Too Big To Regulate???

Interesting how convoluted and frustrating the release of the Stress Test results has become… So now supposedly, the “Too big to fail or manage” have received word on whether or not they have sufficient capital, in other words, are solvent.  It appears that by some miracle, we are all supposed to feel better about the system.  The reality is that this dance was designed to obfuscate the fact that these banks have gotten larger than any of our regulators can understand or resolve. The regulatory process has been unable to keep pace with the growth of these institutions, and have in fact allowed for the creation of institutions that pose a risk to our capitalist system and to our financial health. The FDIC simply does not have the ability to oversee, and regulate these multi-directional behemoths that no longer resemble traditional banks. There is much talk today of a super regulator to fill in the void… It is my opinion that this would be a colossal mistake, and would pit the unwieldy, super powerful, giants against the rest of the more traditional banks that have for the most part, played by the rules.

It is these traditional banks, the local community banks like ours, and many others across the nation that continue to play a significant role in the support of the vast majority of businesses today. In fact, the only increase in lending is occurring at the community bank level. While there is certainly a place for national bank players, they must adhere to the same regulatory process as it relates to risk, and if they are going to be afforded FDIC insurance coverage, must be forced to pay higher premiums as they elevate their risk profile. In turn, no bank should be allowed to grow larger than the FDIC’s ability to determine insolvency, and the ability to prosecute an orderly wind down of a failed institution. That is all but impossible today…

There are only 19 banks today with assets over $100 Billion… Almost 100% of the problems we are facing reside at those banks… For them, the Stress Tests so far have proven that it is acceptable to take outsize risk, become “too big to fail”, and then win whether your risk pays off, or seek government intervention if you failed.

On May 4th, let’s be done with the stress tests, and begin to look for a permanent solution that will benefit not only the visible 2% of banks in this country, but instead will support the transparent, vitally important 98% who are being penalized from this crisis…

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