The Rest of the Banking Story

I guess there was a space crunch in The Bristol Press today because only a little part of the story I wrote about the Wall Street reform bill appeared in the paper. For those gluttons for punishment who want the whole thing, here it is:


HARTFORD - The sweeping financial reforms championed in Washington by Connecticut’s Sen. Chris Dodd are designed to protect consumers, but also to spur the economy through building confidence in the banking industry, Dodd said Monday.
“Never, ever, again,” said Dodd, should American taxpayers be asked to bail out a financial institution. Without confidence in the financial industry, the senator said, “the damage is incalculable.”
Bill Englert, owner of City True Value hardware store on Farmington Avenue, said he wasn’t sure how much sweeping financial reform would matter to him or his business.
“I guess it trickles down to me,” said Englert. “By the time it hits me, I don’t know what hit me.”
Under the bill, consumers will have a resource for trouble within the finance industry, Dodd said. He said some changes will help business owners, too, including a provision to prohibit credit card companies from charging a fee for each retail purchase.
“It’s a huge change,” said Dodd.
Englert said the elimination of fees per credit card charge – which he said range from 1.3 percent to 2 percent, depending on the card – would make a difference to him.
“It would be a lot of money at the end of the year,” said Englert.
Farmington Bank President John Patrick said there is a cost to credit card companies or financial institutions that issue cards, in processing and more.
If the bill becomes law with merchant fees eliminated for credit card use, Patrick said, the cost will have to be made up elsewhere.
“I don’t think it’s a good solution,” said Patrick, who said he thinks the cost will show up in higher credit card interest rates or the elimination of some free banking services. “At the end of the day, the consumer ends up paying for it.”
Businesses make a decision as to whether to accept credit cards or not, Patrick said.
“No one’s forcing anyone to take credit cards,” Patrick said.
Patrick said the new legislation is unfairly punishing all financial institutions – even community banks like his that didn’t take part in the subprime mortgage lending or other practices that caused the crisis – for the misdeeds of some.
“We weren’t part of the problem,” said Patrick, who said Farmington Bank and other similar institutions continued to make loans throughout the crisis. “We slug it out at work every day like everybody else.”
The bill, said Patrick, doesn’t have much to do with the “nuts and bolts” of banking.
Though he thinks Dodd is “a very patriotic individual trying to do the best thing for the country,” Patrick said, “Nobody knows what this is going to mean at the end of the day.”
Dodd, whose Wall Street reform bill passed the U.S. Senate last week, spoke with reporters Monday outside the University of Connecticut School of Business.
“There will be other financial crises,” said Dodd, but the legislation will “provide the tools for the coming generation” to stop the problem before it gets out of hand.
Chris Earley, dean of the UConn School of Business, called the bill “revolutionary and very critical and important,” and something that will help the nation move forward after a difficult economic time.
The system now, Earley said, is “chaotic” and “unpredictable” and the legislation, while it won’t prevent abuse in the future, is creating incentives for financial institutions to do the right thing.
The bill puts the onus of responsibility onto the financial industries, said Earley, and because of that, will help get it going again.“The industry is going to feel more confident,” said Earley. “Somebody is watching. It’s not business as usual.”
Phil Sherwood, deputy director of Connecticut Citizen Action Group, said the bill addresses a long overdue issue.
The reforms, Sherwood said, are necessary and will provide a new transparency and protections for consumers that have been missing in the past that will ultimately make the marketplace more fair.
Patrick has been doing his best to keep up with the bill and all its revisions. He said there are many amendments, some of them having nothing to do with banking.
“I think it’s going to have unintended consequences,” said Patrick.
When the final version becomes law, Patrick said, it appears that regulations will require lenders to maintain more of a financial cushion than they do now. That may mean banks like his won’t be able to loan as much, Patrick said.
Patrick said banks are already one of the most regulated industries in the country. He said he doesn’t know how more regulations will give people confidence or make things better.
“Nobody knows,” said Patrick. “That’s the biggest challenge right now. It’s not finished.”
State Rep. Ryan Barry who chairs the House banking committee in Hartford, and Sen. Bob Duff, his counterpart in the state senate, applauded Dodd’s work at the federal level.
“Here in Connecticut we’ve brought reform as far as we can,” said Duff, who called regulating the financial industry “very, very complicated stuff.”
But Duff said the legislation “will bring confidence back to Main Street.”
Dodd said he’s grateful for support from both Republican and Democratic senators for the bill, a version of which is in the U.S. House of Representatives.
There is more work to be done to mesh the House bill and the Senate bill, Dodd said, but he expects it to be ready for President Barack Obama to sign by July 4.