States Should Reject Nonbank Regulations Proposed By The Conference Of State Bank Supervisors

States Should Reject Nonbank Regulations Proposed By The Conference Of State Bank Supervisors

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Last week, the Conference of State Bank Supervisors (CSBS) released a proposal to impose new regulations on the nonbank financial companies that service home mortgages. States should reject this approach for many reasons, least of which is that bank regulators should not have a major influence on regulating financial firms that are not banks.

The proposal recommends a host of new capital, liquidity, stress testing, and living-will requirements on mortgage servicers. Most of these rules resemble the prudential regulations forced on banks in the Dodd-Frank era, and many are harmful and counterproductive in their own right. Moreover, the CSBS proposal ignores the principle justification for these kinds of federal banking regulations: The federal government insures