The Dodd-Frank Act became public law in the 111th Congress nearly seven years ago. Its objective, as the country moved through the Financial Crisis and the devastating effects of the Great Recession, was primarily four-fold:
-Promote the financial stability of the United States by improving accountability and transparency in the financial system
-End “Too Big to Fail”
-Protect the American taxpayer by ending bailouts
-Protect consumers from abusive financial services practices
While many have embraced the holistic benefits that have arisen due to the financial discipline and analytical rigor promulgated by such components as stress testing and organizational risk assessments, most would agree that the results of Dodd-Frank have been mixed, at best, and clearly onerous to the nation’s legions of community banks that were by and large innocent bystanders/victims of the Financial Crisis. Over the decades our country has enacted broad and sweeping legislation in the financial sector that often built upon a framework of common sense aligned with simplicity. The genius of past legislation seemed to largely lie in its ability to be both comprehensive and understandable, without killing a forest of trees in the process:
The industry’s behemoths that were ostensibly the targets of “Too Big To Fail” simply got bigger, although no one would discount the system-saving benefits of the ability of some of them to “rescue” and absorb the likes of Washington Mutual, Lehman Brothers, IndyMac, etc. And while it is hard to argue in the court of public opinion the conceptual design of an agency formed to protect consumers, in practice the initial “Americana, Mom and apple pie” good feelings of the Consumer Financial Protection Bureau (CFPB) have given way to concerns about overreach and a seemingly clear lack of oversight and accountability on the part of its agents.
Tax reform has moved to the top of the Administration’s agenda (and House Speaker Paul Ryan remains confident that we will see action in 2017), but the ripple effect of the failed healthcare reform efforts is still playing out, and to what extent, if any, it will have on tax reform is still unknown. In assessing potential regulatory relief, plans to roll back or revise Dodd-Frank have been tabled until this Summer, at the earliest. While most bankers remain optimistic, this has always been an area that is at best very difficult to quantify, but seemingly also carrying potentially significant “emotional” benefit to the group. While the recent healthcare stumble gives pause to any reform efforts, ongoing discussions with financial industry leaders and meetings with community bankers are reinforcing apparent genuine efforts to address the costs and resource-allocation requirements of this legislation.
Multiple pieces of potential new legislation have proffered: the Financial CHOICE Act (banks could effectively qualify for regulatory relief via higher capital levels); the Community Lending Enhancement and Regulatory Relief Act, or CLEARR (targeting significant easing of the regulatory burden facing community banks); the Consumer Financial Protection Accountability Act (the title seems to say it all); and the Main Street Regulatory Fairness Act (among other things, it would raise the threshold for banks required to undergo stress testing, or DFAST, from $10 billion to $50 billion – immediately impacting Michigan’s two largest institutions and seemingly trickling down with regard to the “unwritten” requirements imposed on the state’s remaining banks), to name a few.
I remain cautiously optimistic that common sense and constructive discourse will prevail, but it is clearly becoming more difficult to take a lot of comfort based upon recent observations of the political climate in our nation’s capitol.
In closing, please find our monthly summary of Michigan’s financial institutions (link below). As you and your Board take your organization forward, please do not hesitate to reach out to me and/or my colleagues at ProBank Austin if we can be of any assistance in helping you assess the competitive landscape. Best wishes for continued success in 2017!