April 01, 2009

Pointing to unregulated lending as the root of the economic meltdown, the head of the House Financial Services Committee on Tuesday delivered two distinct messages before a gathering of bankers: One, you are not to blame for the crisis and, two, prepare to be regulated.If only the regulated banks were making mortgage loans then “we wouldn’t be in the crisis we are today,” Rep. Barney Frank (D-Mass.) told members of the American Bankers Association, carving the oft-forgotten distinction between banks, like Wells Fargo and Wachovia, which are monitored by the Federal Deposit Insurance Corporation, and non-bank lenders, like Bear Stearns and AIG, which are not.

“The bad loans were made by the people who were unregulated.”The hundreds of ABA members burst into applause.Yet Frank is also pushing a series of reforms targeting banks and non-banks alike — and opposed by both. Already this month, legislation empowering bankruptcy judges to alter primary mortgages has passed the House, and other proposals to rein in predatory lending practices and reform the credit card industry will likely move shortly after lawmakers return from the Easter recess. The ABA opposes all three.In may ways, Frank is walking a tightrope between promoting the reforms he wants passed and trying not to alienate the industry those policies target.