As a former banker, I watched in amazement and disgust as the country's largest banks morphed from trusted fiduciaries of customer financial assets to unrepentant predators of consumer financial assets in just a few decades.
I also watched as federal regulatory agencies morphed from policing the condition and conduct of the nation's financial institutions to defending abusive bank practices from state consumer protection laws.
Not surprisingly, these two tragic scenarios proved unsustainable and came close to destroying the financial system, in the United States and around the world.
In the wake of the 2008 financial crisis Congress sought to reform a financial system so totally abused by nefarious practices of its largest institutions and lack of supervision by regulators, that — but for a trillion dollar bailout — it could not function.
Forceful legislation was desperately needed to protect the nation and the public from any recurrence — and to protect the banking industry from itself.
But in a process akin to allowing foxes to influence a farmer's potential improvements to his hen house, Congress allowed the very banks that caused the financial crisis to comment on, critique and compromise the reforms designed to forestall future crises.
Not surprisingly, the resulting Dodd-Frank Act contained only modest curbs to the ability of the too-big-to-fail banks to continue pillaging the country.
Not satisfied that they had not only escaped virtually unscathed — but been allowed to grow even larger — the too-big-to-fail banks have tried every tactic they could think of to weaken reforms.
In an effort to make such outrageous efforts appear more palatable, the American Bankers' Association – the traditional trade group of the largest banks — has now tried reframing arguments in terms of the purported burdens the act places on smaller banks.
Last Wednesday, Bill Grant, chairman of ABA's Community Bankers Council, testified before the House Financial Services Committee on the Dodd-Frank Act's supposed effect on community banks' lending and investment activities. Mr. Grant claimed that substantial costs of the new regulations "weigh most heavily on community banks" and "may drive many community banks out of these lines of business."
He also maintained that "the reaction to the financial crisis has layered on regulation after regulation that does nothing to improve safety or soundness and only raises the cost of providing credit to our customers."
If the ABA is serious about representing the real interests of smaller banks, I offer two suggestions to differentiate this effort from the one the TBTF banks have been waging since reform was first proposed after the government bailout:
1. Distinguish between reform issues relating to community banks and those relating to TBTF, systemically-important financial institutions.
2. Have community banks denounce the unfair, deceptive, abusive acts and practices of larger banks in such areas as credit cards, overdraft programs, personal lending, and mortgage lending, servicing and foreclosure, and seek to have reforms more specifically applied to the big banks that employed these practices, rather than smaller banks that did not.
The financial crisis was caused by the largest financial institutions in the country, aided and abetted by federal regulators that, in the words of the Homeland Security and Governmental Affairs Committee, "failed to foresee the largest financial collapse in the past 75 years."
Without question, reforms should have the greatest impact on the larger institutions that demonstrated the greatest need of reforming.
But, if community banks aren't willing to separate themselves from their larger counterparts, they risk appearing to be agents — or dupes — of the bigger banks.
Either way, it’s hard to see why Congress should entertain any calls for reduced reforms, when doing so places the nation in greater jeopardy of another crisis.
Jim Wells is president of Wellspring Consulting International which seeks to expand access to financial services for transaction-based consumers. He previously worked for Citibank and HongkongBank.