Cohen: reform bill could punish largest U.S. banks and cost lenders ‘billions’

Financial reform legislation that’s awaiting U.S. Senate approval contains rule changes that punish big banks and could cost lenders “billions” of dollars, said H. Rodgin Cohen, senior chairman of Sullivan & Cromwell LLP.
The bill would permit banks to pay interest on commercial demand deposits, which has been prohibited, he said. “That could be a very big number for many banks,” Cohen said last week in an interview on Bloomberg Television. “It could be billions.”
Another change would base Federal Deposit Insurance Corp. fees on banks’ total assets instead of deposits, increasing the cost for the largest U.S. lenders such as Citigroup Inc. and Goldman Sachs Group Inc., said Cohen, whose New York-based law firm represents banks including Goldman Sachs. Goldman Sachs had $38.4 billion in deposits compared with $881 billion of assets at the end of March, according to a regulatory filing.
“It hits the bigger banks, in my view, in a way which is totally inconsistent with good public policy,” Cohen said.
The legislation, backed by President Barack Obama and shepherded through Congress by House Financial Services Chairman Barney Frank, D-Mass., and Senate Banking Committee Chairman Christopher Dodd, D-Conn., has been passed by the House. Proponents of the bill say it will make the financial system safer and protect consumers.
A Bloomberg National Poll this month found that almost four out of five Americans surveyed say they have little or no confidence that the bill will prevent or significantly soften a future crisis. More than three-quarters say they don’t have much or any confidence the proposal will make their savings and financial assets more secure.
Forty-seven percent of those surveyed say they think the bill will do more to protect the financial industry than consumers.
Cohen said he “would strongly disagree” with people who say the legislation is ineffectual. “This is a bill with substantial teeth,” he said.
The legislation will benefit banks by making the financial system safer because “funding should be cheaper over the longer term,” he said. •