Reform is needed in the financial services area. More specifically, we cannot afford them to fail quickly! We can afford them to fail and unwind slowly however.
TARP is proof the Federal Reserve acted correctly by stepping in quickly to prevent a massive meltdown over the past two years. Even though it is unpopular with many, history will show the plan was not nearly as expensive as initially projected. We will never know just how bad it could have been, but time will give us some idea.
Speaking about quick actions, the current reform legislation moving toward a vote is not worthy of support. Granted, reform is needed. This process was too rushed and as a consequence needs to be vetted better. The spirit of the bill may be good, but there are tactical problems.
It would be a big mistake to remove the Federal Reserve from their oversight and supervisory duties of small banks. It will be considerably more difficult for the Fed to understand what is truly occurring in the small business and housing sectors without directly supervising small banks.
The consumer protection concept although well intended will compete and cause channel conflicts with the other banking regulatory agencies.
The bill will also raise costs for small banks to conduct business. Community banks did not cause the financial crisis and should not have to suffer as a result of new legislation.
A pause is needed to get all the appropriate players to the table to create legislation that makes sense for the consuming public, banking sector as well as the non regulated non bank financial sector.
Let's get it done right the first time!
Note: William A. Donius is the former Chairman and CEO of Pulaski Bank and Pulaski Financial Corp. in St. Louis, Mo. He remains a Director and Consultant to the bank. In retirement, he is an active board volunteer in the STL community and is writing a book. This essay represents his personal view and may not represent the view of the bank.
Donius was elected CEO of Pulaski Bank in 1997. He took the bank public in 1998 with Pulaski Financial Corp. NASDAQ listed PULB as the holding company. Under his leadership the bank grew from $168 million to $1.3 billion. Pulaski Bank is the largest purchase market, mortgage originator in St. Louis and one of the top three in Kansas City. Pulaski Bank was voted the Best Place to Work in St. Louis in 2007, received a Torch Award from the Better Business Bureau in 2008 and is ranked as one of the best performing smaller banks/thrifts by industry publication SNL.
Donius was appointed to a two-year term on the U.S. Federal Reserve Board TIAC Council in 2008. Donius served a four-year term on the Board of Directors of America's Community Bankers ending in 2007. In addition, he served as Chairman of for profit subsidiary, America's Community Bankers-Partners for two years.