I support sensible financial regulatory reform that will strengthen the banking industry and economy while enhancing consumer choice and filling gaps in consumer protection.

The regulatory reform legislation that ultimately comes out of Washington should foster innovation and diversity in the market.  Reform should reduce the tolerance of banks and their regulators to excessive risk taking and it must safeguard the deposit insurance fund.

What the legislation should not do is weaken or destroy the dual banking system and consolidate bank regulatory authority.

As I write this, there is word that Senator Christopher Dodd of Connecticut, chairman of the Senate Banking Committee, plans to propose legislation that would create a single federal “super” regulator.

The creation of such a “monolithic” regulator as a means to improve bank supervision is supported by a faulty assumption – that regulatory consolidation would result in a stronger and safer banking system.

The opposite result is likely.

A monolithic regulator would weaken the system by increasing industry consolidation.

This federal agency could exert a concentration of authority and use a “one size fits all” approach that would disadvantage smaller, locally owned banks, forcing them to sell to large institutions based far from their customers.

It seems to me that this prospective outcome would only increase systemic risk, while a key objective of any financial regulatory reform proposal is to reduce systemic risk.

If you’re an Arkansas banker who shares my concerns on this issue, I urge you to communicate them to our congressional delegation.  Your two major trade associations both oppose the creation of a single federal regulator and support the dual banking system and charter choice.

Community banks have been the bedrock of diversity in our financial system, and this diversity has been a key to the resilience and stability of the system.

It is likely a single federal regulator would focus its attention on the largest and most complex regulated entities.   Community banks would be denied the ability to be flexible and to innovate responsibly to meet local needs.

Furthermore, I believe this “single regulator” model would lower the quality of bank supervision – not raise it, which is one of the goals of comprehensive financial regulatory reform.

The benefits of the dual banking system and structure of multiple regulators – the checks and balances that temper concentrated authority, and the synergism produced by collaboration and joint problem solving – would be lost.

I rely on the Federal Deposit Insurance Corporation and Federal Reserve, independent agencies that would be merged into a single federal regulator under Senator Dodd’s proposal.

As Bank Commissioner, it is my job to ensure this office makes good decisions.  They have to be good.  The 100 banks my staff supervise finance economic growth and job creation throughout Arkansas, and manage $40 billion in assets.

I often confer with my colleagues at the FDIC and Federal Reserve when making an important decision.  I solicit their viewpoints to draw on their perspective as fellow supervisors of state-chartered banks.

Collaboration among multiple regulators with a diversity of experience, opinions and resources improves the quality of bank supervision.  Better supervision, in turn, promotes sounder financial institutions able to meet the needs of their customers.  Sound financial institutions build stronger communities.

State bank regulators, with their “homegrown” understanding of local communities and proximity to the banks they supervise, likely would lose their important role in a structure dominated by a single federal regulator.

Joseph A. Smith Jr., Commissioner of Banks in North Carolina and chairman of the Conference of State Bank Supervisors, touched on this point in recent testimony to the House Financial Services Committee.

“Because of our proximity to and knowledge of the entities we regulate, the local economic conditions and consumers, states are often the first to identify emerging trends, practices, products or threats that impact the financial system,” Smith stated.

Regulatory reform of financial services is warranted, given the cascading turmoil in the economy brought on primarily by unsound mortgage lending.  Community banks in Arkansas and around the country did not cause the upheaval and their regulation during this time should serve as the model – not the victim – of reform.

Certainly, one of the lessons to be learned from these events is that bigger does not always mean better when it comes to both financial institutions and their regulators.

The product of bank regulatory reform should be a system that is nimble and well equipped to respond to the conditions and needs that are unique to each community.  A new regulatory structure should encourage decisions that are pushed down to the often better informed, more responsive local level, not made in a vacuum by an agency with unchecked authority.

The system should result in smarter regulation, healthier financial institutions and prosperous communities across America.