The Headache: Dodd-Frank Act
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, including:
• What concerns you most about Dodd-Frank?
• Do you anticipate staffing up to handle compliance?
• Will Dodd-Frank lead you to exit any business lines?
• How will the new law affect your bank’s profitability?
• Do you see any hidden opportunities in Dodd-Frank?
You can weigh in yourself at www.ababj.com/blog/277.html
Mike Magee, president and CEO, Independent Bank Corp., $2.9 billion-assets, Ionia, Mich.
I was hoping that when the final reform legislation passed, it would clarify things for the industry. It hasn’t done that at all. It’s going to take months—even years—for committees of regulators to define the actual implementing regulations. Potential investors in banks are still concerned, too, because they see a lot of uncertainty about the law’s impact on the financial community. That’s not good, not when bankers are trying to raise capital right now.
As far as our staffing, until the final regulations come out of the committees, I don’t know if we’ll be staffing up. That’s part of the confusion this is causing. So is the Bureau of Consumer Financial Protection. How long it will take to get organized and what it will really be governing is unclear.
That’s the issue with the law in general, really—so many key elements that are still uncertain. And I don’t feel that the law really fully addressed “too big to fail.”
Blair Hillyer, chairman, president, and CEO, First National Bank, $168.7 million-assets, Dennison, Ohio.
We are expecting more overall expense and additional staff for compliance. We are already planning on increasing loan rates to pay for it. This cost recovery will fall on our smaller borrowers, both consumer and commercial.
Rheo Brouillard, president and CEO, Savings Institute Bank & Trust Co., $871.7 million-assets, Willimantic, Conn.
As far as concerns go, they’re really with what hasn’t been defined in the legislation and left up to the regulators and the new Bureau of Consumer Financial Protection. The latter is of most concern, in particular, depending on how aggressive the leadership wants to be in terms of consumer advocacy. The potential exists for significant changes in the products we offer and the pricing of those products, on top of additional regulatory burdens and related costs.
At this point we do not anticipate adding staff to handle compliance. This may change, however, as the level and degree of new rulemaking from the various agencies begins. We do not anticipate exiting any business lines as a result of the Dodd-Frank legislation.
We expect that the legislation will negatively affect the bank’s profitability by both reducing fee income as the regulators, in particular the Bureau, begin their rulemaking, and in increased expenses to comply. Reduction in interchange revenue is certainly an area we expect to see affected early. Although we do not expect to add to staff, costs will increase as a result of anticipated required disclosure changes and from costs associated with additional reporting requirements.
Are there hidden opportunities in Dodd-Frank?
One could argue that the impact may be greater on the much larger banks, due to changes in how the FDIC premiums are calculated and the impact of lost revenues (interchange and overdraft, though the latter is not part of Dodd-Frank) and that therefore they may make changes that disenfranchise some customers. (For example, they may eliminate free checking.) However, I do not see them substantially losing any of the dominant market share that they have either built up or been given by the government.
If there is an “opportunity,” it may be that the added costs, reduced incomes, and added regulatory scrutiny could ultimately have a disproportionate and sometimes debilitating effect on some community banks. The boards of these banks may decide or be forced to merge or sell, creating an opportunity for those willing and able to meet the new challenges.
While not the kind of opportunity one would expect from a Senator who promised “not to harm community banks” [Sen. Dodd], it is nonetheless a distinct possibility.
The electronic version of this article available at: http://www.nxtbook.com/nxtbooks/sb/ababj0810/index.php?startid=20