Bankers went from a 2010 of certainty — the certainty of new legislation — to a 2011 of regulatory uncertainty, and that has important implications.

In early 2010 it appeared to be a lock that Congress would produce banking legislation that the president would sign. Banking legislation has almost always followed a financial crisis, and few crises in history matched the size and scope of our most recent one. It also seemed certain that Congress would create a new regulatory agency, as that has also been the tradition following a serious crisis.

Significant new legislation, with the possible exception of a bill addressing Fannie Mae and Freddie Mac, seems unlikely for 2011. But that is no reason for bankers to be relaxed about change in Washington.

Let's review the sources of uncertainty.

It begins with creation of the Consumer Financial Protection Bureau. Though the new bureau has vast new authority and a funding mechanism unimpeded by traditional congressional authorization requirements, there are many unanswered questions.

Most notably, the president has yet to nominate a new director after appointing Elizabeth Warren to get the agency up and running, so it is unclear who will be permanently in charge.

Also, the Dodd-Frank Act specified that the new agency not begin life on its own until July, so by the end of the year, the bureau (should it actually launch in July) will have been in existence for only five months.

A complicating contributor to the uncertainty is the Dodd-Frank required merger of the Office of Thrift Supervision into the Office of the Comptroller of the Currency.

The merging of agencies generates tension and uncertainty in the best of circumstances; when undertaken in the current environment it is especially problematic.

Added to all this, the banking agencies are beginning to write as many as 300 new regulations required to implement the Dodd-Frank Act.

Finally, there will also be changes in leadership.

We have had an acting comptroller of the currency since John Dugan's term expired in July, and the president has not put forward a nominee for that post. The exodus will continue this year as Sheila Bair has said she will step down as chairman of the Federal Deposit Insurance Corp. when her term ends this summer.

In sum, the industry has not been faced with this many sources of uncertainty in decades. Why should bankers be concerned about functioning in such an environment?

There are two main reasons.

First, even though top slots at the agencies are open, examiners in their field will need to fulfill the required examination rotations. This means that examiners in the field will be making inspections with some uncertainty as to how their findings will be received in Washington. This is an environment that should make bankers a little nervous. How should you react?

A good starting point for any financial institution facing an examination in regular rotation is to review recommendations from the prior exam. When facing a new regulatory exam, bankers face perhaps no greater vulnerability that an incomplete response to required changes specified in the prior exam. A less than full and complete response sends a strong signal to regulators that the bank does not take regulatory oversight with appropriate seriousness.

Also, be sure you are not making simply a "check the box" response, but instead have fully addressed the matter consistent with regulatory expectations. I suggest even stronger attention to this review, as the field examiners will want to ensure that banks within their responsibility are returning to positions of solid credit quality and strong liquidity. Remember, as bank failures in recent years have been significantly asset-quality-based and liquidity-based, asset quality and liquidity will be prime areas of concern in the safety and soundness portions of your exam.

In the compliance areas, be mindful of the heightened regulatory interest in pricing strategies and the clarity of communication with consumers. These areas will be prime focus of the compliance portions of the examinations.

The process of drafting regulations implementing the Dodd-Frank Act carries challenges of a different sort. As the bill was being debated, there were charges and countercharges regarding how the legislation might affect banks. Now that regulations are being drafted to implement the bill, we are gaining some clarity as to its true impact.

No example brings this point into sharper focus than regulations recently proposed by the Federal Reserve Board to implement the new provisions on interchange fees and routing provisions. The Dodd-Frank Act requires that fees received by card issuers are "reasonable and proportional" to the cost incurred by the issuer. In the proposed rule, which was released for comment last December, the Fed acknowledged in its press release that the allowable fee received by issuers would be more than 70% lower than the 2009 average.

This is a stark example of how one provision of Dodd-Frank can affect the profitability and future direction of the banking industry. And it is also an excellent example of why bankers need to be involved in the process as these regulations are released for comment.

In 2011 bankers are not facing the near-certainty of legislative change. But the uncertain and yet unspecified changes emanating this year from Washington will have major consequences for the industry for many decades.

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