Press of Atlantic City

State And Local Bankers Criticize Landmark Reform Bill

The auctions are on the rise even in Cape May County, which had been relatively spared until now

Press of Atlantic City — Tuesday, July 13, 2010

Staff Writer

An historic financial reform bill that would change how Wall Street is regulated would be a burden on smaller banks and could lead them to lend less, a statewide bankers group and leaders of local banks said Monday.

John McWeeney Jr., co-chief executive of the New Jersey Bankers Association, said traditional and community banks would be unfairly hurt by the reform. Many smaller banks were lending conservatively anyway, he added, and did not offer the risky subprime loans and other products that contributed to the economic meltdown in 2008.

"There should be reform. There were problems with the system that led us to the precipice of almost a financial disaster a year and a half ago," McWeeney said during a meeting of the bankers association with The Press of Atlantic City editorial board. "But we don't think the final bill is addressing some of the problems that caused that."

His association is critical of the proposed Consumer Financial Protection Bureau, an independent agency that would be tasked with rooting out deceptive practices, such as hidden fees, and ensuring that banks, credit card companies and mortgage lenders explain their products carefully.

While the House has passed the bill, the Senate has yet to vote on the reform, although that could happen as soon as this week. Sen. Scott Brown, R-Mass., declared his support for the bill Monday, which will likely guarantee the legislation has enough votes to be signed into law by President Barack Obama.

But McWeeney said there are already "plenty of controls in place to protect consumers" and that a new consumer protection bureau is unnecessary and would be costly to taxpayers.

"The laws and regulations were in place before, they just weren't being properly enforced by the regulators, and as a result there's going to be a lot more of a compliance burden ... and tremendous amount of paperwork," McWeeney said. The bill "seems well-intentioned, but it's duplicative," he added.

Jay Ford, CEO of Crest Savings Bank in Wildwood, told The Press' editorial board his eight-branch bank spends about $250,000 per year on compliance monitoring and auditing.

Steven Brady, CEO of Ocean City Home Bank and a board member of the New Jersey Bankers Association, said the government should instead "fine-tune" the existing regulatory agencies instead of creating a new one.

"They talk about too big to fail. There's going to be a saying going forward: 'Too small to survive,'" Brady said. "You're just not going to have the staff to keep up with all the new regulations."

Brady's bank, which finished its conversion into a stock holding company in December, has a self-described "conservative operating philosophy." Despite the poor economy, Ocean City Home Bank finished 2009 with a net income increase of almost 44 percent and a slight drop in past due loans as a percentage of total assets.

Brady said banks are still willing to lend to creditworthy applicants, but demand has fallen off.

With the money that banks would have to spend on staying compliant with any new regulations, that could take capital away from increased lending, McWeeney warned.

Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action, a watchdog coalition, said the financial reform bill is a "first great step" in protecting consumers, although she would like to see it go further by including auto dealerships and their lending arms.

"We don't think these are burdensome or over-burdensome regulations. We think they are necessary," Salowe-Kaye said. "If a bank still wants to lend money, they will figure out ways."

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