The Headache: Dodd-Frank Act (September 2010)

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The Headache: Dodd-Frank Act (September 2010)

In the ten-plus years of Pass the Aspirin’s existence, does anything else come close to the headaches this new law will cause? We asked for bankers’ preliminary thoughts on how they’ll handle Dodd-Frank regs for the August issue. More answers have come in, including one banker who elaborated on his earlier answer. You can weigh in yourself at www.ababj.com/blog/277.html

Remedy 1
Mike Murphy, executive vice-president and CFO, First American Bank, Norman, Okla.

Dodd-Frank is a work in progress. There will be many modifications throughout the rulemaking from the various regulators, particularly the Bureau of Consumer Financial Protection. Bank staff will be redeployed from helping customers and serving them to complying with the law, just as dollars and capital will. Expenses will continue to climb— as they have the past two and a half years due to increasing FDIC insurance premiums, compliance costs, and audit requirements. Revenue opportunities will be lost, with decreasing net interest revenue (a function of the economy that remains stifled); declining overdraft income (a function of increased regulation); and lost interchange income (a function of congressional ignorance of how retail transactions actually work).

Some people will see opportunities in increased insurance coverage and allowing interest on business accounts. But we pay for the extra coverage through the need for greater reserves at FDIC. And interest on business accounts will become the norm, not a differentiator. (This all reflects my opinion and not necessarily my bank’s.)

Remedy 2
William Grant, chairman and CEO, First United Bank & Trust, $1.8 billion-assets, Oakland, Md.

I am most concerned about the Bureau of Consumer Financial Protection and the broad, unchecked powers that it represents. While I do not anticipate adding staff, dozens of associates will be asked to work extra time in an effort to understand and implement the law’s requirements.

While we are unsure if we will exit any business lines because of this legislation, there is no question it will negatively impact profitability.

Remedy 3
James Stackhaus, CRCM, audit/compliance officer, First State Bank of Kansas City, Kan., $73 million-assets

My bank is doing its level best to stay abreast of the ever-changing compliance landscape so that we are not caught unawares.

Having said that, everything is changing so fast and so often that the best we can do is be aware. Being proactive, which would be optimal, is almost impossible. Therefore, we wait, watch, listen, and react as quickly as we can.

Keep your life preserver and swim fins handy, it’s going to be bumpy ride

Remedy 4
Gregg Vandaveer, president and CEO, Sooner State Bank, $143 million-assets, Tuttle, Okla.

This bill will cause a lot of small-town banks to sell or merge, which will harm small towns.

We’re the banks who support school systems. Most banks will need to add at least one person. Free checking could be a thing of the past. Any gain in the FDIC assessment calculation will be offset by the cost of compliance.

Opportunities will increase for compliance consulting and new technologies to help us comply.

Remedy 5
Vernon Hirata, co-COO and chief counsel, Territorial Savings, $1.4 billion-assets, Honolulu, Hawaii

We are a plain-vanilla savings and loan under the OTS [for now]. We have not had the increase in mortgage foreclosures that the mortgage bankers have had in our state. We are concerned because we have heard that the Comptroller’s Office does not believe in having a single line of business. We are concerned that with the change in regulator we will be forced to expand too quickly into other loan areas.

Remedy 6
Blair Hillyer, chairman, president, and CEO, First National Bank, $168.7 million, Dennison, Ohio

This will turn out to be one of the worst pieces of legislation passed in my career.

I’m most fearful about what we don’t know about the act. When it’s all sorted out, I think it will add greatly to ongoing compliance costs; reduce profitability significantly; and put an end to some free or semi-free services we have offered to our customer base and community. My guess is we will need an additional person to assist with compliance and several people here will spend more time with busy-work instead of making loans or taking care of our customers.