Home Subscribe Las Vegas Review-Journal
  Jobs Cars Homes Shopping Travel Weddings Golf Best of Las Vegas Photo   Search:

RECENT EDITIONS
Sat Sun Mon Tue Wed Thu Fri

Business
Apr. 01, 2008
Copyright © Las Vegas Review-Journal

BUSINESS REGULATION: Proposal worries lenders

Treasury secretary's plan would end community banking, official says

By JOHN G. EDWARDS
REVIEW-JOURNAL

Nevada financial professionals fear part of Treasury Secretary Henry Paulson's sweeping regulatory reform proposal would end community banking and eliminate state bank regulations.

The financial debacle hobbling the nation's economy stems from the subprime mortgage lending crisis and the lax standards that mortgage brokers and lenders were using to approve many subprime loans, analysts say. Yet Paulson's proposal would affect more than just the financial institutions that are being blamed for the subprime meltdown. He is proposing dramatic changes in regulations for commercial banks, including small independent banks.

Paulson is suggesting doing away with state banking charters and state regulators and requiring banks to be federally chartered. But eliminating state banking regulations would end the community banking system, said George Burns, commissioner of the Nevada Financial Institutions Division.

Burns pointed to comments from the Conference of State Bank Supervisors as evidence that the Treasury plan would end state banking laws.

Most Popular Stories
  • Lake Las Vegas seeks Chapter 11 protection
  • Condo buyers struggling for closure amid credit squeeze
  • INSIDE GAMING: For Penn, breaking up not so hard to do
  • Owner of Fitz under attack
  • New-home sales hold steady in LV
  • Is any bank really safe now?
  • RECORD PAYDAY
  • MCCARRAN INTERNATIONAL AIRPORT: County approves third terminal
  • Starbucks to close 17 LV Valley stores
  • NEVADAN AT WORK: Exec helps Golden Gaming forge into future



    • "Ultimately, the plan would take states out of financial regulation, federalizing all chartering and supervisory authority," the group said. "Its long-term goal of requiring federal charters for banks to continue to have federal deposit insurance is a backdoor way to eliminate all state chartered banks."

    Bill Uffelman, president of the Nevada Bankers Association, said he was "very concerned" about the proposed requirement for federal bank charters.

    "The availability of the state charter is one of the things that has grown banking in Nevada," Uffelman said.

    About 40 years ago, a person could count the number of federal and state banks in Nevada on his fingers, Uffelman said.

    Today, Nevada has about 30 state-chartered community banks with $50 billion in assets, according to the Federal Deposit Insurance Corp., which insures deposits at state and federally chartered banks.

    State-chartered banks, such as $3.9 billion asset Nevada State Bank and $3 billion asset Bank of Nevada, compete with giant institutions such as Bank of America, Wells Fargo Bank and Citibank. Smaller community banks serve primarily small-business customers.

    Burns and Uffelman said the nation's banking system has flourished under a dual system of state and federal charters that dates back to the Civil War. The last major changes in the banking system were made during the Depression.

    "The banking system and its regulations have been working almost 80 years," Uffelman said. "In our efforts to correct the things that went wrong, let's not foul up the things that do work."

    Bill Martin, CEO of Service1st Bank of Nevada and a former deputy in the office of the U.S. Comptroller of the Currency, also likes the dual bank regulatory system. But he wanted to know more about Paulson's proposal.

    "All 50 states have a bank-chartering process," Martin said. "They historically have wanted that, but, when it comes to regulation, the FDIC represents a very strong federal oversight of the state chartered banks."

    State bank regulators participate in bank examinations, but the FDIC leads the examinations.

    "(The FDIC) is either detailed or nit-picky. I haven't decided which, but, suffice to say, it's a very in-depth examination," Martin said. "I would want to know what more they hope to gain in a regulatory sense."

    Burns suggested that state regulators may have a better record than federal banking officials.

