Astoria Financial Corp. (delisted) (AMEX:AF)
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For bankers, there is some good, some bad, but very little ugly in President Barack Obama's proposal to reshape financial services regulation.

The proposal eases the rules to open branches outside a bank's home state, and it leaves state-chartered banks virtually untouched.

The proposed Consumer Financial Protection Agency has teeth, and its impact on bank lending, consumer product innovation and pricing might be considerable.

But the new agency would mean a sea change only for companies currently not supervised at all by bank regulators, ranging from private equity to check cashers. For bankers, the new agency might well level the playing field.

Finally, if the proposal became law, "it would effectively end the debate about whether commerce and banking should be mixed," said Don Ogilvie, the independent chairman of the Deloitte Center for Banking Solutions, a think tank. Industrial loan companies, which make commercial loans but don't necessarily take deposits, would have to become bank holding companies, regulated by the Federal Reserve.

The demise of the Office of Thrift Supervision, and the consolidation of thrift oversight with the Office of the Comptroller of the Currency into one new national bank regulator, will have advantages for OCC-regulated national banks.

Under thrift rules, it was easy to expand from one state into another -- while nationally chartered banks have to apply state banking laws in the states to which they expand. That means in the case of Indiana and Georgia, for example, banks that desire to open branches have to apply for a state banking charter -- or buy one, as Fifth Third Bancorp (FITB) had done two years ago when it expanded to Atlanta and Augusta. Banks would no longer be at a disadvantage on expanding to new states if that part of the proposal became law.

The demise of the OTS likely means thrifts face tougher regulation. George Engelke Jr., the chairman and chief executive of Astoria Financial Corp. (AF), worried that the new regulator won't understand his business model as well as the OTS did. Astoria specializes in jumbo mortgages, but has come through the financial crisis in considerably better shape than other thrifts and banks. Now, "we are paying the price for what others did" to bring down the financial system, he said. "We'll have a lot more regulation."

Engelke is expressing what bankers are likely most concerned about: how to deal with the new regulatory environment, said Ralph E. Sharpe, a lawyer with Venable LLP who was formerly the director of enforcement at the Office of the Comptroller of the Currency.

The most important change will stem from tougher regulation overall; risk management and capital levels will be watched more closely than before the crisis, but banks would face tougher scrutiny regardless of any changes in the regulatory structure, he said.

The consumer protection agency is a mixed bag. On the one hand, it is the one element that immediately ignited resistance from bankers. It "could be the golden bear," Astoria's Engelke said -- a monstrous animal threatening bankers through the empowerment of consumers. He fears it could open the door to customers forcing banks to allow short-selling properties -- selling homes at prices below the value of the mortgage -- to avoid default, and other measures.

However, the consumer protection agency might well, for the first time, regulate mortgage brokers as well as home appliance stores selling on credit. That is one piece of regulation being hoped for by even the most conservative banker.

-By Matthias Rieker, Dow Jones Newswires; 212-416-2471; matthias.rieker@dowjones.com