Wednesday, March 10, 2010

Finance Lobby: Regulate, Don't 'Overregulate'

By Ashlie Rodriguez  

Scott Talbott

Senior vice president for government affairs, Financial Services Roundtable

Updated 10:53 a.m.

As Sens. Christopher Dodd, D-Conn., and Bob Corker, R-Tenn., draft a financial regulatory bill, consumer and finance industry lobbyists are working tirelessly to influence the outcome. Consumer groups support the creation of a strong Consumer Financial Protection Agency, but the financial services lobby is skeptical of "overregulation," in the words of Scott Talbott, senior vice president for government affairs with the Financial Services Roundtable.

Talbott, who represents 100 of the largest companies in the finance industry, refused to speak directly about the ongoing Senate negotiations in an interview last week with National Journal, but he was willing to discuss what steps the industry wants Washington to take in confronting a financial system in crisis.

Edited excerpts follow.

NJ: Do you think the government should have let the banks fail so as to deter institutions and investors from taking unwise risks in the future?

Talbott: Yes. We think that the concept of "too big to fail" should go away. We think that there shouldn't be an implicit government guarantee of financial institutions. If they make decisions that lead to their own demise, then they should be allowed to fail.

NJ: The big issue right now is consumer protection. So what should the government do to address this need?

Talbott: We agree we need to protect consumers. There's lots of things that government can do.... You can strengthen the regulation to make them more effective...

NJ: And the banks are OK with that?

Talbott: Yes, and here's why: The fate of the institution and the fate of its consumers are inextricably linked. So if a bank makes a loan to a customer who can't repay that loan, it clearly doesn't help the customer, but it also does not help the bank. And so strengthening consumer protection will help ensure that both the customer and the bank benefit.

NJ: How would you respond to attacks from consumer groups that say the financial services lobby is driving the agenda, is willing to hurt consumers in attempt to protect profits, and stalling progress on reform?

Talbott: Driving the agenda? OK, all interested parties have a role to play. Members of Congress listen to both sides of an issue before making a decision, and I flatly reject the assertion that the industry is driving the agenda.

A willingness to hurt consumers? I clearly will reject that assertion because as I said, the fate of the institution and the fate of the consumer are inextricably linked. Because if you harm your own customers you are hurting yourself.

Actually, we're in favor of reform. We're pushing for it. We are not stalling it; we're trying to advance it.

NJ: What aspects are you trying to advance?

Talbott: We are for a good, bipartisan bill that strengthens our system to prevent [the financial crisis] from happening again. We are for things like systemic risk authority, we are for strengthening consumer protection, we are for resolution authority.

NJ: Why was there a 12 percent increase in lobbying by big banks last year?

Talbott: A couple things. One, there has been culpability, there have been mistakes. Two... this is a watershed moment. This is the history of the future. The regulation of the industry is being decided, so it's important for members of Congress to hear both sides of the issue.

NJ: Would it be a good idea to have more government oversight of mortgage lending?

Talbott: Well, not necessarily. There are other ways to skin a cat. We are for a concept called "skin in the game," which requires a mortgage lender to hold some piece of the mortgage that they made on their books. On a more basic level, we're for a concept called "ability to repay" -- we don't think a loan should be made unless the borrower has a demonstrated ability to repay that loan.

NJ: Do you think more regulations on other companies not covered by banking rules, like credit counseling agencies, debt collectors and payday lenders, are needed?

Talbott: Yes. There already are regulations on credit cards. We have the new CARD law that just went effective a couple of weeks ago.... I don't represent payday lenders, so I won't answer that question directly as it relates to payday lenders, but we think there is a need for some protection of the consumers in the shadow banking industry -- and I'll just use that term loosely.

NJ: Why was the financial industry weak in the first place?

Talbott: It wasn't weak in the first place. It just needs to be strengthened more. Here's what I think happened: Regulators are usually slightly behind the markets. It takes awhile for the regulators to catch up with the markets. We have an example of that here. In general, innovation is good. We want companies to try new products and to develop new ideas and new goods and services. That helps advance the economy and helps consumers. There used to be a time when you had to go to the bank before the weekend because there were no ATMs... There used to be only 30-year fixed mortgages; there was no such thing as a 15-year...

So you want companies to develop. What happened was, following Gramm-Leach-Bliley, there was a growth in the industry and our regulatory system did not keep pace. It failed to modernize with our financial services industry. So what we're trying to do here is modernize our regulatory framework such that we decrease and manage the risk better and strengthen the system to help ensure that this type of crisis never happens again, or if it does, to reduce its impact...

So when we say we want to strengthen the system, that's what we're talking about. What we don't want to do is overregulate and over-stifle; we still want to allow the industry as well as consumers to have a free flow of capital, a free flow of ideas, and continue to develop new products and goods and services. You want to strike the right balance between protecting the consumers, modernizing the regulatory framework, without stifling creativity, innovation, and the free flow of capital and ideas.

And that's the challenge, and there's no roadmap here. There's no historical precedent that we can point to, and thus it's important for everybody to weigh in with their ideas to help shape the answer. Those that say the industry is stifling the efforts -- well, there's also the possibility that there may have been a bad idea out there. What we're all united on is the same goal. The discussion is, what's the most effective way to achieve that shared goal?

Correction: The original version of this post misidentified Scott Talbott's executive title and the number of companies represented by his organization.