    State regulators started focusing on problems with predatory mortgage loans in 1999 before federal regulators started considering the issue, Burns said.

    In addition, few community banks made many residential mortgage loans, much less the type of subprime loans that triggered the current credit crisis.

    "The plan doesn't really address the roots of the problem," Burns said.

    Mortgage brokerages and banking firms such as Countrywide Financial made loans following often lax standards for qualifying home buyers. Investment banks on Wall Street, which have little regulation compared with commercial banks, packaged subprime loans and sold them to large money centers and regional banks.

    Bill Ochs, owner of Nevada Mortgage, blames the subprime bubble largely on the Federal Reserve Board. He said the Fed cut short-term interest rates below inflation, which started the housing mortgage loan bubble. He added that the Fed then punctured the bubble when it began raising rates.

    "We don't have anybody worried about the individual consumer," Ochs said. "They are just worried about the big banks."

    Contact reporter John G. Edwards at jedwards@reviewjournal.com or (702) 383-0420.



    Leave Your Comment 6 Reader Comments
    Terms & Conditions
    The following comments are provided by readers and are the sole responsiblity of the authors. The reviewjournal.com does not review comments before publication nor guarantee their accuracy. By publishing a comment here you agree to abide by the comment policy. If you see a comment that violates the policy, please notify the web editor.

    Some comments may not display immediately due to an automatic filter. These comments will be reviewed within 48 hours. Please do not submit a comment more than once.
    Current Word Count:

    the dodger wrote on April 01, 2008 03:32 PM: 2zero you are absolutely right. I was telling my kids that exact same thing the other day. Bush played the homeowner statistics card as a personal victory on his part. But you know as it unfolded over the years didn't anyone (besides me) question how, all of a sudden, everybody can afford these big new houses? All the houses being built were $4-5-6-700k mimimum? I mean come on didn't anyone recognize wages were not going up as fast as the prices of these houses, but people were still buying them anyways? Well I guess reality came up and bit them right where the door is about to hit them. Should be interesting to see what good comes out of congress talking to the oil executives about the price of gas. Aren't all the oil execs friends of Bush and Cheney?


    2zero wrote on April 01, 2008 03:22 PM: Enron to Wall Street....thanks Bush for the leadership. I remember two years ago Bush was touting that "home ownership" was at the highest level in America's history-"mission accomplished"...hmmm where did I hear that before?


    roger wrote on April 01, 2008 01:38 PM: Bill Ochs you have my vote for whatever office you care to take....Yes, the individual consumer is really the one taking the beating in this mess. They talk about subprime mortgages, adjustable mortgages,lax lending, etc... these things collectively are what caused real estate prices to explode. Now they pull the plug and your everyday consumer/homeowner is left holding the bag!! Unless the problems of the average homeowner are resolved we are going to see people walking away from properties for years to come. Think about it...here in LV houses lost what 20% value, how long will it take to recover that amount and bring the property back up to the purchase price? especially if you bought the home in the 2005-2007 era. I hate to say this but I too am considering walking away from my house someday if things dont turn around. Save us, please !!!


    TM wrote on April 01, 2008 07:02 AM: We have a huge deficit, looming issues in social security, huge budget shortfalls and generations of neglected matters. Inside the beltway, these people have everything done for them and face little to none of the realties of daily life. They all want more taxes for increasingly less to no results. Washington needs to do us a favor and shut down in the summer time like they used to do before the advent of air conditioning.


    Larry wrote on April 01, 2008 05:58 AM: The lawyers in Washington are much too busy spatting with each other to worry about running the US.

    Government refuses to balance its own budget, yet now it wants more financial control? These clowns need to be voted out of office so they will have to get a real job. Is there a circus still in operation left in this country outside of DC?


    David Johann wrote on April 01, 2008 05:44 AM: "Mortgage brokerages and banking firms such as Countrywide Financial made loans following often lax standards for qualifying home buyers."

    Darn. And to think I actually believed that slogan that "Countrywide was on [my] side."