Bankers in Maryland remain watchful of efforts to repeal large portions of Dodd-Frank, the 2010 law created to impose tough regulations on the industry in the wake of the 2008 financial crisis.
Earlier this month, the House of Representatives passed the Financial Choice Act, which would get rid of the Department of Labor’s fiduciary rule and put sharp curbs on the Consumer Financial Protection Bureau, among other changes.
Last week, the Department of the Treasury issued a report on financial regulations that also proposed changes, at a slightly more moderate rate than the Choice Act. The proposals included weakening the Consumer Financial Protection Bureau and exempting banks under $10 billion in assets from the Volcker Rule prohibiting banks from engaging in certain kinds of risky investments.
“The Choice Act, while not perfect from our perspective because it sets certain reserve requirements that we don’t completely support, [contains] components that we completely support, particularly for community banks,” said Kathleen Murphy, president and CEO of the Maryland Bankers Association.
Murphy said her group supported the Choice Act, but does not support a full repeal of the Dodd-Frank Act from 2010. She also hoped that the Senate would moderate some of the other provisions in the Choice Act.
Overall, she felt provisions of the Choice Act would help community banks, especially the smaller ones that have disappeared since Dodd-Frank’s implementation. Since 2009, the number of banks headquartered in the state has dropped from 94 to 57.
“One of the major reasons cited when a bank says they’re going to have to align with another bank, it’s because of the crush of regulations,” Murphy said. “What the Choice Act has attempted to do is address some of those concerns.”
By helping these banks, Murphy said the banks could in turn do more in the community.
“What (these changes) mean is that there will be greater credit availability for consumers and small businesses,” she said. “They’ll be able to serve customers who don’t fit into a cookie-cutter approach.”
But even if the law passes, it has to be applied. A concern with Dodd-Frank has been that the law created a regulatory environment where even laws that did not necessarily apply to smaller banks came to represent regulatory best practices.
“How is it applied once it passes?” asked Mark Semanie, vice president and COO of Old Line Bank, of the Choice Act. “There’s a regulatory interpretation element to it. And that’s frankly where the rubber meets the road for most of us at our size.”
From what he’s seen, Semanie has not been excited by potential reforms coming out of Washington.
“There’s nothing that has really caught my eye that I’ve said, ‘Wow, that would be a home run.’” he said.
Another issue with Dodd-Frank for the banks has been that it applied different threshold regulations for whenever a bank reached a certain level of capital. It requires banks to perform a cost-benefit analysis whenever they approach a threshold to see if they want to cross it.
Murphy worried that the Choice Act could also apply arbitrary threshold requirements on banks.
“The concern about the Choice Act is that in order to get certain of these relief provisions, banks would have to have 10 percent of capital assets set aside,” she said. “Any type of a capital threshold, we don’t believe should be set in Congress, we believe should be set by regulators and set and adjusted based on the changing market conditions.”
Another problem for banks post-Dodd-Frank has been the addition of non-revenue generating compliance staff to their payrolls. But that might not be something the Choice Act can fix.
Smaller banks have been hurt by regulations, but a lot of those regulations have not necessarily been Dodd-Frank regulations. Old Line Bank has consolidated with several smaller community banks that couldn’t handle the costs of cyber regulation.
“It’s just expensive to manage and as those things pile up you need more and more scale to pay for the resources to handle those things and still earn an appropriate rate of return for your shareholders,” Semanie said.
Further, these were necessary regulations, Semanie said. Potential cyberattacks are a “real risk.” But small banks did not have the necessary resources to hire the staff to deal solely with technology while a larger bank can higher a savvy chief technology officer.