Panel poised to OK state action on banks
WASHINGTON - Large banks are on the verge of losing a key legislative battle over the shape of financial reform, an unusual setback that reflects the continued political backlash over their role in creating the financial crisis.
The House Financial Services Committee is expected to vote tomorrow to let state governments protect bank customers by imposing restrictions that go beyond existing federal laws, according to congressional and industry sources.
The move would roll back a doctrine called preemption that has allowed big banks to answer solely to federal regulators. The banks argue that operating under a single set of rules is more efficient and results in lower prices for customers. But the Obama administration, which is pushing for the change, regards preemption as a cause of the crisis because it prevented state regulators from quashing abuses.
The change essentially would unleash 50 additional regulators on the largest banks.
Large banks have fought bitterly against the proposal, which they regard as one of the most problematic components of the administration’s financial reform plan, but they have been unable to sway House Democrats.
By contrast, the committee last week granted a major concession to smaller, community banks, agreeing that they would not be directly supervised by a new federal agency devoted to protecting consumers of financial products.
“The community banks were worried about examinations, and that’s why we compromised, appropriately, on the examinations,’’ said Representative Barney Frank, a Democrat from Massachusetts and the committee chairman. “They have political clout. . . . They’re respected members of the community in everybody’s district.’’
The version approved by the committee also is expected to pass the House, but it faces an uncertain future in the Senate, where financial lobbyists regard some moderate Democrats as more sympathetic to their concerns.
