Hold the Champagne for Dodd-Frank: The fifth anniversary of the Dodd-Frank Act occasioned a fair amount of criticism from lawmakers and industry players this week. Republican House representatives Randy Neugebauer and Roger Williams argued that small financial institutions are staggering under the weight of excessive regulation and championed several bills that could offer relief, including one that would move the Consumer Financial Protection Bureau from a single-director model to a five-person bipartisan commission appointed by each incoming president. That bill also got a vote of support from National Association of Federal Credit Unions head B. Dan Berger. And former community banker and current hedge fund chief Ted Peters outlined several additional changes that could ease small banks' regulatory burden, including reducing the frequency of call reports and exempting banks with less than $10 billion in assets from the rigorous stress-testing requirements intended for larger institutions. Reader Edgar Ortiz backed Peters' suggestions, writing that scores of new regulations have hurt community banks' "already thin net interest margins, due to economy of scale limitations that restrict their options to spread these incremental costs across markets."
The Age of Painless Payments: As companies like Uber and GrubHub popularize apps that process payments automatically, banks will have to work harder to become customers' primary cards, according to consultant Paul Schaus. His argument caught the interest of New York fintech scene staple David Gerbino, who commented that banks should focus their efforts on making their cards customers' go-to choices in Apple Pay, Google Wallet and Android Pay. "Getting someone to change their default payment method on an app-per-app basis is near impossible," Gerbino writes. "Getting the default card charged in a mobile wallet is a lot easier."
Also on the blog: Bitcoin believers sometimes claim that Ripple is a centralized payments protocol (centralization being the original sin of finance in Bitcoin theology). But technologist Thomas Sean Kelleher says this classification misunderstands the larger plan of software developer Ripple Labs: to combine the openness of a permissionless distributed ledger with the "a meta-layer of control which is absolutely decentralized by assigning every single participant the ability to choose its own quorum of validators."
If regulators are going to raise the asset threshold beyond which banks face more stringent requirements, they should do it sooner rather than later, writes banking advisor Peter Cherpack. That's because midsize and smaller banks would get a big boost if funds set aside to deal with stress testing could be redirected toward lending and investments.
Fundera's Brayden McCarthy and Live Oak Bank's Patrick Kelley urged Congress to hurry up and raise the limit on the Small Business Administration's flagship 7(a) loan program. If lawmakers fail to do so, they warned the program could be shut down until the start of the federal government's new fiscal year on October 1. Indeed, the program shut down late Thursday.
The best way to ensure bank stability is to require banks to fund at least half of their investments with long-term bonds and equity, writes Stephen Matteo Miller, a senior research fellow at the Mercatus Center. "This puts bank risks back into investors' hands," he says, thereby restoring market discipline. Wayne Abernathy of the American Bankers Association, a regular BankThink contributor and spark plug in our comment threads, called Miller's idea unrealistic, arguing it would curtail lending and end banks' role as "shock absorbers" in economic downturns.
Got an informed opinion on the business of banking? Submit to BankThink. Full submissions guidelines are available here.
