You of course remember that Blanche Lincoln sailed to victory in a tough Democratic primary in Arkansas by telling the state that she produced the toughest reforms on the banks imaginable. She took credit for creating the entire reform bill, and said that she fought for Arkansans over Wall Street.

I guess that’s sort of still operative when you read this story about her advocacy for a bank owned by Arkansas’ richest family, the Waltons, but it’s probably not what voters had in mind.

Sen. Blanche Lincoln, one of the chief architects of the financial-regulation overhaul nearing completion in Congress, is pushing for a change that would benefit a bank in her home state of Arkansas.

The bank, Arvest Bank Group Inc., of Bentonville, Ark., is predominantly owned by the Walton family, of Wal-Mart Stores Inc. fame, perhaps the most influential family in the state and one of the richest in the U.S.

Under Ms. Lincoln’s proposed change, Arvest would be excused from a provision that could require banks to raise more capital, in Arvest’s case about $115 million. Other Senate Democrats had intended only to exempt banks with less than $10 billion in capital from the provision. Ms. Lincoln wants to raise that to $15 billion, a threshold that would exempt Arvest. It is the only bank in Arkansas with between $10 billion and $15 billion of assets, though there are some in other states.

No bank should be exempted from capital requirements, in my view. The vicious cycle of more leverage to make more risky bets cascaded the country into the financial crisis. But this particular change is just naked parochialism. There’s no real policy reason to up the exemption from $10 to $15 billion. Lincoln just wants to help out a corporate contributor. Because if anyone in this country needs help from the government, it’s the Walton family.

In a statement, Lincoln’s spokeswoman said she wanted to make sure “no Arkansas bank—no matter its owner—is punished”. Why does raising capital requirements constitute punishment? Aren’t Arkansas families punished when leverage goes up and risk enters the system and banks fail, rippling through the economy and causing the kind of deep recession we saw in the 2008 period? Lincoln’s claim that she just wants to protect local banks that didn’t destroy the economy – ridiculous on its face, because the market for riskier securities could easily flow down to banks with looser regulatory requirements – doesn’t match her actions. Last week she voted with Republicans last week to allow all banks to use trust-preferred securities as capital (the amendment lost), so her alternative to a setup that affects one bank in Arkansas is to extend the exemption to every bank in the country.

This is part of the Collins amendment, specifically the “trust-preferred securities” issue (Lincoln’s change would raise the exemptions where a bank or bank holding company can count those securities as capital for regulatory purposes). Collins has already given her blessing to raising the exemption.

Lincoln isn’t really showing her “true colors” here since they’ve been so obvious to anyone paying even a little bit of attention. She’s the Senator from Wal-Mart and pretty much always has been.

UPDATE: I associate myself with Matthew Yglesias’ remarks:

Once you construe the problem as something like “big Wall Street banks” rather than “poorly regulated financial institutions” you start doing things like setting a $10 billion cutoff for new rules so that you can say you’re cracking down on “big Wall Street banks” and not raising the ire of smaller bankers—banks whose managers and headquarters may be in your congressional district—who count as pillars of “Main Street” respectability [...]

But if you go up and up like this, then your rules become worthless. Bottom line, $15 billion is worse than $10 billion, but only a little worse. What would be much better is not $10 billion but $0—if new rules are appropriate, they should be applied as broadly as possible or else you’ll just tend to push trouble into the under-regulated segments of the industry.

Quite right. There aren’t a set amount of companies that can cause problems in the financial sector. The money will flow to the more shadowy parts of the system.