Puerto Rico Bankers Association Supports Deregulation
SAN JUAN – The Puerto Rico Bankers Association has joined 52 other state bankers associations to support the Financial Choice Act, which is now in the U.S. Senate, and would repeal most regulations imposed on banks as well as many consumer safeguards put in place after the 2008 financial crisis.
“The Bankers Association has joined the efforts of other members of Congress and the Treasury Department to deregulate banking while demanding benefits to consumers, so we are part of the actions and letters sent to members of Congress, and the majority and minority leaders as part of lobbying efforts,” said Zoimé Álvarez Rubio, the organization’s executive vice president, in written remarks to Caribbean Business.
While the bill is touted by its authors as holding Washington and Wall Street accountable and ending bailouts, in reality it repeals many of the provisions of the Dodd-Frank Act to prevent the repeat of the 2008 financial crisis.
Title VII of the Choice Act would restructure the Consumer Financial Protection Bureau (CFPB) so it no longer brings actions for unfair and deceptive practices against banks or insured depository institutions. The entity, which would be renamed, would no longer have rulemaking authority over employee benefit-compensation plans, people regulated by the Securities & Exchange Commission or act against banks trying to rip people off. The proposed act also eliminates the so-called Durbin Amendment that imposes caps on fees for the use of credit and debit cards, which means consumers may see hikes in those fees.
The legislation would require the federal regulatory agencies to tailor future regulatory actions based on the risk profile and business model of the type of institution. The bill would also repeal the so-called Volcker Rule, which prohibits banks from investing or trading in hedge or equity funds, and the Labor Department’s fiduciary rule that requires retirement investment advisers to act in clients’ best interest.
It would also repeal the Orderly Liquidation Authority (OLA), a fund that helps pay for entities’ operation while they go through a resolution, and is funded by large financial institutions. The OLA would be replaced by a process under the Bankruptcy Code.
The Federal Deposit Insurance Corp. (FDIC) will be unable to provide liquidity to banks that need it, but will continue to insure depositors.
Under the bill, bank regulatory entities will have to go to Congress to seek funding instead of getting funding independently.
The Bankers Association and the 52 bankers groups noted that while no single piece of legislation is perfect, there were areas they supported. For instance, they favor a provision that would empower regulators to mold their actions to the business model and risk profile of each financial institution.
“Legislation that would unlock mortgage credit, whereby treating any loan held in portfolio as a ‘qualified mortgage,’ would make homeownership more accessible without harming safety and soundness. Refining liquidity and capital requirements will help banks better serve their customers, clients and communities, and by encouraging banks to hold municipal bonds and accept municipal deposits, can help rebuild our infrastructure,” the groups said in a letter to Congress.
Dimas Rodríguez, incoming president of the P.R. Mortgage Bankers Association, said the legislation would allow banks to take more risks, which is something that will help consumers. He doubted banks will go back to practices that led to the 2008 financial debacle. In Puerto Rico, the issuance of subprime mortgages, which are given to individuals who could not pay, is not a practice of the sector as it is in the mainland U.S.
Aurelio Alemán, president & chief executive officer of FirstBank, welcomed the idea of allowing banks to trade or invest because it would increase their capital and enhance their lending offerings, especially to small businesses that are in need of loans to make improvements.
Alemán welcomed the idea of having regulations tailored to the size and complexity of the bank because “not all have the same level of risk.”