What have we learned? That was what I recently discussed with some Maryland community bankers. The focus was the late controversy over the Volcker Rule's original plan to treat investments in trust-preferred securities as "risky business," out of bounds for banks. Although not all in the room had investments in Trups, they were interested in what lessons might be applied for future successful interaction with federal regulators. Here are a few ideas that I offered.
First of all, recognize that regulators can and will make changes to policies and proposals. This may not seem to be the case all of the time, but it is more often the case than some might suppose. It is worth the effort to talk with them.
My next point relates to how you talk with them. It is important to engage regulators with facts and information. They may be interested in how we feel about something or what our opinions are, but hard data can really catch their notice. Fortunately, no one knows more about banks and bank customers than bankers do. Bankers' most effective arguments draw heavily upon that information, organized and presented in compelling ways.
The third point goes to how to make it compelling, which rests on the kind of information you present. The most persuasive communication shows what it all means for bank customers, who also happen to be policymakers' constituents. That a particular proposal will harm a bank is important for regulators to know; that it will hurt bank customers demands attention.
Also crucially important is demeanor. A regulatory proposal may perplex or even infuriate a banker. It may cause one to wonder what planet Washington, D.C., orbits, but it is important to pause and remember an important verity. Clear arguments presented calmly, firmly, but with equanimity are heard better than expressions of outrage, however justified that may be.
Professional, courteous communication helps keep the channels open, essential to any continuing efforts to engage in finding a solution. That wisdom certainly includes, as necessary, expressions of disappointment at what a regulator is saying or doing. Courtesy does not require being pusillanimous or accepting the unacceptable. The point is that when it is important to share disagreement, it is also important to keep the door open with a professional tone that invites interaction.
Related to that is the need to listen carefully to what the regulators are saying and make every effort to understand where they are coming from. They may be more in agreement with you than you first expect. Once the area of common ground is discoveredand it is usually there, though sometimes camouflagedit can become the terra firma for a shared solution.
Which brings us to another important and perhaps essential point: know what remedy you are seeking. Have a workable proposal that will really solve the problem, and make sure that the regulators have the authority to provide the remedy. Sometimes that involves working with regulators and Congress, since the solution may require a combination of changes to laws and implementing rules. Moreover, it is wise to be open to other remedies, but there is no need to settle for "solutions" that do not really work.
Inasmuch as regulators are public servants, serving under authority of a document that begins with the words, "We the People," it is important to include the public in the discussion. On policy issues, we need to tell our story to the media, again in terms of what it all means for the banks' ability to serve their customers, who are also the media's customers. We should also be ready to tell our story to the people's representatives in the House and Senate. If we are driven by the effort to enhance banks' ability to serve customers, keep in mind that meeting the needs of customers also means meeting the needs of constituents, very powerful shared interests.
I offered a bonus suggestion to the Maryland bankers. Be persistent and relentlessly reasonable. If the issue is important, bankers just cannot rest with the matter unresolved. Even if policymakers do not want to address the problem, important issues that affect our service to our customers do not allow us to "let them go." Perseverance can trump indifference.
Recent interactions with regulators on Basel III capital rules, mortgage market regulations, and now on the Volcker Rule, among others, demonstrate the importance of engaging with regulators and prove that the effort it is not quixotic.
Wayne A. Abernathy is executive vice president for financial institutions policy and regulatory affairs at the American Bankers Association. Previously he served as assistant secretary of the Treasury for financial institutions and as staff director of the Senate Banking Committee.