Lori Ann LaRocco, a native of Holbrook, is the author of "Thriving in the New Economy: Lessons from Today's Top Business Minds" and senior talent producer at CNBC and one of the producers of CNBC's "Squawk Box."
As the bank regulation tango continues on Capitol Hill, the markets and New Yorkers hold their breath. What kind of impact will reform have? It's been roughly 17 months since the words "regulation reform" have been pledged, and nothing has been done.
Some ideas, like a central financial regulator, may be a good thing for the markets, to help restore trust in the battered system. But regulation requires a fine balance, since overregulation would have a negative impact on the financial system and, since New York is the epicenter of the financial world, on our local economy.
Take the proposed new taxes on banks. Congress hopes one would raise $117 billion. But that money will come out of the banking system - which means there will be less money available for loans. Either that, or the banks would increase fees on consumers to cover the cost of the tax.
The other bank tax on the table is targeted at employees. Sens. Barbara Boxer (D-Calif.) and Jim Webb (D-Va.) have proposed a 50 percent tax on bonuses of more than $400,000 for employees at financial firms that received TARP money. Sure, that soothes the national populist outrage, but it would also mean less discretionary money being spent in our neck of the woods.
Wayne Huizenga, owner of the Miami Dolphins and founder of Blockbuster and AutoNation, says the key to regulation is creating a partnership between the government and corporate America: "Government should play a partner to enterprise, helping promote an environment of rewards for innovation, diligence and creativity." Sounds simple.
But since the beginning of this financial crisis, capitalism has become a dirty word. Bashing banks and condemning executive bonuses and corporate conventions make for good sound bites, but in the end, they just deepen the division between Wall Street and Main Street.
The Long Island Convention & Visitors Bureau and Sports Commission promotes Nassau and Suffolk counties as destinations for big business. Take a drive down Montauk Highway or through the cozy streets of the North Shore, and you'll come across the hundreds of hotels, motels and bed-and-breakfast inns that make Long Island their home. If businesses are dissuaded from spending money on conventions or travel, these businesses miss out.
Tourism isn't the only Long Island industry facing headwinds. So are the community banks. In a normal year, 20 banks fail nationwide. Last year, 140 failed - the highest number since 1992. And FDIC Chairwoman Sheila Bair is warning we might see as many as 700 small banks go under this year.
At the end of 2009, there were 19 banks chartered in Nassau and Suffolk, and another 28 institutions with branches here. Right now almost all of these institutions are healthy, but banking reform needs to take small banks into consideration, too. They are the financial lifelines for local communities, offering the loans that keep the neighborhoods humming - from small business loans to home loans. Regulations should ensure transparency in the risk-taking these banks pursue.
The future of our small and large banking system all depends on what comes out of Washington. If the "cowboy" activities are curtailed, that's a good thing. But if regulations are passed that further tighten the credit belt, it could make things worse. If banks can't make loans because of high risk standards, they will fold up, hurting small businesses and consumers in the process.
This is a puzzle where all the pieces go together. Remove one and the picture is incomplete. The dynamic between regulation and the free market is key to a strong recovery for our region.