M&T’s chief executive calls for more regulation of nonbanks

M&T Bank CEO René Jones is making the case for holding alternative lenders to the same regulatory standards as traditional banks.

In his annual letter to shareholders, Jones argued that regulators’ ability to enact meaningful change through new regulations and policies is “fundamentally limited” as long as nonbanks continue to operate under a different set of rules.

His comments focused on community reinvestment regulations, but he also mentioned rules related to cryptocurrencies, cybersecurity, money laundering, mergers and fraud.

Banks no longer hold a majority share in any business lending category, Jones said. Still, alternative lenders aren’t required to satisfy the requirements of the 45-year-old Community Reinvestment Act, the federal law that ensures that banks serve low-income and moderate-income communities.

“A regulatory schema affecting only 40% of a major industry is profoundly out of date,” Jones wrote in the letter, which was released Tuesday.

The consequence, he argued, is a “vicious circle” in which the rising number of regulatory efforts pushes more financial activities away from “the regulated playing field, making it even more likely that future policy efforts will be equally less effective.”

Jones’ comments are the latest salvo in a decades-long conversation about expanding CRA rules to nonbanks. Last year, Illinois extended its state-level CRA to nondepository lenders, and New York did the same. (M&T is based in Buffalo, New York.) But the federal CRA framework remains unchanged.

Meanwhile, the shift in business lending to nonbanks, which was under way before the pandemic, sped up over the past two years.

Since the end of 2019, nonbanks have grown loans outstanding by 14%, versus 1% of growth at banks, according to a December report from Autonomous Research, which analyzed data from the Federal Reserve’s Flow of Funds report.

The gains by nonbanks are most significant in commercial and industrial lending, residential mortgage lending and commercial lending, Autonomous found.

In his letter, Jones wrote that online lenders “bypass responsibility” that M&T and other banks have, and that banks “incur both the obligations and costs” of being CRA-compliant.

If banks do not meet those requirements, the risks are threefold, Jones wrote: A prohibition on business expansion, a bad reputation if CRA ratings are low and stalled mergers and acquisitions.

Because the financial system “is shifting underneath us,” changes need to be made, Jones argued.

“Regulators who set important social goals — whether drawing the unbanked into the formal financial system or ensuring mortgage access for all neighborhoods — find their understanding of this shift far exceeds the reach that their authorizing legislation affords them,” he wrote.