Bankers’ Hours column: Expected change in banking regulations may not come
January 8, 2017
Just about everybody involved in lending, especially real estate finance, from banks to borrowers, is waiting for the new administration to repeal the Dodd-Frank Act, and the Consumer Financial Protection Bureau to be "gutted," as some commentators have delicately put it.
But they may be surprised. Conventional wisdom was in unanimous agreement that revamping the banking laws and regs would be a top priority when the president-elect takes office next month. However, this fails to take in account that Donald Trump isn't a particular friend of bankers: They've turned him down for loans too often.
Jeb Hensarling, R-Texas, is the congressman that's been a leading proponent of rewriting Dodd-Frank and doing away with the CFPB. But he could be nonplussed to find that he's leading a charge without the big banks and their trade associations falling in behind him. Other conservative lawmakers are very aware that a lot of their constituents believe, erroneously, that banks caused the Great Recession, and they're wary of appearing overly eager to loosen the regulatory reins.
The TBTF's (Too Big to Fail) have spent billions on compliance systems to conform to the new banking regs and oversight. This structure is in place, it's working, and the big guys are back to netting very healthy profits as they move money through their doors, with a lot of it (legitimately, of course) sticking to their fingers.
Yet the regulations are still there, and they're a deterrent to bank charters. Investors think twice before starting a new bank, given the cost of setting up compliance systems, and the regulatory strictures on lending. Also, the cost of compliance is significantly higher as a percentage of total expense for small institutions, so-called community banks, than for their bigger brethren, and tough regulatory lending guidelines can work a comparatively greater hardship. Thus, many little guys are selling out to, or merging with, bigger operations.
No one thought — least of all Messrs. Dodd and Frank, and Massachusetts Sen. Elizabeth Warren — that re-regulation would benefit Big Banking, and give it a competitive advantage, but that's the way it's worked out.
And the truth is that there are a lot of small bank execs that secretly bless Dodd-Frank: It can be a great excuse for nonperformance. There are quite a few CEOs who say to directors and stockholders, "We can't make money because over-regulation keeps us from making loans and doing business." It's a convenient way to justify a 50 basis point (one half of one percent) return on assets instead of the standard criterion of one percent.
So, if Richard Cordray, the CFPB director keeps his head down, remembers to say "Yessir" and "No ma'am" to members of the administration and Congress, he and his bureau may get through the next four years with their vital parts intact.
Pat Dalrymple is a western Colorado native and has spent almost 50 years in mortgage lending and banking in the Roaring Fork Valley. He'll be happy to answer your questions or hear your comments. His e-mail is email@example.com.
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