Trump takes aim at post-crisis banking law
For three years, United Community Banks has been getting ready for the day it would grow to $10 billion in assets and had to play by the same rules as much bigger banks.
That day has arrived, but now the rules may change.
The Blairsville, Ga.-based bank hit $10.7 billion last year, aided by its 2015 acquisition of the former First National Bank in East Tennessee. Under the Dodd-Frank act, a financial regulatory law enacted after the Great Recession, it will soon have to meet tougher regulations on capital levels, consumer protections and other requirements.
“We’re ready,” said Rex Schuette, the bank’s chief financial officer.
President Donald Trump’s aim to roll back Dodd-Frank could make some of the preparations for naught. Trump launched the effort last month with a broadly worded executive order directing his administration to look for ways to cut regulation of the financial industry.
The fate of Dodd-Frank is not just an issue for bankers like Schuette. The 2010 law was a landmark effort by Congress and former President Barack Obama to prevent a repeat of the 2008 financial meltdown.
The law’s main aim is to strengthen the banking system. It requires banks to have bigger financial cushions. It restricts banks from risky bets, such as trading on Wall Street using their own capital. It deters banks from risky behaviors such as colluding with appraisers and loan brokers to inflate home values and make fraudulent loans.
Such tactics and an overheated real estate market made Georgia the epicenter for failed banks after property values collapsed, especially in metro Atlanta. More than 80 banks failed in Georgia during the dark days after the financial crisis — more than in any other state.
Dodd-Frank also touches millions of Americans’ daily lives in dozens of ways.
It affects, for instance, fees retailers and customers who pay banks for debit and credit card transactions. It influences how easy it is to get mortgages, and whether lenders
“The attitude of bank examiners has been very harsh for the last four or five years. Since the election, there has been a shift. It’s getting a little lighter.” – CHRIS MARINAC, A BANKING INDUSTRY EXPERT
have to disclose high fees and predatory terms. Credit reporting bureaus have to watch how they sell their services. And the law bolsters shareholders’ sway over executive pay at the companies they invest in.
HUNDREDS OF RULES
Dodd-Frank is actually enforced through hundreds of detailed regulations based on the 848-page law. That’s where industry experts hope Trump’s administration could revise or remove scores of rules.
Even there, the public notice and comment process takes months and could invite legal challenges.
Because of one such pending challenge, Trump won’t be able to easily fire the director of the CFPB.
Bankers would like to see the CFPB “restructured,” said Brannen, to create a multi-person board to head the agency, diluting the power of its aggressive director, Richard Cordray. But that, also, would likely take an act of Congress that Democrats likely could block.
Despite such obstacles, observers say Trump’s arrival could already be affecting how strenously Dodd-Frank’s requirements are being enforced.
“The attitude of bank examiners has been very harsh for the last four or five years,” said banking industry expert Chris Marinac. “Since the election, there has been a shift. It’s getting a little lighter.”
Coyle, of Georgia Watch, said she hasn’t heard that bank regulators are getting softer. “If that’s the case, that’s very troubling,” she said, adding that’s one reason the CFPB, which also oversees many activities by banks, needs to remain independent.
The CFPB is “not subject to political whims,” she said. “For now, fortunately, they’re still doing their job.”
DODD-FRANK CHEAT SHEET
Here are some of the key provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The 2010 law is in the crosshairs of Trump, who has pledged to do “a big number” on Dodd-Frank.
› Consumer Financial Protection Bureau: Fans say the new bureau created by the law protects people from predatory loans and other abuses. To critics, it’s government run amok.
› Capital requirements: Core part of the law requires banks to have bigger money cushions against bad times or poor decisions. Advocates say banks are safer. Trump’s take: His friends have “nice businesses and they can’t borrow money.”
› Volcker rule: It blocks banks from risky activities such as betting their capital on Wall Street. Safer banks, say advocates. Wall Street hates its restrictions against formerly lucrative dealings with banks.
› Too big to fail: Big banks face annual stress tests and the Federal Deposit Insurance Corp. can wind down failing banks, rather than Washington having to bail them out.
› Durbin amendment: Caps fees bigger banks can charge merchants for customers’ debit card transactions. Banks say they’ve raised fees on checking accounts and other services to compensate.