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A Times Editorial

Stand firm on banking reforms

The coming Republican takeover of the U.S. House in January has given the banking lobby hope that key reforms passed in July under the Dodd-Frank financial reform law can be overturned. But voters' frustration with Washington, as expressed in the midterm elections, should not be confused with an endorsement of the financial industry's reckless ways. Congress should stand firm or risk angering voters who just two years ago bailed the industry out.

Among the bankers' wish list for repeal:

Risk Retention Rules: One of the most important reforms in the financial overhaul bill requires lenders to keep some "skin in the game" by holding a 5 percent stake in loans that are packaged into securities and sold to investors. That reform is key to addressing the previous excesses of the mortgage market where unscrupulous lenders, knowing their loans would be entirely sold off and all risk transferred, didn't care if the borrower would eventually default.

Now bankers are pushing to exclude large categories of adjustable-rate mortgages and interest-only loans from the 5 percent risk retention — the very types of garbage loans that created the housing bubble.

Debit Card Swipe Fees: Until now, the United States was one of the few large, modern economies that didn't regulate the fees retailers had to pay banks to accept debit cards at their shops. As a result, U.S. merchants — and by extension consumers — pay interchange fees that are more than double those in Europe, creating a $20 billion cash cow for mostly big banks. That is scheduled to change. The Dodd-Frank law orders the Federal Reserve to determine interchange fees that are "reasonable and proportional," which is expected to cut costs to merchants, and ultimately consumers, by $9 billion annually.

Consumer Financial Protection Bureau: Bankers want Congress to clip the wings of the new federal watchdog agency run by Harvard Law School professor Elizabeth Warren, a staunch consumer advocate. Among the options would be withholding funding or a string of public hearings, neither of which are in constituents' interests.

Derivatives: One of the key reforms was regulating the trading of these complex financial instruments, so-called side bets that greatly contributed to Wall Street's collapse. The probable incoming chair of the House Financial Services Committee, Rep. Spencer Bachus, R-Ala., opposes forcing most derivatives trades into the open, complaining that $1 trillion in business could be redirected out of the U.S. economy as a result. Bachus' push to put derivatives back in the shadows is reckless at best.

The financial overhaul legislation did more to reduce the systemic risks of our financial system than any legislation since the New Deal. Pulling back from these new regulations would only increase the chances that the banking industry would put America's economy at risk once again. Congress needs to stand firm.

Stand firm on banking reforms 11/19/10 [Last modified: Friday, November 19, 2010 7:25pm]

    

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