State bankers wary of overhaul bill

James Cronin has a message to industry reformers: Community banks are doing just fine.

Cronin, the president and chief executive officer of the Norwich-based Dime Bank, says he is increasingly troubled by the escalating efforts toward a major overhaul of this nation's banking industry.

The problem, says Cronin, is that his community-based bank, along with nearly every other community bank across Connecticut, isn't in need of reform. And their regulatory oversight, ranging from the state Department of Banking to the Federal Deposit Insurance Corp., is working well for them.

"The Dime's been around for one hundred and forty years," says Cronin. "We didn't make a single subprime loan. The problem wasn't us. It was the mortgage bankers and the investment bankers on Wall Street."

Cronin isn't naive to the woes afflicting some of this nation's biggest banks.

Just this past week, federal regulators reported bad loans and past-due loans reached their highest levels in 26 years for the nation's banks. The FDIC also reported the number of banks on its so-called "problem list" rose to 552 from 416 as of June 30, the highest level in 16 years.

But Cronin worries that proposed legislation from U.S. Sen. Chris Dodd, who heads the Senate Banking Committee, could harm this nation's thrifts (formerly known as savings & loans) and could eventually harm mutual savings bank such as The Dime, which is owned by its depositors.

Dodd's sweeping legislation calls for the creation of a single federal bank regulator, which would combine the current functions of the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the bank-supervisory functions of the FDIC and the Federal Reserve into a new mega regulator called the Financial Institutions Regulatory Administration.

Regulatory 'shopping'

Dodd's legislation is intended to end what he terms a convoluted system of bank regulators created by historical accident. With four federal banking agencies overseeing national and state-charted banks and federal and state-chartered thrifts, there has been a tendency to "charter" shop for regulators considered less intrusive.

In addition, Dodd's legislation calls for a new powerful Consumer Financial Protection Agency that would be a watchdog for consumers on mortgages, credit cards and other financial products. It also would safeguard against hidden fees and abusive and deceptive practices.

When he unveiled his legislation earlier this month in Washington, Dodd said this nation's economy would not survive another financial shock like that witnessed during this recession, which was due, in part, to what he termed "gaping holes in our regulatory structure."

Dodd said he favors ending the "too big to fail" policies allowing giant financial services firms to receive massive federal assistance or bailouts.

"Our plan will replace the myriad government agencies that failed to rein in risky schemes of large banks and Wall Street firms with a single, empowered, transparent, competent federal banking regulator," said Dodd.

"The security of our economy is at stake. This is one of those moments in our nation's history that compels us to be bold," he said.

Cronin, however, says his mutual savings bank's regulators - the Connecticut Department of Banking and the FDIC - are thorough, tough-minded and competent. His bank is inspected each year, either by the state one year or the FDIC the next.

"To come up with a new regulator and create a whole new bureaucracy ... is reinventing the wheel," says the Norwich-based community banker.

Dodd's sweeping financial-reform legislation has raised the ire of the influential American Bankers Association. In a "CEO Alert," the ABA says it strongly opposes Dodd's financial overhaul because it would "greatly harm traditional banks that did nothing to cause the crisis."

Seeking consensus

Gerald M. Noonan, president of the Farmington-based Connecticut Bankers Association, says he understands the concerns of state bankers like Cronin.

In fact, he says he and several of the state's bank presidents will be on a conference call with Dodd this week to express their misgivings with his legislation.

"I have known Sen. Dodd for years. Personally, I like him. We're friends. But I think he's a little off base with some of the concepts (in his banking overhaul legislation)."

Noonan says both the Obama administration and the federal Department of the Treasury want banking reform to prevent a recurrence of the near meltdown of Wall Street, and, consequently, Main Street.

"The senator's been very open in his communications with us," says the banking industry president. "He knows that we don't agree on a number of things, and he knows we have to work toward a consensus." He adds he's hopeful that the talks with Dodd this week will be fruitful and will help allay some of the fears among Connecticut bankers of a wholesale upheaval of the banking regulatory framework they've worked within for decades.

"Community banks - and that's most of us here in Connecticut - didn't create this problem," explains Noonan. "We didn't make subprime loans. If you really want to correct deficiencies in the system, don't throw out the whole system."

Noonan says about a third of his membership of Connecticut banks are mutual savings bank (depositor owned) such as the Dime, Chelsea Groton Bank, Liberty Bank and others.

"These are community banks dedicated to the community," says Noonan. "And they're making loans to businesses right now. They haven't backed away because they haven't done anything foolish, and they're a big part of the fabric of lending in Connecticut."