Who’s best for banks?
Whether it’s President Clinton or President Trump, Wisconsin bankers just want some regulatory relief.
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In search of regulatory relief
It’s not uncommon for heavily regulated industries to talk about the need to get out from under the burden of regulations.
On this point the banking industry may not be off base.
In the immediate wake of the Great Recession, with a populist backlash against anything that had the word “bank” in it, federal lawmakers created the Consumer Financial Protection Bureau and passed the Dodd-Frank law imposing strict regulations on the financial sector.
The problem with the well-meaning Dodd-Frank legislation is that it took problem actors — large, Wall Street investment houses like Goldman Sachs that were deemed “too big to fail” — and lumped traditional community banks in with them.
Since President Obama signed Dodd-Frank into law in 2010, community banks have struggled under the weighty and often outsized requirements imposed on them, notes Oswald Poels. Those regulations have created an untenable situation for banks and consumers, something Oswald Poels is hopeful either Clinton or Trump would be willing to address.
“I do actually believe there is some optimism on both sides, whether it’s Clinton or Trump,” states Oswald Poels. “I just saw an article talking about how Clinton definitely is in favor of community banks. She understands the power that community banks have in their local communities but also the voting power that they possess. There are still so many community banks around the country that employ a lot of people who all go to the polls to vote. She is starting to modify her rhetoric, at least in some of her print papers, to reflect a greater understanding of the distinction between community banks and the largest banks in the country and talk about the need for some regulatory relief.”
As a trade association, WBA has been a proponent of trying to encourage legislative reform that tailors Dodd-Frank to be much more risk-weighted based on the complexity of the institution, explains Oswald Poels.
Tubbs concurs. “There needs to be a further understanding of the difference between ‘Wall Street’ banks and ‘Main Street’ banks. So many regulations are written and enforced for all banks. The business models for large Wall Street banks are so substantially different than that of a community bank, so the regulatory burden should reflect the same differences.”
However, while WBA would welcome a repeal of the Dodd-Frank regulations in principle, Oswald Poels notes that’s not realistic and not something WBA is actively advocating for.
“There certainly are some provisions in Dodd-Frank that have been beneficial for consumers and frankly for bankers, too,” explains Oswald Poels, noting the increased FDIC deposit insurance premiums as one example of where the Dodd-Frank rules got something right. “There have been a lot of regulations already put in place as a result of Dodd-Frank on the banking industry and while they’ve been very burdensome and adjustments to them would be welcome, it would also be fairly expensive at this point and it would require a lot of retraining to roll that back and start over yet again with something new.
“I think trying to make adjustments to the areas that still continue to hurt consumers as a result of some of the overcorrecting that’s been done through regulation would be very helpful, not only for bankers but also consumers. I’m optimistic that that type of reform can happen under either president.”
In particular, Oswald Poels says Wisconsin bankers would like to see changes made to some of Dodd-Frank’s mortgage-related rules. TRID, or the TILA-RESPA Integrated Disclosure, is a requirement intended to streamline mortgage disclosures, but bankers feel like it’s done anything but streamline the mortgage process.
“There are some timing requirements, so if something changes let’s say in an offer — if the house turns out to need some additional rehabilitation or restoration done to it before the sale can close — in addition to the potential delay in the timing of getting that thing fixed, it also causes a delay in the closing date,” Oswald Poels explains.
Those delays, while intended to provide more adequate notice and time for review, have had the unintended consequence of dragging out the home-buying process.
There are also some technical nuances in Dodd-Frank that bankers would like to see corrected. Specifically, there is uncertainty about when banks really need to redisclose or not redisclose prior to a closing that bankers would like cleaned up, Oswald Poels notes, as well as reporting rules that are part of the Home Mortgage Disclosure Act (HMDA) that have created a burden on banks greater than the benefit of the data being collected.
Hoping for the best, bracing for the worst
Tubbs notes there’s still plenty of optimism among bankers that a new administration in Washington can prove beneficial to banks and their customers.
“Best case: We have a president and a Congress that clearly understand how the tremendous amount of regulations that have been passed and enacted since 2009 have been detrimental to our industry and to our customers,” Tubbs says. “Once they truly understand the issues, they work together and either repeal or substantially modify many of these rules.”
It’s the worst-case scenario that keeps bankers like Tubbs up at night. “Worst case: In four years, we look back and realize that our industry is either no better off or in even worse shape because of regulations.”
Regardless of who is elected, Oswald Poels believes what would be very bad for the banking industry and consumers is maintaining the status quo.
“If we don’t get some change and relief in the regulatory space for the banking industry, those costs coupled with just the greater costs of technology are the significant drivers for the merger activity that we’re seeing,” she says. “If you watch local communities in this state, and we’re still a very rural state, and you see those local banks merge together to become a larger bank, there is an impact on the community.”
In particular, Oswald Poels says that while the merged banks often remain good actors in the community, the amount of resources they can continue to devote to local charities and organizations dwindles as it’s spread over a wider service area.
“It’s a good thing to have, both in Wisconsin and nationally, a lot of banks that are able to serve the needs of the public,” notes Oswald Poels. “If we continue to not make any headway legislatively with reforms at the national level, if we continue to keep the tax burden the way it is on corporations and individuals at the national level, none of that bodes well for a hugely diverse banking industry. It will continue to shrink. Wisconsin has been shrinking at a fairly rapid pace in the last 18 months and that’s not good for the public or the overall health of the economy. That would be the worst-case scenario in my mind, if we just keep status quo and everybody keeps fighting with each other and saying a lot of rhetoric but nothing ever gets accomplished.”