Op-Ed: Finance regulation plan may hurt small Alaska lenders
No one disputes the need to corral Wall Street and rein in the largest financial institutions that were responsible for the economic crisis. A major piece of the back and forth debate in the Senate this week has centered on whether the pending financial reform legislation casts too wide of a net, ensnaring small, community-based banks and credit unions that had nothing to do with the economic meltdown.
So even though negotiators have reached an agreement to debate the financial regulatory reform bill on the Senate floor, I remain concerned that the legislation will make it more difficult for Alaska's small banks and credit unions to operate and for Alaskans to access credit. The bill, as it now stands, is simply too broad in its reach and threatens to heap costly new regulation on institutions that did not cause the financial crisis and whose business activities we are counting on to get our economy back on track.
Over the Easter legislative recess, I spent a good deal of time meeting with and listening to stakeholders in our state's financial services community. What I heard time and again -- from our credit unions, our community bankers, our housing finance agency, and even our car dealers -- is that this bill has far reaching impacts that go way beyond Wall Street. This bill affects the extension of credit in the United States, meaning it could potentially affect every Alaskan who takes out a home or car loan and every small business looking for financing or start-up capital. It also has impacts on non-financial entities -- essentially any business that extends credit in more than four installment payments is potentially subject to regulation under the bill.
At the end of the day, the final legislation must give regulators tools to prevent companies from engaging in the type of risky behavior that brought down AIG and led to the collapse of Lehman Brothers and Bear Stearns. And when a company does fail, the expectation must be that losses are borne by its creditors -- not the U.S. taxpayer. The era of bailouts and too-big-to-fail must end, and we need to demand a greater level of transparency in our financial markets. But we need to do it in a way that does not needlessly divert capital away from activities that lead to job creation or that strangles our community banks, credit unions and non-financial institutions with burdensome regulations.
The 2008 credit crisis is a very unfortunate reminder for us all just how interconnected the global economy is and how dependent the health of our economy is on the flow of credit and capital. Over the last year and half we watched the tragic consequences of Wall Street's recklessness, which caused credit markets to dry up, and sent Main Street's economy into a tail spin. We must make sure that this never happens again, but we cannot allow institutions that had nothing to do with the crisis to be the casualties of this endeavor.
I hope we can get there. It will take both parties working together in good faith. This issue is too important to allow politics or partisanship to get in the way.
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Source: Originally Published in the Anchorage Daily News on April 29, 2010