Bankers, Realtors, Credit Unions Criticize Treasury Blueprint

Bankers, Realtors, Credit Unions Criticize Treasury Blueprint

Insurance people aren’t the only ones criticizing the Treasury Department’s regulatory proposals. Bankers, realtors and credit unions all find fault with the blueprint.

The American Bankers Association, the Independent Community Bankers of America, the National Association of Realtors and the Credit Union National Association have all objected to portions of the plan.

“Why should Main Street suffer as a result of the sins and behavior on Wall Street?” the Independent Community Bankers of America stated, referring to riskier financial practices that have roiled the markets since last summer. "Dismantling the thrift charter and crippling state banking charters will weaken banking in America," the group said in a statement.

Eliminating thrift charters would effectively do away with an industry dedicated to promoting home ownership at a time when more people are looking for traditional home mortgages, said Wayne Abernathy, American Bankers Association executive vice president for financial institutions policy. The plan outlined by Treasury Secretary Henry Paulson also would affect state-chartered banks, which account for 70 percent of banks, by requiring them to get national charters, making state charters redundant, he said. Then, even tiny banks would answer mostly to U.S. regulators instead of overseers in, say, Illinois, home to 42 state-chartered thrifts and 443 state-chartered banks.

“If I, as a small bank, have to answer to, to work with, to report to people in Washington as opposed to people in Springfield and the legislators who live and work in my district, I’ll be at a huge disadvantage,” said Michael Steelman, chief executive of the $60 million-asset Farmers & Merchants State Bank of Bushnell, Ill., 50 miles west of Peoria.

Realtors Object

The release of the Treasury blueprint prompted the National Association of Realtors to call on the Treasury Department to withdraw a 2001 proposal that would have allowed real estate brokerage and management activities for financial holding companies and financial subsidiaries.

Realtors called the initiative an encroachment into commercial activity that should be off-limits for banking firms.

The NAR said the proposed regulatory blueprint would unwisely allow holding companies to own insured depository institutions and commercial firms. In a letter to Paulson, NAR President Richard F. Gaylord said real estate activities are “purely commercial” activities and should not be allowed for banking firms.

In 2001, the Federal Reserve Board and the Treasury asked for comment on a proposal that would have allowed certain real estate powers for Fed-regulated financial holding companies and financial subsidiaries of national banks, which are regulated by the Office of the Comptroller of the Currency. The proposal was never finalized, in part because of vigorous opposition in Congress spearheaded by the Realtors. Since 2001, appropriations bills have been the main vehicle for opposition, with the NAR supporting provisions that bar the Treasury from spending any money to finalize the proposal.

In addition, the NAR objected to requiring state banks to also have a federal charter, saying it “will have the effect of weakening and very likely killing the state bank option under the dual banking system that dates to the Civil War. The story of banking in recent years has been one of both consolidation and chartering of new community banks. The vast majority of the new banks have state charters. As an association of small business persons, we believe that the Nation is best served by making sure there will be room for a diverse banking industry meeting the needs of all its customers, large and small.”

Credit Unions Object

House Financial Services Committee Chairman Barney Frank (D-Mass.) has given assurances that the Treasury Department's proposal to effectively abolish the nation’s credit unions does not have “the slightest chance of succeeding.” Rep. Frank made the assurances in a letter to Credit Union National Association President Dan Mica, which was released on April 8.

“I understand your dismay at the proposal,” Frank said in his letter. “Of course I am completely opposed to it, and I can assure you that as long as there are Members of Congress who know the value of credit unions on the Committee, no such proposal will have the slightest chance of succeeding.”

Under the Treasury Department’s proposals for financial regulation, all institutions desiring federal deposit insurance — whether banks, thrifts, or credit unions; including state-chartered institutions — would be required to obtain a new federal charter. To qualify for the tax-exemption, these institutions would be required to elect “community status” and meet a series of apparently stringent tests in terms of asset size, field of membership, and service to the underserved. In addition, the National Credit Union Administration would cease to exist under the Treasury scheme.

“What may be most disturbing about the Treasury plan is its assumption that financial institutions can be compared solely on the basis of the services they offer, without regard to structural and cultural differences between different types of institutions,” said Mica. “As a result, Treasury does not acknowledge any unique contribution from credit unions based on their not-for-profit, cooperative structure.”