Treasury official reflects on financial crisis

As many of you know, Treasury officials have been meeting with Main Street bankers. We want to better understand the ways that rules and regulatory practices, new technologies, compliance costs and changing capital requirements are affecting their day-to-day operations. What you may not know is that we hold frequent meetings with senior regulators at the Federal Reserve, FDIC, OCC, and the CFPB as well as the state banking agencies to engage on these issues. This provides a vehicle for financial authorities to discuss the concerns of community banks.

We are focused on finding opportunities to strengthen communication, provide greater clarity, improve bank supervision, and reduce paperwork and other compliance costs. It is not in anyone’s interest to have duplicative processes or overlapping rules.

None of this is easy. All of this takes time — sometimes more than we would like. But I firmly believe that every rule we work on benefits from the input we receive. The details do matter. It’s not just about getting reform done. It’s about getting reform right.

Despite all of this progress and collaboration, opponents of reform want to repeal Dodd-Frank or significantly water down the rules. They apparently have forgotten what happened when huge amounts of risk built up inside our financial system. Or perhaps, they must have little memory of the events that unfolded just four short years ago – when major financial institutions were falling like dominos, when panic gripped the markets, when many rightfully feared that we were staring into the abyss of a second Great Depression.

This line of thinking is dangerous. We cannot afford another financial crisis. The price of reform is small compared to the price of another September 2008. The lost homes. The lost wealth. The lost businesses. The lost jobs. I fear that the further we move away from the crisis, the easier it is to forget its tremendous costs.

THE BENEFITS OF SMART REGULATION

We also can’t forget that we have a diverse banking system with more than 7,200 lenders – both big and small institutions. But I believe smart, well-designed rules can accommodate many of the differences between them. We must make our system safer but also minimize unnecessary compliance costs.

Consider how the Dodd-Frank reforms apply to Main Street banks. We often hear that small banks should not be treated like Wall Street institutions. We agree. Main Street banks did not cause the financial crisis. They play a critical role in local economies, supporting small businesses and spurring job growth.

Indeed, the authors of Dodd-Frank recognized this. Accordingly, the law focuses on the biggest and most complex financial companies and ensures that community banks and other small lenders are not subject to many of the requirements that mainly affect larger institutions. Dodd-Frank also contains a number of important provisions that put these banks on a more equal footing with their larger competitors.

First, Dodd-Frank raises deposit insurance permanently to $250,000, providing greater protection for one of community banks’ core sources of funding. And it helps ensure that the cost of deposit insurance is weighted towards firms that engage in more complex and higher risk activities.

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