Finance Bill’s Devilish Details

Editorial, Investor’s Business Daily, June 22, 2010

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Yes, the bill [the “Restoring American Financial Stability Act of 2010”] gives Treasury the power to liquidate banks that pose a threat to financial stability. But it essentially exempts minority-owned banks and those approved by Acorn-style urban organizers.

“The orderly liquidation plan shall take into account actions to avoid or mitigate potential adverse effects on low-income, minority or underserved communities affected by the failure of the covered financial company,” it says.

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Sen. Richard Shelby and other GOP conferees moved to strike the language, arguing that making an exception for minority neighborhoods defeats the whole purpose of reform, which is to protect all consumers against systemic risk.

But Sen. Chris Dodd, who’s running the conference committee with his fellow Democrat, Rep. Barney Frank, shot them down by suggesting that they wanted to deny minorities access to credit.

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{snip} Studies show that CRA home loans have much higher failure rates. {snip}

Another section of the bill requires the proposed Financial Stability Oversight Council (headed by the Treasury secretary) to consider a zombie institution’s “importance as a source of credit for low-income, minority or underserved communities” before winding it down. {snip}

{snip} The bill mandates placement of a diversity czar in each federal financial agency–including the Fed and its 12 regional banks.

Establishing a so-called Office of Minority and Women Inclusion within each agency is the idea of Democratic Rep. Maxine Waters, a Congressional Black Caucus leader and conferee.

According to her amendment to the bill, “Each agency shall take affirmative steps to seek diversity in the workplace of the agency, at all levels of the agency,” including:

* Recruiting at “historically black colleges and Hispanic-serving institutions.”

* Recruiting in urban communities.

* Placing ads in African-American and Spanish newspapers.

* “Partnering with organizations that are focused on developing opportunities for minorities.”

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Each agency, in turn, is required to report to Congress detailed information describing the actions it took to diversify its staff and contract with minority-owned firms. Which means they’ll do what their diversity officers advise. No official–particularly no regional Fed bank president–wants to be dragged before Barney Frank’s panel and accused of racism.

Still, as insurance, the bill also calls for an audit of Fed “governance” to examine, among other things, “the extent to which the current system of appointing Federal Reserve bank directors effectively represents the public without discrimination on the basis of race, creed, color, sex or national origin.”

More, the bill sets up a data-collection system to monitor small-business loans for discrimination. Lenders will now be required to report if small-business applicants are minority-owned.

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The bureau [Consumer Financial Protection Bureau] will wield a big stick in the form of an Office of Fair Lending and Equal Opportunity, whose role will be enforcing “nondiscriminatory access to credit.” It will have the power to subpoena witnesses and documents, as well as issue temporary orders requiring banks to cease and desist any practice.

They will add to and work with HUD’s and Justice’s own diversity cops. The bureau adds a massive new layer of bureaucracy to the four federal agencies already enforcing fair-lending compliance under the onerous CRA. Banks will now be under enormous political pressure to bend underwriting rules for protected classes with iffy credit.

The bureau, which is the White House’s baby, will invite “experts in fair lending (and) civil rights,” as well as “representatives of communities that have been significantly impacted by higher-priced mortgage loans” to sit on a Consumer Advisory Board and consult on policy.

A research unit, meanwhile, will solicit data and “experiences” from urban housing activists about consumers in “underserved communities” who may have had access to “affordable credit” denied.

Over at HUD, a well-funded Office of Housing Counseling will collaborate with “community-based organizations” of Acorn’s ilk to help minorities and “persons who face language barriers” secure credit and “preserve homeownership.”

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