American Bankers Association Opposes Consumer Financial Protection Ageny and Pre-Funded Dissolution Fund

While generally supporting reform of financial regulation, the American Bankers Association opposes the creation of a new federal Consumer Financial Protection Agency. In a letter to Senate Banking Committee Chair Christopher Dodd and Ranking Member Richard Shelby, the association also said that a pre-funded dissolution fund to help resolve failing financial firms would be inconsistent with ending the too big to fail doctrine since a pre-funded approach is, effectively, a too big to fail fund. The ABA believes that funding the costs of dissolving failed financial firms should be done after the fact. The bill passed by the House pre-funds a dissolution fund with assessments on financial institutions.

The ABA opposes a new Consumer Financial Protection Agency because of the unworkable conflicts it will have with federal banking regulators, the sweeping powers the new agency will have, including the ability to design its own products and require that they be offered. The ABA favors an approach that requires more focus on consumer issues, greater coordination, and more accountability to existing regulators. The ABA also opposes the elimination of federal preemption, which would greatly increase the cost of credit and financial services as banks comply with a myriad of state regulations.

With regard to the resolution authority, the ABA does not support using the FDIC to wind down non-bank institutions, such as investment firms. Since the public understands that the FDIC ensures bank deposits, reasoned the ABA, there is a real danger that the public could become confused if the FDIC unwinds a securities firm. This confusion could undermine the public’s confidence in federal deposit insurance.

The ABA also believes that the resolution mechanism should rely on traditional bankruptcy policies and rules to the maximum extent possible, particularly regarding secured creditors. Currently, the House and Senate bills construct a resolution regime outside the federal bankruptcy code. The ABA criticized new uncertain rules on haircuts on types of security.

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