How Should the U.S. Regulate Regional Banks? Weekly Wrap

Too Big to Supervise: Has BB&T outgrown the Federal Deposit Insurance Corp.? Bank consultant, retired Wharton professor, and longtime gadfly Kenneth Thomas argues that the Federal Reserve or Office of the Comptroller of the Currency would be better-suited to oversee a bank of BB&T's size. He also suggests that BB&T may have benefited from regulatory favoritism under the FDIC because of its outsized influence. Some commenters were skeptical about Thomas's claim that the other agencies could do better. "To say that the OCC would be better [raises] the question about where the OCC was when every single one of the mega-banks they directly supervise functionally failed during the Great Recession," writes "commobanker." Adds BankThink regular Chris Whalen: "Go through former [FDIC] chairman [Sheila] Bair's published description of the fiasco at Citigroup, Countrywide and Wachovia and then tell me about the efficacy of the OCC and Fed regulation at large banks."

Regulatory Backfire: Subjecting regional banks to systemic regulation is only making them riskier, writes Karen Shaw Petrou, managing partner at Federal Financial Analytics. She argues that new capital requirements will make these banks less likely to acquire troubled banks, which will in turn force the FDIC to perform more costly receiverships. "Even more worrisome is that solvency problems in one region could quickly become a national issue, since large regional banks might fail that otherwise could have been acquired without FDIC assistance," she writes.

Also on the blog: Boston University law professor Cornelius Hurley supports the Justice Department's pledge to start charging top bankers for wrongdoing. But he plans to hold the champagne until federal prosecutors follow through on that pledge.

Many bankers were no doubt disappointed by the FOMC's decision this week to leave rates unchanged for now. Former community bank chief turned consultant Peyton Patterson suggests that a rate hike wouldn't do banks much good anyway. That's because banks might be forced to raise deposit rates sooner than they expect to stay competitive with their online-only peers and satisfy consumer demand.

Regulators can help banks get back into small-dollar lending by supporting an alternative installment loan model that caps monthly payments at 5% of borrower's monthly income, according to Nick Bourke, director of the small-dollar loans project at The Pew Charitable Trusts.

Traditional community bankers may find millennials puzzling, but they're going to have to bow to young people's professional expectations if they want to recruit fresh talent, according to consultant Joe Bonner.

A faster electronic payments system could increase the incidence of fraud unless the Federal Reserve's Faster Payments Task Force takes steps to detect and ward off scams, according to National Consumer Law Center associate director Lauren Saunders.

Card issuers should consider giving companies with digital wallet platforms a cut of their interchange revenue to make sure their brands aren't overshadowed by Apple Pay and other new mobile payment options, according to Intrepid Ventures principal Eric Grover.

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