At last year's American Banker Regulatory Symposium, bankers and regulators both came out swinging, emboldened, respectively, by the prospect of rolling back new rules before they could even be written and by calls for more even drastic reforms (e.g., the return of Glass-Steagall) than those prescribed in the Dodd-Frank Act.
This year, nuance made a comeback. On all sides there seemed to be an acceptance that the course of regulatory reform has been set. The bankers, politicians and agency officials in attendance may have been circling one another, a bit like boxers in the ring, but they weren't baiting one another. Instead, they were there to listen.
What they heard was a regulator's warning about the heightened expectations for internal controls and audit functions; a banker's plea for the rule writers to just get on with the task before them; a lobbyist's admission that just getting the ear of Congressional representatives is a major achievement these days; and a legislator's defense of a first-loss requirement in a proposal to overhaul the mortgage finance market.
What they didn't hear, and perhaps had hoped to, is greater clarity on many of the items on the agenda of the Consumer Financial Protection Bureau. CFPB Director Richard Cordray gave an address that touched on some of the big issues-the rules around qualified mortgages, the bureau's focus on "disparate impact" as a form of fair lending rule violations-but he did not stick around for audience questions.
He did promise revisions to the process by which institutions report data under the Home Mortgage Disclosure Act, and said that one of the motivations for the changes is to simplify the process for banks. (Policymakers use the annual HMDA data to assess how well banks serve their communities' housing needs and to identify possible patterns of discrimination.)
Comptroller of the Currency Thomas Curry came to the event with both a carrot and a stick. Just hours before he spoke, his office slapped TD Bank with a fine for violating the Bank Secrecy Act. The $37.5 million penalty paled in comparison to recent enforcement actions against JPMorgan Chase, related to the London Whale trading scandal and to practices related to debt collection and add-on credit card products.
The central message of Curry's speech was that the OCC will follow up on these enforcement actions with formal enhancements to supervisory standards for large banks.
"As part of this 'heightened expectations' program, we are insisting that internal controls and audit be raised to the standard of 'strong' and we are making it clear that satisfactory ratings are not acceptable," Curry said. "We expect boards of directors to be significantly engaged and to have the knowledge and focus to present a credible challenge to management. And we expect large institutions to have a rigorous process in place to ensure that they are attracting and retaining the kind of talent they need to manage their business in a safe and sound manner."
Curry also promised the OCC would continue to assess its own performance, acknowledging that regulators flunked when it came to sniffing out risks in the system. "While it's true, for example, that a number of large banks failed to maintain adequate anti-money laundering programs, it's also true that supervisors didn't do as well as we should have in detecting problems and ensuring that they were effectively addressed," Curry said.
Compliance with money laundering protections also was on the mind of HSBC's Irene Dorner, whose firm was hit last year with a record $1.9 billion fine for its lack of controls in monitoring foreign transactions. Dorner, CEO of the company's U.S. subsidiary, said HSBC has made progress in fixing internal controls but "we still have much changing to do before I'm satisfied."
Dorner, who is based in New York, is spending increasing amounts of time in Washington to discuss other matters-primarily new rules and regulations-with policymakers. Similar to Fifth Third CEO Kevin Kabat, who also addressed the conference, Dorner argued that most of the new rules governing the industry are appropriate given the magnitude of the financial crisis, and she rejected calls to amend or weaken them.
"Changing midway is destructive," Dorner said. "These are the right rules and I think we should see them through." But like many bankers, she is frustrated by the glacial pace of the rulemaking and unhappy that some of HSBC's most talented bankers are diverting more time away from clients and prospects to prepare for regulatory outcomes.
Delays, however, are one of the tactics recommended by industry advocates opposed to specific reforms. Conference panelist James Ballentine, chief lobbyist for the American Bankers Association, recommended that the industry push for a delay of the CFPB's ability-to-pay rule, for example, as prospects for a comprehensive repeal of reforms looks unlikely now.
Ballentine also lamented the difficulty of getting anything done in Congress these days, something put into perspective by the long fight just to get approval for a law removing the requirement for physical fee disclosure placards at ATMs.
"The placard bill is something that I worked on for probably a year and a half, not because I was so interested in removing the placards from the ATMs, but because that's how long it takes to get things through," Ballentine said. "This is not something that bankers were marching to the hills saying, 'We must get the placard off.' This is one of the many things to say, 'Let's get something moving in the hopes of getting their attention.'"
One issue that certainly has the attention of Sen. Bob Corker is housing finance reform. He captivated allies and foes alike with a slightly wonky speech that offered a window into what it's like to conduct high-powered negotiations over complex banking legislation on Capitol Hill.
Corker, co-author of a bill with Sen. Mark Warner, D-Va., that would unwind Fannie Mae and Freddie Mac and establish a secondary mortgage market backed by an explicit government guarantee, defended a requirement that private capital take at least 10 percent of the first loss on mortgage-backed securities.
"I know ... many of you are going to try to dwindle that down," the Tennessee Republican warned the banking industry. "I hope all of you are very unsuccessful and we keep it as it is."
Compiled from American Banker staff reports