May 22, 2009
The results of the financial stress tests offer about as clear a
picture of the stability of the nation’s largest financial institutions
as we are likely to get.

With the removal of at least some uncertainty about the future of
individual financial institutions, a real opportunity arises to turn
public attention toward the future of the regulatory landscape for the
financial services sector as a whole. This future should offer
increased transparency, stronger accountability to public financial
services needs and a minimum safety standard for financial products.

To guide this process and make it more transparent, we need
publicly accessible data on all financial products and services that
affect our communities, similar to the disclosures currently mandated
for banks under the Home Mortgage Disclosure Act. Mortgage data
provided an early (if often ignored) warning of the problems in the
mortgage market.

Expanding data disclosure to consumer loans and financial services
would go a long way toward averting a future crisis. Our collective
understanding of, and concerns about, future toxic products would also
be well served by expanding data disclosure to other types of
companies, such as mortgage lenders, insurers, consumer finance
agencies and others.

Equipped with this heightened data disclosure regarding financial
products and services, we must set new, higher standards of
accountability by modernizing the Community Reinvestment Act. Since
1977, CRA has asserted that financial institutions have an affirmative
obligation to meet the credit needs of the entire community in which
they accept deposits, including the credit needs of low-wealth
consumers. However, many financial products are now offered by
financial institutions not covered by CRA.

In fact, less than 6% of problem mortgages were made to low-wealth
borrowers under CRA. If we are to truly hold financial institutions
accountable for meeting the credit needs of the communities they serve,
we need to expand CRA to apply to 100% of the products and practices.
This would include mortgage companies, insurance companies, consumer
lenders and others.

But transparency and accountability only get us so far. We need a
banking regulator whose sole purpose is to establish minimum safety
standards for financial products. This is different from establishing a
minimum safety standard for institutions — the task assigned to the
four existing federal bank regulators.

These minimum safety standards would help identify and effectively
regulate products, such as mortgages with ballooning payment amounts,
before they negatively affect the wider economy. Sen. Dick Durbin,
D-Ill., has introduced a bill to establish a Financial Products Safety
Commission to establish just this type of regulator.

Now that widespread fear of the wholesale insolvency of the
nation’s largest banks has eased slightly, it is time to address the
stability of the financial sector as a whole. Transparency in the
marketplace, accountability to the community and minimum safety
standards for financial products are the best prospects for ensuring
economic stability and prosperity.

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