State of Disunion

Last Tuesday, President Obama delivered his sixth State of the Union address, proclaiming our union to be in good shape. While there are arguments to be made in his favor, our current growing national debt and record-low percentage of available workforce with jobs seem to indicate otherwise. At least in this address, President Obama did not declare warfare on the banking industry, as he did in his 2009 Address to a Joint Session of Congress. That verbal assault back in February 2009 may have made him look like the everyman president that he has sought to be, but it also likely extended the Great Recession, due to the cover it provided Congress to pass the Dodd-Frank Act. Since its passage, DFA has cost the banking business billions of dollars in complying with the largest, most invasive banking legislation ever enacted. Even the changes following the Great Depression pale in comparison to the changes wrought by the Dodd-Frank Act. While much of post-Depression reform implemented in the 1930s brought about positive change – such as the creation of the Federal Deposit Insurance Corp. and expansion of the Federal Reserve System – I doubt the same will ever be said of Dodd-Frank.

I watched all of President Obama’s speech last week; overall, I was dismayed. The president announced that he would veto any bill that might be “unraveling the new rules of Wall Street,” referring to proposed fixes to the Dodd-Frank Act. The reality is that DFA was an act of legislative overreach committed during the height of the financial crisis, when Democrats were in the majority in both the Senate and House of Representatives, and Mr. Obama was sitting in the president’s chair. Consequently DFA received very little debate, and very little input from the banking industry. The resulting bill became a free-for-all for anyone with a grudge against banks, as evidenced by the Durbin Amendment that placed government controls on the pricing of transactions charged to retailers by banks to process debit card payments. Many provisions of the Dodd-Frank Act, if not most, unfairly punished community banks, which clearly had not created a financial crisis that threatened the world. How can President Obama now take a position that he will veto any bill that promises to change Dodd-Frank, when its rules have made community banks suffer massive harm from loss of revenue streams and the crushing burden of DFA compliance rules?

A major concern about this year’s State of the Union address is that it was delivered in the wake of a tax code fact sheet distributed three days earlier by the White House. The fact sheet laid out a chilling plan to demonize banks and bankers by imposing a tax on large banks – those with assets over $50 billion – essentially to punish them for the financial crisis. These banks already have paid their fair share in fines and interest, often for the actions of subsidiaries that they were forced to buy well after the financial crisis had occurred. Obama has proposed this tax in every budget he has submitted. This time, to make it more appealing to the citizenry, Obama is tying it to pay for community college educations for all students who maintain a certain grade point level. This proposed tax has never before gotten the attention of Congress, and it is highly unlikely that it will get any traction in this one.

On a brighter note, however, in the State of the Union address, President Obama did mention the need for more information-sharing to combat the common enemy of business and government, known as cybersecurity breaches. The banking industry welcomes the support of new cybersecurity rules that will bring all businesses up to the level required of banks, will place financial responsibility on the guilty party, and will create an environment in which we can partner to share information that allows all to find solutions.

By and large, last week’s State of the Union looks like more of the standoffs and gridlocks that we have come to expect from Washington, D.C. I certainly hope that I am wrong, though, and that the president and the Republican Congress will find common ground to deal with the many pressing issues that need to be addressed.

– S. Joe DeHaven

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