Proposed Financial Overhaul Bill
Rdan
How does Congress keep track of such things, if at all, and again who reads these things except those willing to be wonks or lobbyists?
Sen. Chris Dodds Proposed Financial Overhaul Bill can be found at the link.
Huffington Post notes that de novo is back from Treasury:
Despite bipartisan consensus on Capitol Hill that the size and interconnectedness of major financial institutions poses a grave risk to the system as a whole, Senate banking reform legislation includes a provision that will help them get even bigger. The provision — long desired by the big banks — would allow them to open new branches in states regardless of local laws. This is known as de novo branching. The provision was first put forward by the Treasury Department in the financial regulation reform bill that it sent to Congress. House Financial Services Committee Chairman Barney Frank (D-Mass.) initially included the provision in his bill, but removed it after a Democratic committee member, Rep. Alan Grayson of Florida, asked that it be taken out. […] But weeks later, when Senate Banking Chairman Chris Dodd unveiled his new financial reform package, the de novo language popped up again — a verbatim copy of the Treasury language. That had observers scratching their heads at the resilience of the language. The conformity to Treasury’s wording was no coincidence. “That was just something we pulled straight from the administration’s proposal,” Kirstin Brost, a spokesman for Dodd’s banking committee, told HuffPost. …
IF anybody sees a good summary of this monster bill please put up a link,
I;m still chewing on the health care bills.
I would take the de novo position a bit further and allow credit unions to offer membership to anyone the want to in communities where they have offices. (The credit unions choice) Give the banks some real competiton and go to the coop model instead of the profit motive model. This move would move consumer finance to the credit unions (since in general they give a better deal than banks) and leave banks with business finance.
For those interested in reading the wording, it is on page 363 Section 612 here: http://www.docstoc.com/docs/15689761/Sen-Chris-Dodds-Proposed-Financial-Overhaul-Bill
For those interested in other discussions:
Capital Levels on page 366
and Derivatives (Swaps) on page 368
Thank you run. I put it up but did not have time till now to take a look.
Two separate planes of competition. I could be wrong (and maybe Rebecca or someone else can comment); but, I do not believe Credit Unions would NOT (correction) impact the bigger banks for which this carrot has been tossed to in this bill.
Just to understand, are you saying that the credit union measure would impact the big banks? (the double negative in the posting has me a bit confused). If so so much the better, if not it still helps the consumer it seems then a win win. The contest then becomes between the local banks and the big banks for small business, and it appears that the local bank gives better service in a lot of cases and wins.
Lyle:
I had come back to reread this and changed it as I thought I had made a mistake. I meant “not” or the credit unions will have little impact on big banks.
Similar to the striking down of Usury laws by SCOTUS in Marquette vs First Omaha (1978), the impact of de novo branching will be esconced in the laws of the state from which the banks are chartered . . . South Dakota(?) more than likely for National banks. State laws in which the bank has a branch in will be swept aside in favor of the state in which the banks are chartered. In Marquette vs, Omaha Justice Brennan interpretted the National Banking Act to have meant Congress always intented to create a National Banking system even though it would mean states would have difficulty enforcing state usury laws (which are virtually non-existant now). http://en.wikipedia.org/wiki/Marquette_Nat._Bank_of_Minneapolis_v._First_of_Omaha_Service_Corp.
Challenges to “Late Fees” were also swept aside in favor of the National Banks such as Citibank and Wells Fargo in Smiley vs Citibank (1996). If my memory serves me correctly, the only time the National Bank Act was changed ocurred when Greenspan, Summers (and probably boy-Geithner), Levitt, Rubin, and Gramm (Phil and Wendy) were pushing the 1999 Financial Services Moderization Act which allowed Citibanks and Travellers to combine and swept aside the remnants of Glass-Steagall which had been previously “gutted” with revisons to section 20 by a Greenspin led Fed.
Allowing unregulated (by states) branching by National Banks will have the same impact as the striking down of “Usury laws” and the federal court’s enforcement of “Late Fees” in that the larger national banks will have greater leeway in the states to the detriment of consumers largely. Furthermore, de novo branch banking further enhances the TBTF paradigm to which Congress at a time when restraint to growth of these few should be considered instead of being has been slow to react too and to which this Act was meant to counter.
We have been down this path before with promises of greater competiton, access to credit, and lower fees by Banking and Financial Institutions. And today’s results have proven the fallacy of these arguments with interest rates at 30%, Late Fees greater than the amount owed, and with loans the mafioso would have been proud to offer.
While I agree the smaller banks and credit unions are more consumer friendly, this portion of the act will impede competiton and increase costs for consumers as previously experiences since 1978. Big banks do not need any more help and we have paid dearly for their speculative practices in conjunction with W$. If Congress was really interested in fixing the issue for consumers; it needs to reinstitute Usury limits, regulate derivatives, mandate reserves on CDO/MBS, CDS, etc., and consider the amount of gross banking profits that can be placed on W$ (which was what Section 20 did).
