AUGUSTA, Maine — A year after the nation’s financial industry was bailed out by Congress, lawmakers are considering a sweeping overhaul of regulation aimed at preventing a replay of the near collapse of the industry.
Members of Maine’s congressional delegation agree the regulation is needed, but express concern that a federal law could end up undermining state authority over financial institutions, which they indicated already works well in Maine.
“We need to get away from the whole concept of too big to fail,” Sen. Susan Collins, R-Maine, said. “We should require institutions, as they grow larger, to maintain larger capital reserves so they do not engage in risky transactions with only a very thin capital base.”
Collins said there are provisions in the House Financial Services Committee bills that are similar to proposals she has made in a package of four Senate bills introduced earlier this year. For example, there is a section in the House committee bill creating a council of regulators to monitor the large firms that are so big their col-lapse could jeopardize the health of the economy. The panel also could force hedge funds and other large pools of capital to be registered with the Securities and Exchange Commission and have their books regularly examined.
But Collins, who served as the commissioner of business and professional regulation in the administration of Maine Gov. John McKernan, said federal regulators do not do a good job in responding to the small dollar complaints that average consumers have with financial institutions.
“I am going to scrutinize the bills that would undermine or greatly dial back the authority that states have,” she said. “I have seen firsthand the good job that state regulators can do, particularly in responding to consumers.”
Rep. Chellie Pingree, a Democrat from Maine’s 1st District, said the House legislation still needs work.
“They are exempting too many banks and possibly allowing too many opt-outs,” she said. “But we are not at the end of this process yet. The committee has reported some things out and it will still go to the Senate and come back to us, and I am expecting there will be some more negotiations before we are done.”
She shares the concern that the final measure that is passed should not pre-empt state laws that provide greater protection for consumers than the federal law.
“I am very concerned about that and have spoken with the chairman [Rep. Barney Frank, D-Mass.] about how Maine and some other states are doing a better job with consumer protections and should be allowed to continue to do that,” Pingree said.
Sen. Olympia Snowe, R-Maine, said the goal of the reform legislation should be to protect the nation’s economy from the bad practices that led to the recession. She said both House and Senate committees are working on measures that should do that.
“A strong regulatory framework must reflect the realities of the marketplace,” she said, “and forestall further bailouts that have come at tremendous taxpayer expense.”
Snowe said she shares the concern that states doing a good job should not be pre-empted, but said state laws should not prevent federal regulators from doing their job.
“I will be looking to strike the proper balance under which strong state laws can be protected, so long as they do not unduly interfere with robust competition and innovation,” she said.
Maine’s 2nd District Rep. Mike Michaud, a Democrat, said a comprehensive overhaul of financial regulations is overdue. He said it should have been part of the bank bailout passed more than a year ago.
“Our goal should be to make sure that consumers are protected and that we never again experience the crash that resulted in the loss of wealth and retirement savings of millions of American families,” he said.
Michaud agreed that while strong national law is needed to deal with increasingly complex financial transactions, state consumer protections should not be sacrificed.
“I understand the need to pass a national law and I strongly support one,” he said, “but it needs to add to, not weaken, the protections Mainers already enjoy.”
The superintendent of Maine’s Bureau of Financial Institutions, Lloyd LaFountain, said all state regulators are concerned about the complex legislation that is being crafted in Congress. He believes state concerns about federal pre-emption will be addressed before the measure is finally passed.
“We are closely watching the development of the legislation through our national association,” he said. “I think we all believe the federal oversight needs to be improved.”
But LaFountain said greater federal oversight should not be at the expense of state regulation that works and has been protecting consumers for years.
Delegation members say the legislation is on a fast track and expect votes by the House and Senate this month with the possibility of a final bill before the end of the year.