Press Releases

Democrats Vote To Undermine Safety And Soundness Of Financial Institutions

WASHINGTON, October 21, 2009 -

-During consideration of H.R. 3126, legislation to create a so-called Consumer Financial Protection Agency, Democrats on the House Financial Services Committee rejected an amendment offered by Congressman Ed Royce (R-CA) that would address widespread concerns from bank regulators and industry experts that the legislation will undermine the safety and soundness of our nation's financial institutions.

The Royce amendment would have required the CFPA to obtain written approval from the relevant federal banking regulator that its rules and regulations will not negatively impact the safety and soundness of any covered institutions. The amendment would have also given the relevant federal banking regulator the authority to suspend a regulation issued by the CFPA if the regulator determines it could jeopardize the safety and soundness of a covered institution.

H.R. 3126 does not have a requirement for the CFPA to ensure its rules and regulations are consistent with protecting safety and soundness. As a result, the CFPA is not required to take into account the solvency of the institution. As evidenced by the collapse of Fannie and Freddie last year, the consequences of bifurcating consumer mandates and safety and soundness regulations can place taxpayers at risk to bail out companies.

Financial regulators have spoken out against bifurcating consumer protection from safety and soundness regulation:

FDIC Chairman Sheila Bair: "Separating consumer protection examination and supervision from other supervisory efforts could weaken both and result in weakened financial institutions."

Federal Reserve Chairman Ben Bernanke: "We believe that prudential supervision and consumer compliance are complementary and should not be separated. The transfer of consumer compliance staff would impact that prudential supervisors."

OCC Comptroller John Dugan: "This is a fundamental concern, because there are critical issues in bank supervision for which consumer protection and safety and soundness cannot be separated."

OTS Acting Director John Bowman: "Dividing the regulation of safety and soundness and consumer protection would undermine the safety and soundness of the banking system and weaken a regulator's ability to formulate a complete assessment of a financial institution's risk profile."

The Royce amendment was defeated on a party line vote, 28-38. Click here to view a copy of the amendment.

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