More to the Story: The Reality of Financial Services Post Crisis

Zach Goldfarb’s recent article, “Wall Street’s resurgent prosperity frustrates its claims, and Obama’s” (November 6), lays out a number of concerns of how the financial services industry has operated since the financial crisis. Data show there is much more to the story.

The fact is that the financial services industry did suffer as result of the crisis. Probably more than any other industry has, other than real estate. Hundreds closed losing everything. CEOs were fired. Tens of thousands of employees lost their jobs. Some say that failure was self inflicted the result of bad choices, risky products or simply bad loans. And the market punished them, as it should. Other companies were simply in the wrong place at the wrong time. The general decline of real estate values made bad loans out of good loans. But all suffered. There are still 500 banks on the watch list by FDIC which could still be closed.

Some want the entire industry to “suffer more” almost as atonement. But, the economy needs a strong financial services industry or will be no recovery.

“Wall Street has profited while the broader economy has struggled.” It is true that Wall Street has made money since the financial collapse of 2008, but not at the expense of the taxpayer. Unprecedented steps have been taken to corral excessive compensation and align it with long-term success of a company, not risk taking—a chief concern at the height of the crisis. It is working, and this is good for the American economy.

While some might want financial services to suffer as consumers did during the crisis, a weak financial services industry cannot adequately support the needs of the American consumer. The bad actors that caused the crisis are gone but many Americans are still hurting, and that is top of mind in every decision that is made. Higher capital levels, tighter underwriting standards and increased commitments to small business loans have ensured that the financial services industry can better meet the needs of its customers. However, with the languishing unemployment rates, demand continues to be down. The return to normalcy will not be quick.

There are other factors at hand. Regulations resulting from the Dodd Frank Act (DFA) such as the Durbin amendment are doing greater harm than good to the economy. As many banks have recently decided not to charge for debit cards, they are anticipating a possible loss of $5-10 billion in revenue. Moreover, total compliance costs to deal with the over 300 new rules to come out of DFA is ushering in overwhelming amounts of fees, paperwork and man hours. A recent study of the cost of implementing 3 rules (capital plans, stress testing and resolution plans) showed an estimated cost to the industry in the amount of 2,249,884 hours, and monetarily of $84,375,000 in the first year alone.

“The largest banks are now larger since Obama took office.” The collapse of major firms in 2008 resulted in the consolidation of several banks, so it stands to reason that those organizations are now bigger, with more customers. Mergers are a necessary part of the expansion and contraction of the economy. Also, resolution authority now allows for the systemic failure of a financial institution to take place without causing extensive hard to the system as a whole, ending the notion of “too big to fail”. Americans have many options when determining a financial services provider which best meets their needs. It’s a competitive business as it should be. Every company competes for customers with a vast array of financial services. Those that meet customers needs best win their business. Just like technology and cars and every other private sector industry.

“Wall Street continues to make too much money.” Executive compensation is an age-old argument but landmark steps have been taken at the Board level to align executive compensation with long-term success of a company. In October 2011, the Federal Reserve released its horizontal review of incentive compensation practices, as mandated by the Dodd-Frank Act.  The Federal Reserve concluded that large banking organizations have indeed made significant progress toward enhancing their incentive compensation arrangements. The largest banks are already at or above Dodd-Frank proposed guidelines for executive compensation (to defer 50% for 3 years)!

“The “Bailout” Only Helped Banks.” When our economy was facing collapse the TARP program helped to stabilize the system. Since March of 2011, TARP has been generating a profit to Americans. Treasury expects to earn $21.71 billion of profit from the TARP bank investments. This is good news for both the economy and the taxpayer.

The financial services industry is a partner to the American people. We want your business and we work hard to earn it. We are not just Wall Street, we are Main Street too—we are your insurance agents, your financial advisors and your bank tellers. We are committed to the safety and soundness of our products. We’re working hard for that return to economic stability. And, above all, we’re committed to our communities and our customers.

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