Inside Enforcers Shake Up Bank Culture

These paragraphs extracted from a Wall Street Journal article in today’s paper by Kirsten Grind and Emily Grazer, probably intended to show how cumbersome is the new regulatory system, actually reveal how essential it is.

The 2010 Dodd-Frank law, passed in the wake of the financial crisis and designed to prevent another, is one of the most complex pieces of legislation ever. At more than 22,200 pages of rules, it is equivalent to roughly 15 copies of “War and Peace” and covers matters from how much capital banks must set aside to how they can advertise. . .

The regulatory tightening has helped change the profile of a big bank in the postcrisis era. It now looks more like a utility, subject to complex rules about how it can do business and answering to government watchers whose careers depend on enforcing those rules with vigor.

BN-OC937_0520wa_J_20160520161728“The regulatory environment is completely different than [sic] it was five years ago,” said Greg Imm, chief compliance officer at M&T Bank Corp. in Buffalo, N.Y., “and you can accept it and move on, or fight it and lose.”

While the 2008 meltdown still inspires spirited debates about where to draw the regulatory line, there is general agreement that lack of oversight by regulators and banks contributed to the debacle and consequent government bailout. By some measures, the banking system is safer than it was.

At the same time, there are trade-offs. Banks pulled back from financing areas ranging from student lending to certain types of mortgages. They no longer make bets with their own money, known as proprietary trading, and have collectively ceased working with hundreds of thousands of individual or company accounts.

The heightened regulatory environment led 46% of banks to pare back their offerings for loan accounts, deposit accounts or other services, according to an American Bankers Association survey of compliance officers last year. . .

Wells Fargo & Co. Chief Executive John Stumpf in an interview with an industry group last year said “one of the real benefits of our regulatory system is a strong, well-capitalized transparent financial services industry.” Still, he said: “We need balance, and our nation’s leaders have to understand some of the unintended consequences of regulation, which ultimately hurt consumers.”

Bank traders now know compliance officers and regulators are combing through chat rooms looking for signs of collusion and watching to make sure market bets don’t include excess risk. Teams inside banks are devoted to ensuring that mortgage officers are making proper disclosures to borrowers and that advertising offering “free checking” isn’t proven false by the fine print. Compliance employees often walk bank executives through rules and explain potential customer impact.


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