Pity The Largest Banks?!!!
The WSJ has a prominent article this morning detailing the woes of large banks forced to comply with Dodd Frank and it’s 22,000 pages of regulatory progeny. The paper points out that the six largest U.S. banks by assets in 2013 together spent at least $70.2 billion that year on regulatory compliance, up from $34.7 billion in 2007, according to the most recent study by policy-analysis firm Federal Financial Analytics Inc., which said costs have continued to mount since then. It reports that this “heightened regulatory environment” led 46% of banks to pare back their offerings for loan accounts, deposit accounts or other services, and that banks are now more like utilities than traditional banks.
There are many great arguments to make against Dodd Frank but pointing to the burdens it has imposed on the nation’s largest banks is not one of them. Why?
Because unlike credit unions and smaller community banks these behemoths actually have the resources to comply with this stuff and the ones must in need of enhanced oversight in the first place. The only thing more ridiculous than 22,000 pages of regulations is that many of them apply to both Wells Fargo and a $25 million credit union.
Let’s look at what is really happening in the Dodd Frank era. Contrary to popular belief the big banks are getting bigger and it’s the community banks and credit unions that are fading away. A lot of this reflects the inevitable consolidation of any industry but it also reflects a need for capital. As one of my readers pointed out to me the other day, the capital requirements being imposed on larger banks are making the capital offered by traditional banks attractive. This is one of the reasons Goldman want to get into online consumer banking.
And let’s not forget why these regulations were put in place in the first place? Banks shouldn’t need a legal obligation to demonstrate why they think a consumer can afford a mortgage but they do as made abundantly clear by the foreclosures that are still clogging up court systems worse than a traffic jam on the Long Island Expressway.
And what has really changed? “Before the crisis, bankers could make decisions more autonomously, said people on all sides. Most viewed compliance officers and regulators as sounding boards.” explained the article.
But remember there has always been lawyers and compliance officers. I think what is really frustrating to bank executives and even some credit union folks is that now there are real consequences for not listening to compliance staff. When I hear about all these compliance specialists being hired at the behemoths and actually getting signoff authority before new products are unveiled my first reaction is: “It’s about time”.
There was apparently an environment in which lip service was paid to laws, and nettlesome technicalities-like making sure loans could actually be repaid-were never allowed to get in the way.
My Brilliant NBA Insights
Nothing at all to do with credit unions but I’m watching game 7 of the NBA Western Finals last night and wondering when the NBA turned into a three-point shooting competition? The sport needs a four point line right inside the paint to encourage mid-range jump shots.