These days, there is considerable speculation about potential changes in the regulatory environment. Questions center on the fate of Dodd-Frank, the role and structure of the Consumer Financial Protection Bureau, and the focus of regulatory reviews and enforcement actions.
Among many industry participants, there is cautious optimism that some sort of relief is coming. However, for many banks and their trade groups, the question is not whether to support regulatory reform, but how.
Although almost a decade has passed since the financial crisis, the banking industry is still suffering from the reputational damage. There remains a significant percentage of the population who is wary of the motives and practices of banks in general and large banks in particular. In fact, both presidential candidates in 2016 tried to appeal to this negative sentiment through their rhetorical attacks on Wall Street.
Going forward, the challenge for the industry and efforts to restore its reputation is to find the proper balance between supporting regulations that help consumers and strengthen safety and soundness, while focusing reform efforts on areas that are ineffective and actually harmful to customers. How the industry approaches this window of opportunity for regulatory reform can either reduce or increase overall reputational risk.
If, for example, industry representatives advocate and fight for a total dismantling of post-crisis reforms, it will only reinforce many people’s stereotypes of banks as reckless and uncaring. Say what you will about the Consumer Financial Protection Bureau (and there is plenty to say), but the fact is many consumers have taken advantage of the bureau’s complaint process and benefited from the CFPB’s enforcement actions. The data is clear and compelling that the CFPB, for all its faults, has fulfilled part of its mission to root out and punish practices and behaviors that are abusive, deceptive, unfair and, in some cases, just downright wrong. Importantly, the CFPB has done so without consuming one dollar of taxpayer money. Ignoring these benefits is a no-win situation from a reputational perspective.
However, it is less publicly known that many of the CFPB’s policies and practices have actually been harmful to consumers. Indeed, the CFPB has created confusing, and often conflicting, guidelines and demands that have caused many banks to raise prices, increase bureaucratic oversight and adopt rigid policies that restrict banks’ ability to provide timely and responsive service at the individual customer level.
The industry needs to pursue a middle road when it comes to the consumer protection aspects of regulatory reform, rather than an “all or nothing” approach. But the CFPB is not the only component of this equation.
There are many other aspects of the regulatory landscape that banks need to address in a balanced, thoughtful manner in order to avoid further damaging the industry’s reputation and to take advantage of this opportunity to enhance it.
The industry must identify the appropriate issues to target for regulatory reform and develop a focused legislative agenda. This is the policy challenge. But obtaining, coordinating and marshaling broad industry support across all types and sizes of institutions for a reform agenda is no small task given the industry’s diversity. Additionally, industry trade groups and representatives should try to gain bipartisan political support for key reform initiatives. This may prove extremely difficult given the fractured and highly polarized political environment. But we believe it is possible — if a balanced, common-sense agenda is presented that benefits a wide constituency of consumers, small businesses and community banks.
Obtaining bipartisan political support requires obtaining broad public support. There lies the marketing challenge. However, many of us are old enough to remember the successful “America’s Banks” campaign conducted by the American Bankers Association many years ago. While elements of the ABA’s campaign seem quaint now, the concept is as valid now as then — banks are the bedrock of a vibrant, stable economy, and are an essential part of helping people achieve and live the American dream. An updated, relevant and honest industrywide branding campaign can help not only improve the industry’s reputation, but provide support for regulatory reform initiatives.
As the industry moves to address regulatory reform, it must also act to improve the industry’s brand in ways that increase marketplace confidence in banks as responsible corporate citizens and as integral parts of the communities they serve.