Tester Urges Congress to Take Up GSE Reform

WASHINGTON — Sen. Jon Tester told bankers Wednesday that lawmakers can reach a consensus to restructure the housing finance system despite ongoing "political football."

In a speech before the American Bankers Association, Tester vowed to bankers that he would hold Fannie Mae and Freddie Mac accountable and ensure a level playing field to the secondary market for community banks.

However, he maintained his support for some kind of federal backstop until more private capital can enter the housing finance market.

"We must also make certain that our housing finance system has the strength to maintain liquidity even in the midst of economic uncertainty," said Tester, a member of the Senate Banking Committee. "Had the federal backstop not been created, we would have seen far worse constraints on mortgage availability and a more drastic decline in housing values."

Despite reservations, Tester urged lawmakers to restructure the housing finance market immediately.

"Despite what you may have heard, the opportunity to build consensus is there," he said. "But we've only tinkered around the edges. We have not undertaken the comprehensive changes that are needed to reform our housing finance system."

Tester took a stronger stance on banking than Sen. Mitch McConnell, who also spoke at the event but focused mostly on concerns about the national debt and deficit. McConnell did, however, voice his support for delaying the confirmation of the Consumer Financial Protection Bureau's Director Richard Cordray until the agency is restructured, claiming it aids the concept of "too big to fail."

"We also don't think we are to perpetuate 'too big to fail,'" he said. "That's how we got here in the first place. And it seems to me, this [Bureau] potentially even does that as well."

McConnell was the only lawmaker to open the room to questions, though he deferred most inquiries on banking, including whether Congress should create an independent appeals process for disputes about bank exams and a possible delay on Basel III rules. Under the Basel III, "we'll lose half of our regulatory capital … and we'll come back from that, but what it does mean for us and the whole industry is a reduction in lending?" said one unidentified banker who asked McConnell to propose a study on Basel III's impact. "There will be a tremendous reduction in lending across the entire banking system in the United States if this rule goes in as its being proposed."

McConnell instead referred the banker to members of the Senate Banking Committee.

"I don't want to be appearing that I'm dodging your question but I don't know enough about the subject, candidly, to give you an intelligent answer," he said.

Sen. Richard Shelby, one of the top Republicans on the Banking Committee, introduced a bill Tuesday that would require regulators to delay implementation of Basel III while its impact is studied.

Like McConnell, Tester also voiced concerns about the CFPB and said regulators should be careful not to hold small banks liable for regulations designed for larger institutions.

"For me, it is critically important that the bureau, or any other agency for that matter, understand how their actions affect rural America before they take action," Tester said. "And while they have made some progress, there is still some work to be done to ensure this legislation is implemented the way it was intended and that the rules for the largest financial institutions don't become de facto rules for community banks."

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