Bank Regulation

Congresswoman Waters Introduces Bill To Punish Bad Banks

Top Democrat Maxine Waters has introduced a bill outlining a process to break apart big banks that engage in widespread consumer abuse.

According to American Banker, the bill – which was backed by seven by other Democrats – is the result of several scandals involving Wells Fargo, which included opening as many as 3.5 million potentially fake accounts, forcing up to 570,000 borrowers into unneeded auto insurance and allegedly discriminating in mortgage lending.

The new legislation would establish an automatic review by the Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and the Federal Reserve Board of institutions defined as a "global systemically important bank holding company" for legal violations that may have harmed consumers.

If it's discovered that a bank engaged in a widespread pattern of consumer abuse, regulators would punish the bank under existing authorities by stripping the bank of its charter, membership with the Fed and access to deposit insurance. The bank would then be placed under an FDIC receivership, and its assets transferred to an institution with high Community Reinvestment Act ratings.

“As long as we believe that shutting down a bank is dangerous to our economy ... we'll never move,” said Waters, the ranking Democrat on the House Financial Services Committee. The agencies, she added, “basically have demonstrated in more than one way constantly that even though they have authority, they're just not going to use it.”

Under the bill, if a bank is wound down for abuses, the agencies would be responsible for removing any executives or board members tied to the violations, and anyone found responsible for “overseeing any division of the institution during the time that the institution was engaging in the identified pattern or practice of unsafe or unsound banking practices” would be forced to leave the company.

“For the meltdown in 2008, nobody went to prison,” said Rep. Marcy Kaptur, D-Ohio, a co-sponsor of the bill. “The American people remember that."

In addition, a large bank’s executives and board members would have to sign an annual written “attestations” confirming that all of the bank’s lines of businesses are compliant. If they are found to have lied, the executives could be fined up to $5 million and face up to 20 years in prison.

“We don't see people being handcuffed and thrown off to jail,” said Rep. Al Green, D-Texas, who also backed the bill. “We see people acquiring a golden parachute. They get a bonus and they move on to the next rip-off.”

An ongoing review process would also be established, requiring the Consumer Financial Protection Bureau to further define a "pattern or practice" of violating consumer protection laws and the resulting penalties.

“When you get too big, you can't see your feet anymore,” said Rep. Keith Ellison, D-Minn., another co-sponsor. “And when you can't see your feet, you start trampling people."

The bill does not appear to have bipartisan support, and would likely face an uphill climb in the Republican-controlled Congress.

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