Is Regulatory Relief Finally Within Sight?

Posted November 16, 2017 by Michael M. Moran in From the Experts.

In the past few days, the Wall Street Journal has featured articles with headlines including: Bankers See Shift in Tone” (11/13/17), “Senators Support Rollback of Bank Oversight” (11/14/17), and “Smaller Banks May Now Dream Big(11/15/17). The following opening lines are from that latest article:

“Congress finally looks set to deliver some regulatory relief for midsize lenders. The biggest beneficiaries will be even smaller banks with midsize dreams.”

In a rare show of bipartisan support, the Senate Banking Committee recently proposed a draft bill that seeks to “right-size regulation” between our nation’s largest players and the industry’s regional banks, while hopefully laying the groundwork for meaningful regulatory relief at our country’s legions of community banks. Succinctly, key attributes of the proposal include:

As most of you know all too well, the final details will be critical (as will the tone of regulatory implementation and prospective oversight) as this, or any, regulatory-relief legislation moves forward. We had a flurry of prospective legislative activity soon after last November’s election, riding a wave of euphoria that dramatically propelled bank stock prices higher when coupled with expectations of stronger economic growth, higher rates helping to shape a banker-friendly steeper yield-curve, meaningful tax reform, and the aforementioned semblance of long-sought regulatory relief coming out of the financial crisis.

As I posited just a few months ago, in our May 2017 Michigan monthly, “…multiple pieces of potential new legislation have been proffered: the Financial CHOICE Act (banks could effectively qualify for regulatory relief via higher capital levels); the Community Lending Enhancement and Regulatory Relief Act or CLEARR (targeting significant easing of the regulatory burden facing community banks); the Consumer Financial Protection Accountability Act (the title seems to say it all); and the Main Street Regulatory Fairness Act (among other things, it would raise the threshold for banks required to undergo stress testing, or DFAST, from $10 billion to $50 billion - immediately impacting Michigan’s two largest institutions and seemingly trickling down with regard to the “unwritten” requirements imposed on the state’s remaining banks), to name a few. I remain cautiously optimistic that common sense and constructive discourse will prevail, but it is clearly becoming more difficult to take a lot of comfort based upon recent observations of the political climate in our nation’s capital.”

However, as we have all witnessed, those efforts effectively stalled in their tracks, displaced by more pressing issues with the new Administration’s agenda (i.e. healthcare reform) and geopolitical uncertainty primarily in the form of North Korea’s game of nuclear chicken. Layer in some natural and weather-related disasters (wildfires on the West Coast, coupled with Hurricanes Harvey, Irma and Maria), with more than a few horrific man-made tragedies (Las Vegas and Sutherland, to name just a few of these mass shootings that seem incomprehensible yet are becoming all too familiar to us, unfortunately), and it is clear that 2017 has been a challenging year on multiple levels.

While I continue to remain cautiously optimistic, today I am more encouraged by what appears to be solid (and hopefully growing) bipartisan support for this legislation. I recognize that nothing will come easy given some of the bitter ideological and clearly deep-seated political divisions within Congress. However, the logic for meaningful, constructive reform continues to exist, and the timing is now. And while the current proposal seems to favor, in particular, the regional banks and the implied opportunity for them to pursue more flexible and proactive capital management plans, the potential trickle-down effect in terms of lessening the costs and energy associated with the ever-expanding regulatory burden at the community bank level can neither be overlooked nor understated.

In closing, attached please find our monthly summary of Michigan’s financial institutions. As you and your Board take your organizations forward, please do not hesitate to reach out to me and/or my colleagues at ProBank Austin if we can be of any assistance in helping you assess the competitive landscape. In closing, best wishes to you and your colleagues for a wonderful Thanksgiving!

NOVEMBER 2017 MICHIGAN BANKING SUMMARY