Iowa firms uncertain of financial reform bill’s potential effects
June 28, 2010 by Karen Mracek
By KAREN MRACEK • firstname.lastname@example.org • June 26, 2010
The financial regulation reform is a compromise, say Iowa companies and experts.
“It was very important that we did something. … At some point you have to say we have passed the best thing we can get,” said John Spitzer, a professor of finance at the University of Iowa.
The bill reserves many of the details for regulators to write, which left Iowa’s financial services industry – 6,100 businesses and 81,000 employees, according to the state – waiting to see the full impact of the changes.
One amendment, added late in the process by Sen. Tom Harkin, D-Ia., will have a profound effect on Iowa companies, without changing anything.
Harkin’s amendment exempts indexed annuities from the oversight of the Securities and Exchange Commission, which tried to take over the regulation of the investments in 2008.
Indexed annuities are insurance products that offer minimum guaranteed return and interest based on the performance of a market index, such as the Standard & Poors 500.
Several major sellers of annuities are based or have operations in the state. Regulation by the SEC would have increased costs for companies, the insurers argued, because their sales force would have to acquire additional licensing to sell the products if they were classified as a security instead of an insurance product.
Iowa bankers are still figuring out what the bill, which is almost 2,000 pages long, will mean for them.
John Sorensen, president of the Iowa Bankers Association, said, “Bankers have supported key principles in regulatory reform from the beginning of this debate, such as creating a systemic risk council and addressing the issue of too big to fail.”
Sorensen added, “But these important provisions are overshadowed by a number of other provisions in the bill which we think run far afield from Wall Street reform and will ultimately impact main street – and main street Iowa.”
Bankers worry additional regulation – particularly from a new Consumer Financial Protection Bureau – could increase costs for banks because they will have to put additional time, personnel and resources into providing proof of compliance.
That could result in higher fees for customers, less innovation of banking products and perhaps even consolidation in the industry, Sorensen said.
The financial reform bill also includes changes to mortgage lending, including the elimination of loans without proof a borrower can pay back the loans.
Wells Fargo Home Mortgage, the largest producer of mortgages, is based in West Des Moines.
Spokeswoman Vickee Adams said the company is “turning our focus to understanding how these reforms will affect our customers, our company and how they will work in practice, so we can ensure we can continue to live up to our vision of helping our customers succeed financially.”