Volcker Trouble: In part four of an eight-part series on banks' uphill battle to achieve Volcker Rule compliance, Mayra Rodríguez Valladares cast doubt on their ability to report reliable quantitative metrics. Part of the problem is that banks intensified the rule's data requirements by pushing for market-making, hedging and underwriting exemptions, according to Valladares. Banks' reliance on manual processes and legacy systems create additional hurdles. "It is high time that regulators, financial journalists and analysts ask themselves whether they can really trust that the very banks struggling to monitor their counterparties, failing stress tests, making accounting mistakes and running into regulatory reporting problems are really capable of reporting Volcker quantitative metrics accurately and in a timely manner," Valladares wrote.
Lending-Standards Scuffle: Mortgage lending to African-American and Latino borrowers has fallen to the lowest level in 15 years, and it's time to right the course, according to Center of American Progress fellow Jim Carr. While some argue that banks are avoiding loans with low credit score and down payment requirements because those characteristics are associated with higher default rates, Carr said the justification is based on analyses of past loans that were also "poorly underwritten, high-cost and included risky features such as second liens, high prepayment penalties and unaffordable upward interest rate adjustments." In other words, Carr said, "modestly lower down payments and credit scores do not in and of themselves result in excessive additional defaults." This line of reasoning raised the hackles of some commenters. One reader argued that recent regulatory reforms such as qualified residential mortgage requirements "are squeezing all discretion and judgment out of the lending process," effectively tying banks' hands. But another reader jumped in to defend Carr's analysis. "When practices based on greed and prejudice are removed from mortgage lending, both the research and the real-life experience prove that low and middle income borrowers are equally as reliable as any other," wrote Tbone1956.
Also on the blog: Payday lenders, check cashers and other providers of alternative financial services are often accused of keeping low- and moderate-income borrowers trapped in a cycle of debt by charging excessive fees and providing inadequate disclosures. William Isaac, a former chairman of the Federal Deposit Insurance Corp. whose current firm sometimes works with companies that provide such services, argued that the best way to address the problem is to get more companies in the game. "The federal government should encourage banks and nonbanks alike to offer short-term, installment and title loans and other forms of access to small-dollar credit," he wrote. "This would increase competition and bring down prices, giving consumers more and better options, and allow all firms to participate on a level regulatory playing field."
The Securities and Exchange Commission's $30 million award to a foreign whistleblower should remind multinational and domestic banks to firm up their compliance policies and controls and make sure that employees feel comfortable coming forward with problems, according to attorney Christopher Robertson. Economist and bank consultant Kenneth H. Thomas argued that regulatory creep is diminishing the efficacy of the Community Reinvestment Act. Giving lenders CRA credit for social activities like demolishing blighted structures and contributing to youth programs may be "distracting banks from their primary mission of direct [low- and moderate-income] lending to people and small businesses," he wrote.
Credit unions and community banks should take a page from Survivor and form an alliance to beat back regulatory burdens, according to Credit Union National Association chief Jim Nussle. Meanwhile, Paydiant executive Frank Liddy argued that Apple Pay botched its opportunity to ally with banks and retailers by pushing these partners' brands to the background. A better mobile wallet model would be "based on a commitment to real partnership enabling each bank and retailer to create unique experiences for their customers on a shared platform," he wrote.
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