President-elect Donald Trump has promised to eliminate the Dodd-Frank Wall Street Reform and Consumer Protection Act implemented in 2010 to atone for the banking industry’s role in the Great Recession.
If he succeeds, what would that mean for the Wisconsin banks that have been dealing with the regulations, hiring new employees to manage them and completing mergers to keep up with them?
According to the Wisconsin Bankers Association, there have been 20 Wisconsin bank mergers announced in 2016, almost double the 12 announced in 2015 – and 2015 was a record year. Many of the mergers were among community banks, and a commonly cited reason was the increased cost of complying with heightened regulations.
While a mix of factors led to Brookfield-based North Shore Bank’s recent acquisition of West Allis-based Layton Park Financial Group Inc., parent company of Layton State Bank, the smaller bank’s regulatory burden was one of them, said Jay McKenna, president and chief operating officer of North Shore Bank.
Many banks have increased hiring in their compliance departments as Dodd-Frank has rolled out. Green Bay-based Associated Banc-Corp, for example, has hired about 150 compliance employees just over the last couple of years to keep up with increased regulations. Since 2010, the most significant increase in hiring at the bank, which has a total of 4,477 employees, has been in the compliance area, said Sara Walker, senior vice president, senior portfolio manager and chief economist at Associated Bank.
“Not specifically related to Dodd-Frank itself, but (due to) a lot of the regulations that came forth from the regulatory environment, yes, we’ve definitely added to our compliance staff over the years,” McKenna said.
“I think what the banking industry has been looking for really since Dodd-Frank was enacted is some regulatory relief from it,” said Rose Oswald Poels, president and chief executive officer of the Wisconsin Bankers Association. “There are…still regulations that have not been written yet. It’s taken a long time to phase it in.”
But phasing it out might be just as painful—and difficult to accomplish politically.
“Today, what the banking industry is really hoping for is some continued tiered regulation and regulatory relief, and I don’t know that we’re necessarily looking for an entire repeal,” Oswald Poels said.
“(Dodd-Frank) covers big banks and big banks are still a target,” Walker said. “Politicians who could be tainted as supporting the big evil banks may not want to take that risk.”
“I’m not sure a complete repeal is practical under the political situation, so I think a reopening of Dodd-Frank, given the lessons that we’ve learned since it’s been passed, would be very helpful,” McKenna said.
He described it as “re-regulation” rather than “de-regulation.” A piece of legislation awaiting action in the U.S. House of Representatives called the Financial Choice Act would tweak the existing Dodd-Frank regulations to require regulators to tailor their rules based on the risk profile of the banks, he said.
“Dodd-Frank took sort of a one-size-fits-all approach, where JPMorgan Chase is regulated in the same way as North Shore Bank,” McKenna said.
Some of the clunkiest regulations for local banks have been related to lending, such as the increase in disclosure documents a bank must give customers at a home closing.
The WBA maintains Dodd-Frank should be rolled back a little for community banks and enforced in a tiered approach, based on a bank’s complexity and risk.
“I think a very thoughtful approach is necessary to reviewing regulations and look for areas where there is too much burden, where we can look to reduce it,” Oswald Poels said.
Several bank leaders have criticized the role of the Consumer Financial Protection Bureau, which was created to write and enforce Dodd-Frank rules, but which some have accused of going too far and operating with little oversight.
“I would imagine there’s a review of the Consumer Financial Protection (Bureau),” Walker said. “It’s had full reign. It has no one to report to and just working for a bank, I can tell you the impact and the friction … that adds to the economy, and friction doesn’t help the economy.”
Proposed Home Mortgage Disclosure Act rules pending with the CFPB, for example, would add more data collection work for banks. It could slow down the pace and efficiency of mortgage loan closures, Oswald Poels said.
“There’s going to be a lot more data points, over twice the number that we collect today,” she said. “We don’t believe that much data collection is even necessary and…some of what’s going to be mandated wasn’t even required by Dodd-Frank.”
Several banking experts have described banking regulations as a pendulum that has swung too far in one direction.
“The whole mortgage lending area, because of what happened in the Great Recession where housing was a big part of the crisis, caused the government to kind of swing in the direction of overregulating mortgage lending,” Oswald Poels said. “We do believe in reasonable regulation.”
“I think the regulations and the regulatory environment that came out of Dodd-Frank have had a very negative impact on the community banking sector, so to the extent there is relief from that, it should benefit the community banking sector,” McKenna said. “At the end of the day, burdensome regulation ends up costing the consumer, so to the extent there would be relief for the community banking industry, it should come back to the consumer in things like it should be easier to get a mortgage.”