LITTLE ROCK — Arkansas bankers are leery of proposed congressional legislation that could mean additional layers of regulation for financial institutions, some of the state's banking experts say.
One measure would create the Consumer Financial Protection Agency. Initially, it was designed to protect consumers doing business with not just banks but also retailers, auto dealers, lawyers and accountants. Most of those have been eliminated from the bill, and primarily financial institutions remain.
"Community banks are very concerned about this," said Tim Yeager, associate professor of finance at the University of Arkansas in Fayetteville.
A community bank is a locally owned and operated bank that is relatively small, a category that includes most Arkansas-based banks.
Community bankers in Arkansas agree that additional consumer protection is needed on financial products, Yeager said.
"But they argue, and I think correctly, that they have been subject to these consumer regulations for decades," Yeager said. "So they weren't the problems in the subprime financial crisis."
The Arkansas bankers are afraid that the federal government, in trying to fix one problem, will subject community banks to "a whole other round of additional regulations," Yeager said.
Banks and bank holding companies in Arkansas already are governed by several regulators, such as the Arkansas Bank Department, the Federal Deposit Insurance Corp., the Federal Reserve or the Office of the Comptroller of the Currency.
"So this would add another regulator that bankers would have to deal with and coordinate," Yeager said.
Bankers are worried that the new agency would put a burden on banks to prove every reason a product is offered, said Ken Hammonds, chief executive officer of the Arkansas Bankers Association.
"There's a section in the [proposed legislation] that says you may have to tell consumers what the competitor down the street is offering before you can close the deal," Hammonds said. "Or you may have to offer a government product first. It is so far-fetched that what bankersmay do is not offer the product anymore. Then in the end the consumer is going to be harmed."
The financial problems the country faces aren't rooted in banking, said Aubrey Patterson, chairman and chief executive officer of BancorpSouth Inc. of Tupelo, Miss. Patterson was speaking to a gathering of BancorpSouth stockholders and business people in Little Rock this month.
"Certainly there are some money-center banks that have difficulty, but essentially the problems have their roots in the gaps in regulation and in the unregulated financial industry," Patterson said.
BancorpSouth is the eighthlargest in Arkansas based on its deposits. It has about 60 branches in 31 Arkansas cities and about $1.8 billion in deposits in the state.
On Wednesday, Treasury Secretary Timothy Geithner told the House Financial Services Committee that legislation could be written so there isn't "too much unbridled authority that would be damaging" to industry competition.
Another supporter of creating the new agency is the Consumer Federation of America, a Washington-based consumer advocacy group.
Travis Plunkett, legislative director for the group, told The Associated Press that despite his organization's support, he is wary of a proposal for an oversight board that includes banking regulators that would advise the consumer protection agency's director. Plunkett wondered why consumers weren't being considered for such an advisory board.
Democrats have vowed to pass legislation by the end of the year, although it may not be until next year before it ispassed.
Another legislative issue facing bankers is a bill that would consolidate all federal banking regulators into a single regulator, Yeager said. The idea's chief backer is Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee.
Yeager said the proposal would prevent banks from choosing which regulator they preferred. For example, a bank can decide to get a state charter and would be regulated by the Arkansas Bank Department. Or it could get a national bank charter and be regulated by the Office of the Comptroller of the Currency.
"The regulator would have less incentive to treat banks fairly," Yeager said. "If a bank feels it is getting a raw deal, if it's in good shape, it can switch regulators. This would take that choice away."
Also, Arkansas bankers believe, a single national regulator based in Washington, D.C., likely could begin to focus on very large banks, Yeager said.
"That's where the revenue will come from, that's where the political fallout would come from," Yeager said. "Community banks are worried that they would become afterthoughts and policies would be unfavorable to them."
It also could mean that, over time, the state bank charter could become obsolete, Yeager said.
Arkansas bankers are "dead set against" the forming of one regulator to oversee all banks, Hammonds said.
One other concern facing bankers is the assessment the Federal Deposit Insurance Corp. levies on all banks.
The FDIC deposit insurance fund has been built entirely by assessments on banks, Patterson said. Because of the cost of bank failures in the past two years, the fund has dipped to its lowest level in two decades, Patterson said. The fund is down to 0.22 percent of insured deposits in the nation's banks but by law it has to get back to 1.15 percent within an eight-year period, Patterson said.
"That means that we're going to be paying those [high assessments] for some time to come," Patterson said.
BancorpSouth normally pays about $12 million a year in FDIC assessments, Patterson said. The special assessment that BancorpSouth had to pay in June was an additional $6.1 million, Patterson said. The bank likely will have a similar special assessment at the end of this year, he said, making a total of $24 million this year.
"And that is to help solve other [banks'] problems," Patterson said.
Information for this article was contributed by Anne Flaherty and Jim Kuhnhenn of The Associated Press.
Business, Pages 75, 76 on 09/27/2009