Will 2017 Mark the End of the Regulatory Era for Community and Regional Banks?
Community and regional banks have been struggling for years to keep up with new rules and regulations. According to Independent Community Bankers of America President and CEO Cam Fine, discrete regulatory requirements have increased 40 percent since 2005, U.S. banks have shrunk from 18,000 strong 30 years ago to approximately 6,000 today, and 35 percent of community banks spend at least 30 percent more on compliance costs today than they have in the previous five years. With the changes happening in Washington, D.C., will 2017 mark the end of the regulatory era?
On Monday, January 30, 2017, President Trump issued Presidential Executive Order on Reducing Regulation and Controlling Regulatory Costs. The executive order requires that two regulations be eliminated for every new one created, caps the costs that new regulations may impose, and creates a budget process for new regulations in the upcoming fiscal year, beginning in October 2017. The executive order follows Chief of Staff Reince Priebus’ memo to the heads of all executive departments and agencies on Inauguration Day that no new regulation should be submitted to the Office of the Federal Register unless approved by a Trump-approved department or agency head.
Tempering financial institutions’ excitement, however, it is unclear how the executive order and memo will apply to the CFPB. In October 2016, a three-judge panel of the D.C. Circuit Court of Appeals ruled that the CFPB’s independent structure, in which it is not subject to executive appointments or replacements, violated the Constitution’s checks and balances. The ruling potentially means that the CFPB will be treated as other agencies, with the President appointing and removing its director at will, subject to Senate confirmation. The case is currently tied up in procedural appeals that could drag on for months. While the CFPB’s appeal is ongoing, the president’s executive order does not apply to the CFPB. However, several industry commentators have pointed out that the administration could take the position that it does not need to wait on final adjudication of the case before considering the CFPB no longer an independent agency.
Finally, House and Senate GOP leaders appear poised to invoke the Congressional Review Act (CRA), which allows a simple majority in Congress to overrule and repeal certain regulations recently issued by executive agencies. As The Wall Street Journal’s Kimberly Strassel pointed out in a recent editorial, GOP lawmakers are exploring whether the CRA may be used to repeal regulations issued earlier than 60 days if those regulations were not issued by a “report” to Congress. Many regulations during the last administration may not have been accompanied by such reports.
Of course, there is no certainty as to which, if any, regulations affecting the community and regional banks will be repealed or modified. However, as many bankers and other industry observers have noted, it is not necessarily the substance of the new regulations that drains the resources of smaller financial institutions, but the constant stream of new rules that require continuous time and resources to understand and implement. A halt to this flood of new rules will allow America’s community and regional financial institutions to get back to serving the towns and communities they have served for over a century.