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Senate Bill Contains A Gift For Big Banks

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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.

Florida doesn't allow de novo branching and its local banks are vocal opponents of changing the law. They went to Grayson, and Grayson took their concerns to Frank, who said he had no problem removing it.

Frank told HuffPost that Treasury didn't object to his removal of their provision.

"I don't get much from pushback from Treasury," Frank said. "They need me. I don't need them."

The lobby representing small banks -- the Independent Community Bankers Association -- was glad to see the gift to big banks taken back, Steve Verdier, an ICBA senior vice president, told HuffPost.

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.

Now that community banks are expressing concern, the provision will get a fresh look, she said, emphasizing that Dodd's bill is a discussion draft only.

Treasury, however, still wants it. "This eliminates a difference between thrifts and banks. While banks are subject to these limits, thrifts are not," said Treasury spokeswoman Meg Reilly. "Although we are proposing to eliminate the thrift charter, this is an important step towards increased competition in banking and will reduce costs for consumers."

The little banks don't see it that way. "ICBA opposes this part of the bill; we'd prefer to let the states handle this issue, as they have for years," said Verdier.

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