George E. Burns, Commissioner of the Nevada Financial Institutions Division, expressed his concerns regarding the recommendations in the Treasury Department’s Blueprint for Financial Regulatory Reform.

 

“The plan would concentrate regulatory agencies under the Treasury Department’s purview. The current dual banking system of both federal and state chartered institutions has resulted in a wider range of products and services for businesses and consumers, along with lower regulatory costs and more effective, responsive supervision,” commented Commissioner Burns. “In short, the U.S. economy and its banking sector flourishes because of our nation’s unique dual banking system, not in spite of it.”

 

Burns went on to add that the Treasury’s plan will shore up the nation’s largest institutions to the detriment of community banking.  “Community banks, which are predominantly state-chartered, have traditionally, and in the current crisis, been a source of strength and stability for our economy.”

 

The Treasury plan’s proposed federal Mortgage Origination Commission appears to discount the work of state officials who, as early as 1999, recognized that something was wrong with the housing finance system.  In rapid succession the states attempted to create new regulatory regimes and lending standards around the retail channels that popped up to fuel the large banks and Wall Street’s increased appetite for securitized mortgage lending.  The states responded by imposing new licensing and regulatory regimes over brokers and lenders, resulting in over 30 states passing predatory lending laws. 

 

“I am very concerned that the Treasury’s plan, if enacted, may have the very consequences the Treasury Department is striving to prevent,” said Burns.  “By altering our regulatory system to cater to a handful of enormous institutions, the Treasury Department will shrink a financial system that has created the world’s most successful financial institutions, yet still allows for domestic competition. The solution to the current crisis lies not in the creation of a federal ‘super regulator’ but in increased cooperation and coordination among state supervisors and federal supervisors.” 

 

“I believe the Treasury’s plan to expand the federal government’s role in supervision of the financial services industry demonstrates an alarming lack of regard for the important checks and balances provided for in the current dual banking system.  My greatest concern is the detrimental impact this plan may have upon the economy as a whole by creating a regulatory regime that slowly suffocates the nation’s community banks.”

 

State officials are responsible for chartering, supervising, and regulating the nation’s 6,147 state-chartered commercial and savings banks, which represents 72% of all U.S. banks.  However, only 28% of total system assets are held by state-chartered institutions.  The Nevada Financial Institutions Division currently supervises 26 state-chartered banks and 7 state-chartered Industrial Loan Corporations/Thrifts in conjunction with the FDIC and Federal Reserve. Almost half of these state-chartered institutions are considered “de novo”, which are new institutions less than three years old. In addition, the Division is the primary regulator of 11 state-chartered credit unions. Most of these state-chartered financial institutions primarily serve the community banking needs of individuals and small- to medium-sized businesses.

 

In addition to regulating banks, most state financial regulators also supervise the residential mortgage industry.  Under state jurisdiction throughout the country are more than 85,000 mortgage companies with 68,000 branches and over 407,000 loan officers and other professionals.  In Nevada, this area of supervision is handled by the Mortgage Lending Division, which currently supervises over 780 mortgage brokers, 5900 mortgage agents and over 150 mortgage bankers.

 

For more information about the Financial Institutions Division, visit FID’s website at http://fid.state.nv.us/.  For more information about the Mortgage Lending Division, visit MLD’s website at http://mld.state.nv.us/.