ABA Banking Journal - January 2009 - (Page 22)
COVER STORY: WASHINGTON OUTLOOK The challenge ahead A new Congress, and a new administration, hold out the potential for major revision of the American financial system T he future authors of economic textbooks and financial histories are out there somewhere. Maybe they are in grade school. Maybe they are not even born yet. They’ll be able to write, in neatly ordered reflection and hindsight, about the most challenging period for the current generation of bankers and leaders. And they’ll wonder what it was like to live through it all, much as we, today, used to read about the Depression and its landmark banking legislation, and marvel at how all that chaos created a financial system and parallel regulatory system that has, after all, worked reasonably decently for 75 years, and continued to prove itself in the midst of an ongoing crisis period. But today’s bankers, members of Congress, outgoing and incoming Administrations, and other players don’t have the luxury of reviewing history, all nicely tied up, and with the knowledge that the story had a decent ending. They’re living—you’re living—through all the noise, opinion, conflict, angst, and stress that tectonic historical events bring. “I truly believe that this next year is going to be as important as what happened in the 1930s, for the future of the industry,” ABA’s President and CEO Edward L. Yingling said in late 2008. There have been black eyes for everybody in the current environment, both deserved and undeserved. But the banking industry goes into the new year with a reputational—and very real—advantage that other industries don’t have, according to Floyd Stoner, ABA’s Executive Vice-President for Congressional Relations. “Through all this recent turmoil,” he said, “the insured depository model is the model that has been ratified all the way along.” The relative stability of traditional banking and its longstanding regulatory structure shouldn’t be minimized, Stoner believes. In mid-December ABA Banking Journal met with Stoner and ABA’s two other top government relations experts: Wayne Abernathy, executive vice-president, Financial Institutions Policy and Regulatory Affairs, and Robert Davis, executive vicepresident, mortgage finance, risk management, and public policy. The three are veterans between them of Capitol Hill, FDIC, the Treasury Department, the Commodity Futures Trading Commission, the private sector, and academia, in addition to their many years of association work. By Steve Cocheo, executive editor 22 JANUARY 2009/ABA BANKING JOURNAL Abernathy and Davis added to Stoner’s point, which serves as a preamble to a discussion about the Washington outlook. “When a bank gets into trouble,” said Abernathy, “there’s a system to catch the problem, to work it out, to make sure it’s handled in an orderly fashion.” When news of bank closures and resolutions are announced over a weekend, as is typical, it may mean unsettling headlines Monday morning, but FDIC and other regulators involved know the routines and the rules. Even where they find new twists, they are building on longstanding practices and experience. Davis pointed out this circuitry doesn’t exist for other players. The housing legislation of the summer of 2008 was a good example, said Davis. “For many years, an effort had been made to establish a bank-like regulator for Fannie and Freddie,” he explained. “That was finally done five weeks before they were seized. That legislative package was an endorsement of the strength of the bank-like regulatory structure. And you’re going to see more things like that.” Without that structure, added Abernathy, what happened to Fannie and Freddie “would have been a disaster.” By contrast, no such formalized mechanisms exist even now in the securities industry, Abernathy said. “So you have had some very quick, fast dancing to try to create it on the fly,” he said, referring to such cases as Bear Stearns. “The Federal Reserve was using banking programs to help out with Bear Stearns and later, the Lehman Brothers problem.” The conversions of Morgan Stanley and Goldman Sachs to bank holding companies further support this point, said Stoner. “We don’t have large investment banks that are not now bank holding companies, and insurance companies are buying thrifts” to get under the TARP capital umbrella, Stoner said. Lame ducks and spring chickens This trio was looking ahead to the arrival of the new Congress and a new administration even as each was working with a lameduck session of the 110th Congress. Congress, said veteran Hill lobbyist Stoner, had spent the fall watching the centerpiece of its legislative response to the crisis, the Emergency Economic Stabilization Act of 2008, turned inside out. The transformation of most of the first tranche of Subscribe at www.ababj.com
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