As Dodd-Frank's implementation phase began its third year, a sense of revolt was in the air. All summer and into fall, there was a steady drumbeat of critics arguing for the return of Glass-Steagall (Et tu, Sandy Weill?) or otherwise calling for a national do-over on financial regulation reform.
So perhaps it was no surprise that regulators, politicos and Washington pundits at the second annual American Banker Regulatory Symposium came out swinging, making the September gathering a noticeably bolder affair than last year's inaugural event.
Federal Deposit Insurance Corp. board member Thomas Hoenig suggested that U.S. regulators reject the incoming Basel III standards unless they are substantially reworked by the Basel Committee on Banking Supervision; he said the proposed rules are overly complex and too backward looking to stop future crises.
Meanwhile, Rep. Scott Garrett, a New Jersey Republican and a potential candidate to chair the House Financial Services Committee next year, served up a sharp rebuke of recent actions by the central bank and argued that the Fed should be stripped of its authority to supervise banks. He expressed a preference for having prudential authority rest with one, consolidated agency-reopening a point of debate that one might have thought was settled by the passage of the Dodd-Frank Act, which largely maintained the nation's gangly patchwork of supervisory bodies, quite seemingly on purpose.
Karen Shaw Petrou, managing partner at Federal Financial Analytics, took aim at a speech that Andrew Haldane of the Bank of England delivered at the Federal Reserve's Jackson Hole conference in August. She said that Haldane's solution for financial regulation-requiring immense amounts of capital-was worth reading, but also worth questioning. "Do we just fly the engine of America, of global banking, on one jet, one engine? It's a very dangerous theory," she warned.
And community bank investor Joshua Siegel, a managing principal at StoneCastle Partners, accused the FDIC of taking "a very lazy stance" in its recent study of brokered deposits, saying the agency dropped the ball on a chance to reexamine a core function of banking. "There are deposits today that are highly volatile that are considered core; and then you've got a 10-year CD that's considered brokered that's frowned upon by regulators," Siegel argued.
Ironically, one of the few speakers to come off sounding somewhat sanguine with the current regulatory environment was a banker: Jim Rohr, the CEO of PNC Financial Services Group.
Rohr's remarks made it clear he believes that for bankers, the focus shouldn't be on repealing Dodd-Frank or hoping for help from Washington, but on the factors that bankers themselves can control-such as serving customers.
"The regulations will be improved. They're taking some of the risks out of the system," he said. "But at the end of the day, you have to run your business. And that's what our industry has done forever."
Rohr even saw room for hope in the Consumer Financial Protection Bureau's efforts to simplify the documentation for mortgages. Simpler documentation, he suggested, could bring everyone back to the days when the mortgage business was a basic case of banks lending, homeowners borrowing and defaults leading to "bad things happen[ing]." And that would be a scenario that veteran bankers should know how to handle. Rohr, for one, deadpanned that he's been through so many real estate busts that he couldn't remember the exact number-just that they "usually start in Florida."
Community bankers at the forum included Ron Paul-not that Ron Paul, but the Ron Paul who is chairman and CEO of EagleBank in Bethesda, Md., and Bob Catanzaro, the president of Independence Bank in East Greenwich, R.I. Both men complained about the barriers to borrowing from the Federal Home Loan Bank system, which has lots of liquidity but, they argued, too few opportunities to lend to banks.
"Their collateral requirements are so stringent, it's hard for us to borrow from them," Paul said.
Catanzaro noted that he would like to accept advances from the FHLB system, but he said he's essentially shut out because most of Independence Bank's loans are backed by the Small Business Administration, and SBA loans aren't accepted as collateral.
A panel on fair-lending laws provided a conference highlight, with a Justice Department lawyer squaring off against the lawyer who represented the California thrift Luther Burbank Savings in its recent $2 million settlement of allegations of discriminatory practices.
Steven Rosenbaum, chief of housing and civil enforcement at the DOJ, said that when a bank establishes a $400,000 minimum on single-family residential loans, as Luther Burbank did, "you are sending a message to the community that you are interested in serving one part of the community, but not the whole community."
But Andrew Sandler, the chairman and executive partner of BuckleySandler LLP, said the case against Luther Burbank represented prosecutorial overreach. He said his client was only offering single-family loans to satisfy regulators' demands that it diversify from its multifamily lending business, which serves minority communities.
The debate made for a lively panel. But it was the FDIC's Hoenig who stole the show at this year's symposium. In his years at the Kansas City Fed, Hoenig voiced strong opinions that frequently bucked the majority view, and he has been critical of Basel rules in the past. But his recommendation of delaying implementation of Basel III and going back to the drawing board made for his strongest comments yet on the topic-it's rare for a sitting regulator to be quite that provocative.
American Banker columnist Barbara Rehm, who was interviewing Hoenig on stage, pressed him on whether other regulators agreed with his stance. He acknowledged they didn't, but said there are plenty of other regulators who consider Basel III to be too complex.
Hoenig also said that the proposed rules, which are scheduled to be phased in starting next year, would put smaller firms with fewer resources at a competitive disadvantage.
This article was written by Heather Landy, with reporting by Rob Blackwell, Donna Borak, Victoria Finkle, Andy Peters and Neil Weinberg.