President-elect Donald Trump and Republicans in the House and Senate have a historic opportunity in 2017 to bring banking into the 21st century and propel the U.S. economy forward.
To do that, the new administration and GOP-controlled Congress must focus on fixing an outdated and ineffective regulatory system.
The current system is fatally flawed. For 150 years, Congress after Congress has layered on a maze of bank supervisors. Today there are checkers checking checkers checking checkers. When problems occur like the London Whale, even bank regulators and members of Congress struggle to identify which regulator is responsible.
Supervisory accountability is muddy, producing incessant turf-fighting among various regulators and inevitable finger-pointing when problems arise.
A sustained robust economy requires Congress to develop a 21st-century road map for bank supervision. It makes no sense that the Office of the Comptroller of the Currency, the Federal Reserve, the Federal Deposit Insurance Corp., the Consumer Financial Protection Bureau and 50 different states all hold responsibility for bank supervision.
Redundancy and overlap must be replaced by clear and streamline regulator accountability. The Financial Stability Oversight Council and other umbrella regulatory bodies are nothing but political expediencies further diffusing and confusing supervisory accountability. It's time lawmakers start with a clean piece of paper and create a new blueprint for strong and capable bank supervision.
Effective supervision is not a long laundry list of whack-a-mole activities guarding against yesterday's problems. Instead, it is a forward view of emerging risk, especially those risks that are material systemic threats to local markets and the national economy. Looking constantly backward and getting lost in the weeds have resulted in 3,500 bank failures since the 1980s as well as an accelerating and record pace of community bank consolidation since Dodd-Frank.
Over the past few weeks the banking industry is once again suffering through yet another knee-jerk round of unproductive supervision. Stemming from Wells Fargo's cross-selling debacle, now banks around the country are subject to regulatory scrutiny of retail sales processes. Never mind that Wells Fargo's sales results have been a known and recognized outlier for years. Pandering to the wishes of headline-driven politicians, regulators are today forcing banks across the country to prove they are not Wells Fargo.
This is just the latest example of bankers and directors being required to look inward instead of outward at their communities and customers.
The next president and new Congress should conduct a comprehensive analysis of the costs and benefits of all bank compliance programs.
Politicians learned years ago to lever banks as inspectors and enforcers of social and policing policies and laws. The country needs to inventory the programs and develop a clear and honest accounting of the direct and indirect costs and benefits of each. Nice-to-have programs must give way to have-to-have ones that make a difference for society.
All programs should be on the table for review, including the seemingly sacrosanct and well-intended Community Reinvestment Act. In 2017, CRA "celebrates" its 40th anniversary. Now is the time for a new generation of policymakers to assess if there are more effective and lasting measures to drive economic opportunity in America than a four-decade-old law that has achieved at best mixed but unmeasurable results. All compliance programs require similar intense scrutiny.
Additionally, the new administration should recognize that bankers are not the enemy. Let them be part of the solution. When President Obama in 2009 said, "My administration is the only thing between you and the pitchforks," it set the stage for eight years of second-class citizenship for bankers.
The next president and Congress must bring all corners of the country together to jumpstart an economy stuck in low growth. Bring bankers to the table to help craft 21st-century banking supervision and regulations. Let bankers from community and megabanks, alike, be part of a collaborative solution to a moribund economy. Use them.
President-elect Trump is going to Washington on a mission. Fixing Washington requires a strong economy and a strong economy requires a 21st-century banking system.