800 U.S. banks today, not 7,700—a mere fraction of the 20,000 banks in 1980, when every small community had a locally owned institution. The U.S. structure of a vibrant, local financial services industry contributes to our worldwide status as the greatest economic power ever.

Nonetheless, Congress and federal regulators seem intent on destroying our system through regulatory overkill.

The Dodd-Frank Act did little to “purge the financial system” of potential problems, since the regulators already had the tools to deal with most of the problem practices.

Instead, it will cause more banks to be sold, reducing the local knowledge communities need. Excessive consumer compliance, which so often limits consumer choices, is killing our banking system.

Since the financial crisis began, much change has been made to the banking system. The level of capital held has increased substantially, regulators have new oversight powers, and stress testing of balance sheets and income statements—now routine for the largest banks—is filtering down to smaller banks.

Regardless, it has become politically popular to malign banks, rather than allow them to lead the country out of this economic funk.

Skarbeck should apply his skills to promoting the positive aspects of our unique financial services industry rather than endorsing failed policies that are burying this industry under reams of useless regulation.

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Joe DeHaven
president, CEO, Indiana Bankers Association

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