The banking industry has sought to reduce its regulatory burden for years — and it’s now finally poised to see some tangible results.
The House is expected to take up a sizable regulatory relief package on Tuesday, while the Senate is readying a vote to confirm Jelena McWilliams as chair of the Federal Deposit Insurance Corp., rounding out the Trump administration’s bank regulatory team.
Of course, banking insiders have been talking about reforms to the Dodd-Frank Act and the changing of the guard at the banking agencies since President Trump’s upset victory in 2016. And while officials including acting Consumer Financial Protection Bureau Director Mick Mulvaney have been working quickly to reopen some Obama-era rules, the wave of changes is just beginning. Having these two pieces fall into place simultaneously is a big milestone for an industry that’s come under heightened scrutiny and tougher rules for the better part of a decade.
Republican lawmakers are said to be pursuing an additional package of regulatory changes, but it’s unclear whether that will gain serious momentum before the closely watched midterm elections.
Yet with the McWilliams confirmation moving forward, the groundwork is being laid for more deregulatory efforts at the agencies. That’s where the industry’s focus — and influence — is likely to turn from here.
Already, the Federal Reserve and the Office of the Comptroller of the Currency, now overseen by Trump-appointed officials, have taken steps to reduce capital constraints on some of the country’s largest banks. With McWilliams, a former Fifth Third attorney, installed at the FDIC, regulators will be able to go even further in making multi-agency changes to Dodd-Frank measures, likely starting with highly anticipated reforms to the Volcker Rule, a ban on proprietary trading.
“Her confirmation is a game-changer,” said J.W. Verret, a professor of law at George Mason University, who previously served as chief economist and senior counsel on the House Financial Services Committee. “I imagine it's been a challenge to move forward with one of the three major regulators remaining in the hands of an Obama appointee.”
Beyond any explicit rewriting of rules on the books, a process that involves considerable time and labor, financial institutions can also expect a broader tonal shift when it comes to oversight. It’s a change that’s harder to measure, but one that could come more quickly.
The effect is particularly significant as the bank regulators take a more unified approach. Martin Gruenberg, the FDIC’s outgoing chairman, has been a critic of some of the Trump administration’s plans to roll back Dodd-Frank rules in recent months, holding up key negotiations.
“We’ve experienced what it’s like to have regulators on the same page over the last eight years and that’s what put together the regulatory infrastructure banks face today,” said Edward Mills, a policy analyst at Raymond James. “We’re about to experience that again, but with a completely different agenda.”
This directional change will continue to influence the banking agencies right down to the examiner level — the representatives that banks around the country interact with most directly.
“Your local examiner takes direction from what D.C. is doing,” Mills added. “I call it regulation by raised eyebrow — you can expect fewer raised eyebrows from your bank examiner.”
There’s already been a lot of attention paid to the policy changes expected following the surprising November 2016 elections — but for the banking industry, the rubber is just now starting to hit the road.
Bankshot is American Banker’s column for real-time analysis of today's news.