The Obama administration’s plan to revamp the regulatory environment presents as a common-sense change to put collars and leashes on the financial industry after they spent the past few years running all over the neighborhood.
But as the head of the Independent Community Bankers of America said on CNBC Squawk Box Friday morning, it’s the most heavily regulated portion of the financial business that’s going to see the greatest addition to its paperwork burdens.
Cam Fine, president and CEO of ICBA said that there already is significant consumer protection in the existing bank regulatory regime, and that the administration’s planned overhaul isn’t focused on the portions of the industry that “led the industry over the cliff.” Fine described the bank examination process as a conflict between safety and soundness, which is designed to protect investors, and consumer advocacy. He said his own bank (Midwest Independent Bank of Jefferson City, Mo.) would get examiners looking at each constituency and calling for opposite actions. The Safety and Soundness examiners would tell him to make fewer of a certain type of loan, while the Consumer-side examiners would call for more of the same type of loan.
At least both sets of examiners were led by the same organization and the same leadership, Fine said. That gave him the ability to appeal to higher-ups to arbitrate the dispute. Now, with a new Consumer Financial Protection Agency in the mix, that appeal becomes a manifestly more complicated process.
Community bankers have been running a PR campaign touting their safety and soundess as compared to the “too big to fail” megabanks.
Having spent most of my professional life in financial services PR/Communications, I see troublesome consequences on the communication side.
If the examiners tell us to make fewer loans with lower risk profiles, and the CFPA tells us we need to make more of them, how will we handle communicating those directives, and what will be the impact on compensation? As ICBA’s Fine said, this type of activity was a relatively small part of the financial crisis — the hedge funds and derivative groups weren’t regulated at all, and in the case of derivatives such as credit-default swaps, didn’t even have a sunshine provision to reveal a bank’s position in those risky institutional investments.
Fine also pointed out that the current documentation for mortgage loans is already so extensive and complex that its unread and poorly understood. With new regulating bodies, how likely is it that the documentation will be shorter and clearer? Employees are going to have to learn a whole new lexicon of regulatory language, likely will have to receive extensive training on the new regime and have ongoing testing to be sure they have it all right.
Meanwhile, the newest crop of employees has the expectation of real-time, continual communication from company and colleagues (and friends, family and neighbors, perhaps even the occasional celebrity). The financial community hasn’t been the fastest to embrace social media, in part because of concerns about client confidentiality, data security and the distraction to customer service, among other factors. Plus, the government is going to have its eye on all of this, as I mentioned in a previous post.
Social media adherents who might have been counting on a financial industry in-enterprise expansion of the social media carousel might want to keep calm a little while longer.
