By STEPHEN LABATON
Published: October 15, 2009
WASHINGTON — Bowing to political pressure from community bankers, the House Financial Services Committee approved an exemption on Thursday for more than 98 percent of the nation’s banks from oversight by a new agency created to protect consumers from abusive or deceptive credit cards, mortgages and other loans.
The carve-out in legislation overhauling the regulatory system would prevent the new consumer financial protection agency from conducting annual examinations of the lending practices at more than 8,000 of the nation’s 8,200 banks, leaving only the largest banks and other lenders subject to the agency’s examiners.
Earlier in the day, the committee completed its work on a different contentious provision of the legislation when, on a nearly straight party-line vote of 43 to 26, it approved tougher regulations over the derivatives market. That provision, too, contained exemptions for many businesses.
The exemption for the banks was endorsed by the chairman, Representative Barney Frank of Massachusetts, who saw it as necessary to win support for the overall bill from the committee’s moderate and conservative Democrats. Their support is particularly important because the Republicans are unified against the legislation.
This seems to be poorly worded, and could be misleading. What the Republicans are unified against are the regulations themselves.
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The measure creating the new agency has already been significantly pared back from the Obama administration’s proposal. While the exemption approved on Thursday would cover a vast sector of the banking industry, those institutions control only about 20 percent of the roughly $14 trillion in assets held by commercial banks. The 150 largest banks, which would face more regulatory scrutiny, hold the remaining four-fifths of the assets.
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The amendment was warmly greeted by lobbyists for the smaller banks,
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While the administration quickly embraced the derivatives legislation, a top regulator appointed by President Obama indicated that compromises made to win the support of moderate Democrats led to problematic loopholes. The regulator, Gary G. Gensler, chairman of the Commodity Futures Trading Commission, vowed to try to strengthen the measure when it is considered by a second House committee next week.
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