Drawing Lines In The Sand

HR 1723 was shot down last week. While I didn't talk to any of the bill's sponsors about it, I honestly don't think any of them thought that the bill stood a chance of passing. I think it was another case of community bankers, and those federal legislators who support them, laying down markers to build momentum for future legislative efforts following the 2012 elections, and to send messages to the federal banking regulators about hot button aspects of overly restrictive regulation that, community bankers contend, is choking off their ability to lend and, in some cases, to survive.

The American Bankers Association, which community bankers understand speaks for the largest, publicly traded banks, hamstrung the efforts of the bill's proponents by publicly opposing the bill on the grounds that it would cause uncertainty among investors about the validity of banks' financial statements. The fact that regulatory/GAP accounting differences could have been handled by detailed disclosures in the financial statements undercuts this argument, but, then, the ABA has seldom been a friend of the small banks. That's the job of the ICBA.

The federal regulators, of course, also opposed HR 1723. They despise any effort to tamper with GAAP principles in a manner that might preserve any too-small-to-save community banks, albeit this love affair with GAAP was actually an arranged marriage, forced down the regulators' throats in 1989 by Congress. In the good old days prior to the enactment of FIRREA, regulatory accounting principles were a favorite tool of federal regulators to try to preserve financial institutions during times of economic duress. While some argue that such accounting exceptions only compounded the agony, the experience of the agricultural bank rescue program in the 1980s, when extended loan loss amortization forbearance saved many agricultural banks, contradicts this shibboleth. Of course, these programs involve some risk, taking risk requires courage, and that's in short supply in the 21st century in D.C.  These days, the only "institutions" that seem to be within the regulators' cone of compassion are themselves and the too-big-to-fail banks. As to the rest, it's easier to just say "no" and let them eat cake.

HR 1723 is only one a number of bills that have been and will be introduced to try to regulate the regulators. It's going to be a long, hard slog.