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VOL. 125 | NO. 189 | Wednesday, September 29, 2010

Panel Sounds Off on New Financial Reform Bill

By Andy Meek

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The newly inked financial reform bill that spans 2,000 pages was unavoidably necessary medicine for the banking and finance industries.

That was the basic takeaway from a panel discussion Tuesday on regulatory reform hosted by the Memphis branch of the Federal Reserve Bank of St. Louis.

But even though the reform bill, the name of which is the Dodd-Frank Act, may have represented needed medicine for the industry, the panel also pointed out areas of the new law the industry views as a bitter pill to swallow – the effects of which will be felt by consumers in potentially painful ways.

The panel, which included two bankers, the head of a Memphis-based investment bank and a college professor, also sees the legislation’s future as chock full of unintended consequences. Some of those include more limited availability of credit to consumers, changes to banks’ price structures and “staggering” compliance costs for banks.

That latter consequence is one foreseen by John Carson, the CEO of Morgan Keegan & Co. Inc., who told Tuesday’s audience “the costs of what’s envisioned here are absolutely staggering” in terms of complying with the new regulatory framework.

He also said there are a large number of jobs Morgan Keegan can’t provide because of what the company likely will be forced to set aside in terms of compliance costs.

And while Washington lawmakers have presented the legislation as a win for consumers – with the creation of a new regulator focused exclusively on consumer protection, for example – consumers probably wouldn’t have liked the implications of some of Tuesday’s comments.

But they were comments the panelists said are only a fact of life and reflect the unintended outcomes inherent in what became a massive governmental re-jiggering of the financial system.

Take the mandate that banks build bigger capital buffers to serve as a protective cushion against losses.

“It doesn’t matter how much (the capital) costs – we have to earn it back,” said Bryan Jordan, the CEO of First Horizon National Corp.

Carson added that “a lot of bank costs in bricks and mortar and personnel will have to be retrieved.”

Jordan said not all of the costs to banks associated with the new law will be passed on to consumers and that banks will simply have to get more productive.

All that said, will the new law work? Perhaps the last word on that goes to Mary Karr, senior vice president and general counsel of Federal Reserve Bank of St. Louis.

“Whether it will work or not, I think we’ll find out the next time there’s a crisis,” she said.

PROPERTY SALES 124 481 17,865
MORTGAGES 127 530 20,565
BUILDING PERMITS 195 891 36,836
BANKRUPTCIES 52 262 11,426