Excessive regulation: Making the case for Main Street

By its very definition, the word “justice” equates with rightfulness and justness of ground or reason.

That’s why the too-big-to-fail regulatory debate leaves me perplexed and concerned about the well being of this great nation.

If we are a country built upon liberty and justice for all, why is our economic and regulatory system so unjustly tilted in favor of too-big-to-fail financial institutions led by too-big-to-jail management teams? Why is our economic system operating on the mantra of “another day, another fine”? How is that right? How is that just? How is that American?

Take for instance the foreign-exchange fines that were handed out in May to JPMorgan Chase, Citigroup, Barclays, UBS and Royal Bank of Scotland, all of which pled guilty to criminal charges that they acted in concert to manipulate international interest rates and foreign currency exchange. Over the span of several years, these banks bilked billions of dollars from unsuspecting companies, international investors and individuals by altering rates in their favor.

And as we know all too well, this isn’t the first time these banks have had problems with the law. Both JP Morgan and Citibank have been held liable for mortgage securities fraud. JP Morgan has also been involved in ’London Whale’ trading, the robo-signing scandal, electricity market manipulation, and municipal bond trading fraud. For UBS, this was the third criminal settlement in six years.

And the result? Fines. According to recent estimates, the nation’s largest financial institutions have accumulated more than $150 billion in bank fines and penalties since the financial crisis.

But is this enough to stop Wall Street’s wrongful, unjust doing? If history is any guide, the answer is a definitive no.

This is simply another government slap on the wrist for the Wall Street megabanks, and just another business expense on their financial statements. When will the government realize that fines don’t work for these financial behemoths and their managements? Fines are nothing more than a necessary cost of doing business.

This is wrong and needs to stop.

By contrast, community banks — homegrown banks that are embedded in their communities during good times and bad — lending, serving and supporting the economic backbone that drives local small business, agriculture and consumer financial stability — are being suffocated by regulations and regulatory scrutiny that’s choking the life out of Main Street.

Take for instance the phone call I received from the $45 million asset community bank with eight full time employees in a town of less than 2,000 citizens who told me his bank has been swarming with regulatory examiners for weeks on end, pouncing on any minor error or small misstep they can find. Or the $83 million dollar asset community bank that had its 16 officers and directors dragged to court, and their assets seized for “poor judgment” in approving loans. How often do you see Wall Street too-big-to-fail officers and directors dragged into court for using “poor judgment”? Never. Even when pleading criminally guilty.

Community bankers aren’t asking for easy treatment, they just want to be treated fairly and justly. If we continue down this path of special deals for Wall Street financial moguls, we better be ready for the frightening consequences that will almost certainly lead us to our next financial crisis.

America deserves better. America deserves a system where Main Street and its citizens are allowed to thrive and aren’t suffocated by a misguided regulatory regime that allows their community’s primary source of capital to deteriorate.

In contrast to the relatively new phenomenon of too-big-to-fail megabanks, community banking in the United States is a system that has worked for centuries. It is a system that is unique to the global financial structure and has helped make our country’s economy the envy of the world. If community banks don’t do right by their customers, they fail. They aren’t propped up by taxpayers. It’s the very essence of a free market system — a key principle of the liberty upon which America was founded.

I challenge America’s lawmakers and regulators to do what’s right and to hold Wall Street to the same laws and regulations as Main Street. Only then will we truly have an economic and regulatory system that is built upon liberty and justice for all.

Camden R. Fine is President and CEO of the Independent Community Bankers of America.