SAN ANTONIO — Regulation took center stage during the first full day of the American Bankers Association's annual conference on Monday, with executives from banks of all sizes detailing how they have adapted to sweeping changes within the industry.
Craig Meader, the chairman and chief executive of First National Bank of Kansas in Waverly, told attendees that two of his 23 employees are now devoted full time to "nothing but paperwork" tied to the Dodd-Frank Act and other legislative changes. The $69.3 million-asset bank's efficiency ratio has jumped to more than 70% given the time needed to adapt.
"My concern every day that I open the doors is wondering who is going to punch us in the head legislatively or through regulation and stop us from serving our customers," Meader said during a morning panel of bank CEOs.
James Rohr, the chairman and CEO of the $269.5 billion-asset PNC Financial Services Group Inc., agreed. "Regulatory risk is the real risk," he said during the same panel, adding that implementation is the Pittsburgh company's biggest concern, outweighing credit and interest rate risks.
The same tone was struck by attendees as they took breaks from the day's panel discussions.
David DeMarco, an executive vice president at Glens Falls National Bank & Trust in New York, said in an interview that the Durbin amendment, which capped interchange fees, is forcing the company to search for new revenue streams, with insurance brokerage emerging as one option.
DeMarco said he is watching how people react to actions by bigger companies such as Bank of America Corp., which recently said it would charge a $5 monthly fee for debit cards. "It could take a couple of years" before banks understand the fallout of new regulation, he said.
Robert Clarke, a former Comptroller of the Currency and now a senior partner at Bracewell and Giuliani, urged bankers and regulators to find middle ground and resolve conflict. "I hate to see the relationship between bankers and regulators deteriorate as it had," he said during a panel discussion that focused on the regulators' perspective. Still, Clarke reserved his harshest criticism for his former brethren.
"Enforcement actions should be for banks that just don't get it. They should be used judiciously," Clarke said. Unfortunately, he said regulators seem to be levying enforcement actions to placate lawmakers or other outside parties.
Clarke told bankers to "pick your battles" when hit with a regulatory order. "First look in the mirror and fix what is true" in the order, he said. "You can then appeal and challenge the rest."
Don Powell, a former bank CEO and a former chairman of the Federal Deposit Insurance Corp., echoed that sentiment, telling attendees that they need to encourage "open dialogue" with regulators and own up to any shortcomings that come out in an examination. "There needs to be a sitting down and an understanding to develop a plan with regulators," said Powell, who is currently a board director at B of A.
Clarke and Powell also told bankers that they need to find ways to work together to push back against excessive regulation. The worst enemy to the banking industry is division based on big vs. small institutions, they said. "You have got to stand together," Clarke said, pointing to so-called carve-out exemptions in Dodd-Frank for smaller banks as a divisive tool. "Politicians thrive when there isn't unity."
Meader, the CEO at First National, drove that point home during his group's panel, supporting B of A's decision to implement a monthly debit card fee. "We're going to be phasing in some checking fees," Meader added. "For regulators to complain about a bank's $5 fee … is the height of hypocrisy."
The big banks "are our roadmap," Meader said.
