By Neil Milner
President and CEO

The passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act reaffirms the importance of the dual-banking system—a system that has existed for nearly 150 years.  Just as in previous reform efforts, the dual-banking system has emerged from the debate wholly intact, refuting the claim that the structure of our financial regulatory system somehow came about by accident.  Congress once again made the deliberate decision to reject proposals that threatened to do away with the dual-banking system by creating a single federal regulator.  The consensus remains: the state supervisory structure is vital to our country’s financial system, and it is here to stay.

Congress today passed a bill that preserves the dual-banking system and all that it entails:  a system of checks and balances between state and federal regulators that prevents consolidation of regulatory authority in Washington, D.C. and influence into a handful of money-center banks; a diverse and competitive industry marked by charter choice and innovation; and access to credit for individuals and businesses in every corner of the country.  By acknowledging the essential role of state regulators and state-chartered banks in our financial system, this historic bill recalibrates the balance of power between state and federal regulators and ushers in a new era of collaboration and cooperation between the two entities—in safety and soundness as well as consumer protection regulation.

As regulators and policymakers move to implementing the Dodd-Frank law, state and federal regulators all have an obligation to set aside institutional preferences and biases and to commit to a regulatory approach that strengthens our financial institutions while ensuring that the flow of credit is not halted.  Credit must continue to flow or the bill will not have achieved one of its most important goals:  facilitating economic recovery. 

An important part of accomplishing this goal is ensuring that no lender has an institutionalized competitive advantage over another.  This disparate treatment among institutions can be seen in the funding advantage systemic banks enjoy over other institutions.  Until this differential between institutions is eliminated, then the implications of having “too big to fail” banks will be a financial system driven not by market forces, but by the unequal application of an implied government guarantee of a handful of banks.

CSBS appreciates Congress’s acknowledgement of the integral role of the dual-banking system and we look forward to working with our federal counterparts to implement these monumental reforms.