Financial Trade Associations Ask Congress to Consider Costs of Restricting Permissible Banking Activities

SIFMA, The Clearing House, American Bankers Association Financial Services Roundtable and the Financial Services Forum (collectively, the “Associations”) voiced joint opposition to the potential repeal of merchant banking and other permissible bank powers recommended in a recent report issued by the FRB, the FDIC, and the OCC.

The Associations asserted that the recommendations are “unfortunate and ill-considered” and pointed out that, “[f]or the last 15 years bank holding companies have successfully used the merchant banking authority granted to them by law to finance start-ups and growing companies, fueling jobs and economic growth.” The Associations argued that the federal agencies proposing the repeal failed to adequately assess the cost of their recommendations:

The regulators . . . have not provided a cost-benefit analysis or a robust justification for such sweeping changes to laws which were heavily negotiated over a very long period of time and by several administrations. While the regulators did not believe that the costs of regulation were worth considering here, we believe Congress should and will consider such costs.


Lofchie Comment: Banking regulators seem to respond to any examination of risk with a proposal to limit the scope of the banking activity. This line of reasoning ignores the potentially important benefit of these activities, including the ability to make a profit, the potential diversification of a bank’s revenues and the benefits of allowing a bank to spread its operational costs by utilizing its banking skill set for a broader range of activities.