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LETTER TO THE HONORABLE PAUL S. SARBANES RESPONDING TO HIS LETTER DATED JUNE 8, 2006

Dated: June 27, 2006

VIA FACSIMILE (202-224-5137)
The Honorable Paul S. Sarbanes
Ranking Member
Senate Committee on Banking, Housing and Urban Affairs
534 Dirksen Senate Office Building
Washington, D.C. 20510

Dear Senator Sarbanes:

Thank you for your letter which responds to my letter of June 9, 2006 relating to AABD's opposition to Section 702 of The Financial Services Regulatory Relief Act of 2006.

You state in your letter that

The federal bank regulators have generally supported the provision, which, as you point out, only allows the agencies to enforce commitments
to which affiliated parties have agreed in order to secure agency approval of, e.g. bank applications.

Your comment understates the problem. Section 702 empowers the federal banking agencies to enforce conditions to application, notices, and requests that will hold bank directors and other personally liable for financial guarantees. The agencies currently do not request bank directors to personally obligate themselves to the future success of their institutions. Bank directors are not financial guarantors of the success of their institutions; if they were, many would resign and others offered positions as directors would refuse to serve. Section 702 will provide a strong incentive to the agencies to require bank directors and other institution-affiliated parties, as part of an application, notice or request, to provide such financial guarantees. The bank director would then have a Hobson's Choice of accepting the personal liability or having the bank's application, notice or request rejected. Our point is that it is horrendous public policy for the agencies to condition approvals on the individual directors making personal financial commitments. That is not a responsibility that any bank director should be asked to make, and to provide the agencies with the power to enforce such commitments will only encourage them to require them.

We again urge that Section 702 of the Senate bill be stricken from the legislation.

Sincerely,

David Baris
Executive Director

Click here to read Senator Sarbanes' letter to AABD dated June 8, 2006