Financial Regulatory Reform

With comprehensive reform of the financial services industry slated for 2010 in Congress, a number of questions in the March 2010 survey focused on this subject. Of interest in this survey were some new proposals this year offered by the Obama administration on regulating large banks, establishing an independent consumer financial protection agency, and reforming Fannie Mae and Freddie Mac.

The burgeoning federal deficit in the wake of the financial crisis in part has led to a proposal for a Financial Crisis Responsibility fee to be imposed on large banking institutions to help defray some of the costs of the crisis. A potential unintended consequence of the proposal is whether or not this fee could be passed along to consumers. Two-thirds of survey respondents (66 percent) do not believe that this fee will be positive for bank customers.

Responses were mixed on the question of whether or not the FDIC should take the quality of senior executive compensation plans and board oversight into consideration when pricing deposit insurance. Nearly 46 percent of respondents believe that such a proposal would not improve the alignment of shareholder interests and risk-taking by banks, while almost 42 percent believe it would be an improvement.

A key point of discussion in Congressional deliberations on financial services regulatory reform has been the establishment of an independent agency focused on consumer financial protection. Fifty-four percent of survey respondents feel that creating such an agency would not impair safety and soundness regulation; 25 percent believed it would be detrimental. On a related issue, 43 percent of respondents indicate that a consumer financial protection agency would not impair access to credit while 39 percent believed it would.

With both Fannie Mae and Freddie Mac under federal conservatorship, a number of proposals to reform these government-sponsored enterprises have been presented. In part, the issue of how much subsidization should be required of both agencies to support a vibrant mortgage market is an important housing policy issue. Sixty-three percent of respondents believe that greater explicit subsidization of the agencies would not be beneficial in promoting the long-term health of the mortgage market. In contrast, 26 percent responded that subsidizing the GSEs would help improve mortgage markets over the long term.

The Obama administration introduced a proposal to further restrict activities of large depository institutions that would limit the size of these companies and prohibit certain proprietary trading activities in an effort to address Too-Big-To-Fail issues surrounding some large firms. With that proposal as a backdrop, 59 percent of survey respondents believe that imposing size restrictions on these companies would not be an effective means of addressing the Too-Big-To-Fail issue. Further, almost 57 percent of those surveyed believe that a ban on proprietary trading on large depositories would mitigate potential systemic risk in the financial services industry.

reform

| More