Five years ago in July, legislation was passed to address problems in the financial markets resulting from the 2007-08 financial crisis. A major goal of the Wall Street Reform and Consumer Protection Act, commonly known as Dodd-Frank, was to reform Wall Street and prevent the federal government from ever again bailing out huge megabanks that are literally a threat to the economy.
I regret to report that this promise has not been fulfilled. Many authoritative sources have also concluded that the extremely large, internationally connected Wall Street banks are more dangerous to the economy today than when the crisis occurred.
There is also consistent comment by federal regulators that the Wall Street institutions have deep cultural impediments that contribute to unsafe, unsound and unethical behavior. The risks posed to the economy by these banks is partly due to their being substantially larger and more complex than at the time of the crisis and that they remain significantly undercapitalized.
The Louisiana Bankers Association strongly supports ending the too-big-to-fail policy and supports steps necessary to prevent another financial meltdown and bailout.
This situation exacerbates the struggles of Louisiana’s 136 Louisiana-domiciled community and regional banks as they are held to higher capital requirements, more thoroughly examined and held to a higher standard of accountability for personal conduct. While community and regional banks had no role in the financial crisis, that did not prevent Congress from lumping all banks into Dodd-Frank and producing a regulatory morass that ultimately harms consumers as much as it harms the bank.
Some of the very bank regulators charged with implementing Dodd-Frank are also advocating regulatory changes for community banks to help them better serve their customers. There is now broad consensus in Congress and federal and state bank regulators that community banking has been unduly burdened by regulatory overkill. This impedes economic activity and is partly responsible for Louisiana losing 26 community banks since the passage of Dodd-Frank.
Ultimately, I believe the best answer to protect the consumer is not Washington regulators trying to control every aspect of banking transactions but in helping consumers understand their financial decisions. Financial literacy empowers individuals to make good choices, avoid financial shysters and better control their financial future. The LBA and bankers in Louisiana have been active in promoting financial literacy, but more needs to be done. Last year, the state legislature passed a new law that adds financial literacy as an option to fulfill the math component in the high school career track diploma. This is potentially a great step, to catch young people in high school and better prepare them for making good decisions.
Robert T. Taylor
chief executive officer, Louisiana Bankers Association