Don’t burden banks that are helping communities

By John Sorensen

Throughout the financial crisis and resulting economic downturn, Iowa bankers have spent their time searching for solutions to help our customers not just recover from financial setbacks but to capitalize on opportunities for future growth. This is the kind of day-to-day, roll-up-your-sleeves work that occurs far from government hearing rooms or Wall Street trading floors, and rarely captures the attention of national media. Yet, at this critical stage in our economic recovery, it is equally important.

Community-minded, traditional lending institutions are the piece of the financial sector that worked during this

unprecedented period, especially in Iowa. Despite an influx of non-bank lenders and originators in the early part of this decade, 83 percent of Iowa home loans are long-term fixed rate (prime rate) loans. Our delinquency and home foreclosure rates remain well below the national average. And, our homeownership rate, at 72 percent, is one of the nation's best.

Iowa also has the lowest per capita credit card debt in the country.

These statistics are a testament to responsible lending and smart consumers. This combination is the only real cure to our country's financial ills.

During the next few weeks, the U.S. Senate will take up financial regulatory reform. Reform is important and necessary. Many lessons have been learned from the experience of the last two years.

We should take steps to close the gaps in financial regulation, better manage risks posed by large, systemically important institutions and develop a government housing policy that doesn't result in undue risk-taking.

But, most of all, we should not burden the very institutions that have been responsibly serving their communities.

The U.S. House version of financial reform fails this test. It creates another very powerful and expensive federal bureaucracy to monitor and influence nearly every facet of a bank's relationship with their customers. Under the guise of consumer protection, an autocratic new regulator will mandate the form of bank products and how they'll be delivered. The result for already overburdened community banks: more red-tape, less innovation and fewer resources available to serve customers. And, the new agency will make demands while ignoring the impact on a bank's safety and soundness.

This is hauntingly similar to the affordable housing mandates that contributed to financial difficulties at Fannie Mae and Freddie Mac.

Even more troubling, the regulatory piling-on comes at a time when our primary focus should be on credit availability for consumers and businesses. We are starting to see some positive economic signals and an uptick in consumer confidence. Sustainable, private-sector growth, and the employment that follows, may be on the horizon. Local Iowa banks should be free to fully apply their financial resources and expertise to our state's participation in the recovery, not to the designs of a federal bureaucrat.

Traditional Iowa bankers will quietly continue their work; leading charitable fundraisers, coordinating economic development initiatives, sponsoring the youth league team, lending to local businesses, facilitating the dream of homeownership, purchasing local government bonds and leading financial literacy efforts at the local school. This work happens, not because of a federal mandate, but because a bank's success is tied directly to the creation of a healthy, thriving community.

It's the piece of the financial system that doesn't require reform.

John Sorensen is president and CEO of the Iowa Bankers Association.