A few fragmentary comments:
So let’s see if I have this right. If the de novo branching thing goes through:
— Banks chartered in the most lenient states get to carry those leniencies everywhere.
— States that try to regulate, will only hold sway over local banks, not the big interlopers “from away.”
— Ergo: de novo branching selectively disadvantages the most local banks, and effectively wipes out state regulations.
=====
Credit Unions: I live in a province where credit unions are all over the place. They have been growing dramatically over the past 20 years, and merging, so that many of them are of a size to compete easily with the banks, at least in business and personal financing at the local/provincial level. But one of our biggest successful CUs is in hot water due to a pattern of loans made to three largish local businesses, which seem in the aggregate to constitute a kiting scheme.
Moral? Big is bad? Not necessarily. But big seems to lead to bad, maybe due to hubris, maybe because big become uncontrollable.
======
Finally, on the topic of fees: a few years ago I ran up against a fee that startled me. I had been sent a auto insurance refund cheque, drawn on the Bank of Canada, at their downtown branch. So I went into the branch to cash it. They wanted to charge me a $5 service charge (about 10% of the face value) to cash a cheque drawn on their own bank, issued by a government agency. The humorless Chinese manager came out to impatiently tell me I ought to “take it to my own bank” (about 7 miles south, and 40 minutes by bus) because “we don’t know who you are, you could be anyone.” (Apparently photo ID is not good enough.)
I got my cash at last, by being quite snotty and persistent. “Just this once,” scolded the Dragon Lady.
Fast forward a few years: You know what they do now, to protect the banks from another such hassle? They issue the cheques without a street address on them.
Noni
But practically does it make that much difference, since a large bank could always buy 1 community bank in a state and they are in? If you run a community bank and the big bank makes you an offer of twice what the bank is worth would you turn it down? So all the banks need is their clever lawyers (of which they have a surplus) to figure a way around the current issue.
The big banks want it?
I’m against it.
I’ll think of a reason later.
=====================
Seriously — the state where the banks can buy the most legislators cheapest sets the rules for everyone? That’s nuts.
How about we scrap this and try some serious anti-trust action instead? I could get behind that. How come all the politicians claim they want to be like Theodore Roosevelt, but none of them are?
Rdan,
“How does Congress keep track of such things, if at all, and again who reads these things except those willing to be wonks or lobbyists?”
If you ever find the answer to this question could you post it??? 🙂
Islam will change
my guess is that no one keeps track of it unless they have a direct interest. the congress may rely on public interest groups to point stuff out, but as long as public interest means “no money” and big bank interests mean “we have money” we will see the american economy repeat the mistakes of the past 30 years until it destroys itself.
what hurts is that obama’s advisors seem to be from the “bank” school.
I worked in large banks for about 15 years. That’s why I now have all my accounts at a credit union. Federally chartered credit unions can now include anyone in the communities they serve. When I was working at the banks, very few de novo branches were opened. The cheapest way to expand is to just buy another bank or some of its branches. The bank I worked for regularly bought existing branches. Opening a de novo is an expensive and time consuming task. It really is the toughest way for a bank to expand so it isn’t a slam dunk way to become to big to fail. That said, I’ve never thought that national banking was a good idea without very tough federal regulations. Canada has national banks but they are more heavily regulated than ours. Meanwhile, join your local credit union, they’ll treat you better.
Marvy,
My bank started out as a local community bank and then my account went through a series of banks eating smaller banks and I know at one point in time without doing anything my account was owned by my mutual bank, BayBanks, Bank of Boston, and Fleet, and finally Bank of America. BOA has the most ATM’s so i’m happy with them.
The attribute that I want most from a commercial bank is convenience for making deposits and withdrawls. Next is low transaction costs followed third by interest paid on my account balance.
Is there a reason that I should know about for chosing a smaller bank given what I value.
Lyle:
I am going to surmise that while they can buy banks in another state, they are still subject to the state’s laws whereas this particular amendment placed back into the wording of it by the Senate makes state law subordinate to the act. Here again, states would not be able to regulate banks. Most recently with the failures of banks (150+ and counting [twice last year]); attempts to regulate banks by states was blocked by the federal government over the last 8 years. I kind of have to agree that if Big Banks want this and they have already proven themselves untrustworthy, then there is something more to it. Lets see if someone else can add to this. I have given you a pretty good history to back my contentions up so far.
Cantab
absolutely not. short term self interest is always the most reliable guide to behavior.
Coberly, yes but my question was is there something that I should know about that I’m not considering that’s important and this could be either based on short or long term self interest.
Remember all interest is self interest. Economists can model it with a utility function of the form: U = f(g1,g2,…,gn;a1..a1) where g’s are for consumption of geed statisfying commodities and the a(s) are for a positive altruism externality based on consumption of others. This just models the simple true that when free to choose people with pick what they value the most given they can afford it. You could also have a utility function of the form: U=f(x1,x2) where x1 is based on short term interest and x2 is based on long term interest.
By the way it this sounds to petty you could add a high minded spiritual element to the utility function.