Today, the Senate began debate on financial regulatory reform, after Republicans finally agreed to end three days of obstruction last night and allow the bill to come to the floor. Ever since regulatory reform first began to move through the House of Representatives last year, the GOP (and its allies in the big business community) have sought out sympathetic figures that it (falsely) claims the legislation will have an adverse effect upon. Florists, churches, and the makers of Snickers bars have all had their moment, and today’s choice is community bankers.
First, Sen. Saxby Chambliss (R-GA) appeared on MSNBC to decry the effect of derivatives regulation on community banks. Then, Sen. Richard Shelby (R-AL), the ranking member of the Senate Banking Committee, went to the Senate floor to claim that resolution authority — the proposed mechanism for unwinding large, failed financial firms — would give large banks an advantage over their smaller counterparts. Watch a compilation:
Neither of these concerns has a basis in reality. Chambliss is worried about the effect of derivatives reform when 97 percent of the activity in the $300 trillion derivatives market is undertaken by just five mega-banks: JP Morgan Chase, Bank of America, Goldman Sachs, Citigroup and Wells Fargo. I’m not sure what sort of derivatives trading Chambliss thinks is occurring at the community level, but reform should make it cheaper for businesses to use derivatives to legitimately hedge against risk.
As for Shelby’s concern, the fact that resolution authority will enable the very biggest banks to fail (instead of being propped up by the government) should benefit smaller banks — which already have a mechanism in place for when they fail — by removing the big firms’ implicit government guarantee.
But if the GOP is really concerned about the effect of regulatory reform on community banks, then it should be embracing the push to levy a bank tax on the biggest financial firms. This would help level the playing field by making it more expensive to be a large interconnected firm (offsetting some of the funding advantages that such size conveys). The Congressional Budget Office has said that a bank tax would “improve the competitive position of small- and medium-size banks, probably leading to some increase in their share of the loan market.”
Of course, the GOP has shown no inclination to support a bank tax. In fact, it has actively scoffed at the idea. But Sen. Max Baucus (D-MT), chairman of the Senate Finance Committee, said earlier this week that “I don’t think there’s much doubt that there will be a bank tax.” So will Chambliss and Shelby jump on board?