American Banker

By Stacy Kaper

Rep. Shelley Moore Capito has had some vexing questions about the Dodd-Frank Act and other reforms, and now she has the power to address them.

As the new chairman of the House financial institutions subcommittee, the West Virginia Republican said she plans to examine three specific concerns: the Federal Deposit Insurance Corp.'s power to unwind systemic institutions, the consumer protection bureau and the mixed messages being sent to community banks to tighten lending standards while making more loans to small businesses.

"We certainly want to see…how these regulations are impacting jobs at financial institutions," she said in a recent interview. "If we enact all these reforms, is that going to be four more banking jobs but we are not going to lend as much? Or we are not going to be able to extend as much credit, shrinking another 150 jobs? So those kinds of things I think we really want to keep our eye on."

That said, Capito has embraced the spirit of comity that at least momentarily occupies Capitol Hill. She largely avoided offering hard conclusions on controversial issues, saying to do so would be "premature" without digging into the details. Capito has joined forces with Rep. Emanuel Cleaver, D-Mo., in a quest to rebuild the Civility Caucus, a bipartisan group focused on fostering a culture of mutual respect and courtesy among lawmakers.

When it comes to the jobs theme and big-government worries, though, she is following her party's playbook. Capito — who has been on the House Financial Services Committee eight years — said she plans to focus her agenda through the prism of questioning how Dodd-Frank implementation would affect jobs every step of the way.

RESOLUTIONS RESOLVED?

Still a burning issue for Capito is whether the FDIC and the Treasury Department have too much discretion to treat similarly situated creditors differently when resolving a systemically significant institution. She said she has lingering concerns that the government might have too much power to assist too big to fail firms.

The FDIC recently issued a rule saying it would provide such extra coverage for creditors in extremely limited cases — for essential services like building maintenance that the FDIC would need to run a receivership, or creditors that would help maximize the agency's recoveries. Still, Capito said the resolution authority needs closer review.

"The too big to fail issue, I'm not sure that's laid to rest in Dodd-Frank," she said. "We fought vigorously for bankruptcy as a resolution rather than the resolution authority that was finally passed. And that was one of the areas that I really became more involved in, so I'd like to watch and see how the resolution authority is being developed and again does it give the implicit backstop of the federal government?... If a firm begins to fail what kinds of safeguards do we have in there to make sure we are not bailing someone else out? I'm not certain that we have all those questions answered."

Capito had joined fellow Republicans during the Dodd-Frank debate in pressing for a bankruptcy alternative to resolution authority, but she said in the interview she's unsure how her concerns should be settled.

"I have seen comments sort of all over the board on this," she said. "We need to look at in more depth."

Though she acknowledges reforming the government-sponsored enterprises, Fannie Mae and Freddie Mac, will be mostly an issue for the capital markets subcommittee, she said her subcommittee should assess the impact of reform proposals on financial institutions. Her goal like most Republicans is to prevent the risk of taxpayer bailout.

"Certainly the financial institutions are going to be heavily affected by whatever goes on, so we will have some ability to weigh in and I think the philosophies there are ranging from totally dismantling and throwing them out the door to reworking or piecemeal dismantling, so it sort of remains to be seen. …No more implicit guarantees of the backstop of the federal government both at Fannie and Freddie and at some of the larger financial institutions. That obviously is a philosophy we talked about a lot through Dodd-Frank," she said.

Capito is clearly cautious about the fragility of the housing market and has declined to take a position as to whether the GSEs should be fully privatized.

"You know we have to be careful here and looking at how the housing market. … [A] lot of things fell in with it when it fell, so we have to be judicious in how we go about this," she said.

REG-COST CONCERNS

Another pressing issue for bankers, the interchange fee provision that was included in Dodd-Frank by Sen. Dick Durbin, is also on Capito's list of issues to review.

The Federal Reserve Board is due to issue a final rule on the provision in April, which would limit the profits banks can make on debit interchange fees. The Fed has proposed limiting such fees to 12 cents per transaction and bankers have been up in arms about it arguing it will force them to increase costs on consumers in other ways to make up the difference.

The financial institutions panel is tentatively scheduled to hold a hearing on the Fed's interchange proposal Feb. 17.

That "is unfinished business…. When the Fed came out with its rules it stirred up a naturally resultant activity around how is this going to be implemented and how did they come up with these figures and what is the resulting effect, going back to all aspects of consumers whether it's a person with challenged credit or if its somebody with stellar credit or a business."

A major bone of contention for many Republicans is the Consumer Financial Protection Bureau and Capito said the GOP would like to "reshape" the agency before its formation is due to be completed in July.

"We are going to be questioning Elizabeth Warren to find out (about) the standing up of this organization, the cost there, the overlap of regulatory issues and then the results of the regulation. Again going back to extending credit and job creation on these things — I think you'll see us get in to that area pretty quickly."

Capito is looking at possibly taking the bureau out of the Fed where it is housed, reevaluating its relationship to state consumer protections and whether it impedes access to credit.

"What kind of considerations are being done in terms of implementing regulations?" she asked. "There is some question as to jurisdictions on state and federal interplay between how are states going to weigh in and how the federal government is going to weigh in. So what kind of confusion does that lead to? I think there will be a lot of confusion. And then the bottom line again going back to the job issue, is this actually protecting the consumer, or is it creating another obstacle for the consumer, making it more difficult to get the credit that they need."

As the former ranking member of the panel's housing subcommittee, Capito also has an interest in the foreclosure issue. She said the administration's modification programs have proved to be a failure and said the stability of the Federal Housing Administration which has grown rapidly is also on the committee's radar.

"All I can say through the last year is the administration's efforts to stave off foreclosures and remodify and refinance to me have just been a morass of bureaucratic failure," she said. "Then also the FHA is bearing a bigger burden and has taken a larger part of the market share and they have some capital reserves issues, too."

She added that on foreclosures the issues related to the robo-signing documentation scandal undercut the credibility of some financial institutions and remains an area for oversight.

'MIXED' SIGNS ON LOANS

Finally Capito said her district is chock-full of community banks and Capito said the mixed messages being sent by regulators have made it hard to balance lending needs.

"It's a combination really. I think the phenomenon of people hunkering down and the good-credit-risk business still isn't sure where this economy is going to go. They don't know what health care is going to cost them. They finally know what their tax issues are going to be. But I still think we are in a period of uncertainty that is leading to the creditworthy, hardy businesses not walking in the door," she said.

Capito said that she also hears complaints from bankers about the cross pressures coming from Washington.

"But I also hear from the banks that there is a pressure to lend on the right hand (and) on the left hand it's 'but you can't lend to these people and you can't lend with these kind of parameters and you have to have these kinds of capital requirements,' so I do think they are definitely getting mixed signals at the local level," she said.

"It is something we should take a look at. We keep saying small business is the backbone of the country and small business is going to lead us out of the recession but the small business person doesn't feel confident enough to try to get more money to buy a piece of equipment or try to hire more people or stand their business. That's jobs and we are back to square one again on the job issue."