I submit that even before the OCC issued its pre-emption order our system was out of equilibrium. The solution the Comptroller envisioned to correct this disparity solved the national bank part of the problem but tipped the system's balance even farther from the center. Questions are being raised as to what the future of the dual banking system might be. We need to be brave and forward looking enough to ask the question: does it still make sense in this day and age to have a dual banking system? Should it be constructed differently?
Adopting the Roundtable's proposals will not cure what is wrong with our system. I support their concerns but I cannot support the proposed solution. I do not believe that it addresses the underlying problem, which is that the banking world has changed and we are all trying to deal with that change with unilateral actions. The effect of those one-sided actions has been to push the system out of balance. We should acknowledge that answering the OCC's pre-emption order with another, similar action will make the situation worse.
Over the last ten years, the banking industry has exploded in many new directions, with multi-state operations, mergers, acquisitions and many, many new and complicated products. Law makers and regulators, in a race to keep up, did what they do best, passed laws and wrote regulations in an effort to keep abreast of the latest and greatest banking innovations.
State legislatures have always worked overtime to protect consumers. Many of these consumer protection laws were and are good, sensible advances in the face of the changing industry. Others are the focus of debate. But, as happens when well-intentioned legislators work overtime, things can get out of kilter. The state consumer protection laws were written and passed with the best of intentions – to protect consumers from products that might not be in their best interest. We have all heard the horror stories of hardworking people refinancing their homes to pay for needed repairs, or medical expenses or school for their children, only to lose everything to a predatory lender.
Not every state approached this sort of problem with the same vision. In some cases, the resulting laws required little extra effort from banks – regardless of charter. Some required a great deal. The point of fact is that each required something different. As a result, interstate banking, which is a relatively new concept, has become very complicated. This was an unintended and unanticipated consequence of the consumer protection movement that engendered a disastrous result and is a causative factor in our being here today. But not the only cause.
The action of the OCC is understandable from their point of view, but it has upset the balance of the dual banking regulatory system as we know it, and as it is currently constituted. Now we have a situation where one group of financial institutions is subject to only the loosest of guidelines, while the others, those that are state chartered, must follow the rules that vary markedly from state to state.
Remember that the OCC preemption goes even further, to the operating subsidiaries of national banks. This gives us cause for concern in the mortgage and money services businesses area. What self-respecting, profit driven financial services business will not want to be owned by a national bank if they can then avoid state oversight?
Therefore it is critical that a means be crafted to establish national standards regarding financial entities, and their parent banking organizations, along with a very clear understanding of who is responsible for what.
The FDIC has made a great start toward reaching our shared goal of a rational and comprehensive approach to difficulties and complexities surrounding the regulation of financial services by opening up a discussion of the issue. No one person or entity can solve the problem by themselves. Everyone involved must have a say and be a part of the solution. This multi-party, multi-level discussion must continue!
This is not a problem that we can solve parochially or with localized legislative Band-Aids. A strong national standard will create the level playing field for the banking industry. Furthermore, mortgage bankers and brokers and MSBs should not be permitted to hide behind the skirts of national banks. State regulators and laws should be able to protect their consumers.
It is time for all of us to step back and remember why we are here: we are here, as regulators, to protect the safety and soundness of the banking system; make sure consumers are treated fairly; and ensure an atmosphere in which our institutions can operate efficiently and effectively. This is not about any one regulator. It is about the viability and health of the system as a whole. The system that has helped make our country so strong – the financial center of the world, is worth it. And we need to all work together to bring it back into balance.