Bank Regulation After 2016 Election

A long awaited opportunity to seek changes to the regulatory and examination framework for community and regional banks is in place. Now is the time to be active and be bold to achieve some common sense changes that will be to the benefit of bank customers and their communities. Knowing where you have been helps with knowing where you need to go. The Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA) according to its website, "requires that regulations prescribed by the Federal Financial Institutions Examination Council, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation and Board of Governors of the Federal Reserve System be reviewed by the agencies at least once every 10 years. The purpose of this review is to identify outdated or unnecessary regulations and consider how to reduce regulatory burden on insured depository institutions while, at the same time, ensuring their safety and soundness and the safety and soundness of the financial system." Long on sentiment, short on results. Long before the financial panic in 2008, banking was inundated with regulations that stifled growth and often did not make sense. So to be clear, Dodd-Frank was just the latest in a long string of policy out of Washington, D.C., that harmed the greatest banking system devised by man. What I hear from Louisiana bankers goes beyond Dodd-Frank. It’s a host of onerous regulations, as well as changes by Financial Accounting Standards Board, along with an examination process that often seems to be not so much focused on collaborative problem solving, but directing and admonishing. We can do better than this. I have represented bankers in Louisiana since 1983 and can attest from that experience they want to do the right thing, want to have good relationships with examiners and value examiners eyes on their operations. Louisiana has 29 fewer community banks since enactment of Dodd-Frank in 2010. This is not wholly because of Dodd-Frank, but it could be that it was the tipping point for more rapid consolidation. It should be noted that Members of Congress in both parties, senior members of federal banking agencies and the Conference of State Bank Supervisors all support relief in some form. 

 
There are three areas of banking requiring changes from which we can measure success. First, the regulatory framework needs to be rationalized in a way that results in savings to bank operations. Banks have spoken for years of lowering the benchmarks used to measure bank performance due to the regulatory burdens. Bottom line, bank return on equity needs to rebound. We need to look at year end 2016 ROE for community and regional banks and compare that to the ROE in the years ahead. Those numbers need to reflect cost savings due to the changes made by Congress and federal banking agencies in 2017. Second, Congress needs to pass H.R. 1941, the Financial Institutions Examination Fairness and Reform Act to re-balance the relationship between the federal bank examiners and the bank. Bankers want and deserve a good relationship, especially when issues arise that need attention. A more collaborative problem solving approach is in everyone’s best interest. Lastly, the changes need to result in new bank charters. A business that has no new entrants is one that is unhealthy. Banking needs to be attractive to capital, and with sensible regulatory and examination reform, capital will flow to new entrants to the great American banking system. To achieve these results will require bankers to be active with their state associations in advocating for reform. I look forward to seeing you in the halls of Congress soon.