Six Takeaways from American Banker's Regulatory Symposium

Regulators Are Quite Worried About Cyber Threats

Two regulators speaking at the conference, Federal Deposit Insurance Corp. Chairman Martin Gruenberg and Comptroller of the Currency Thomas Curry, both had stark warnings regarding the need for enhanced cybersecurity. Gruenberg in his speech said, "Internet cyberthreats are rapidly becoming the most urgent category of technological challenges facing our banks." Curry echoed that in a sit-down Q&A when he was asked about what threats to the industry worry him. There is "the issue of making sure ... [banks] have taken the appropriate steps to remediate and protect against" cyberthreats "given the nature of the business," Curry said.

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There Are Reasons to Be Bullish on Banking's Prospects

In a speech to the conference, and an interview afterward, U.S. Bank chief executive Richard Davis cited reasons to be optimistic about economic growth. He compared the current climate to the early nineties when, following a recession, the U.S. entered a prolonged stretch of economic prosperity. Davis attributed his confidence largely to signs the Federal Reserve Board is committed to raising interest rates soon. "It's getting sooner. It's going to happen. And so that's going to be a catalyst," he said in the interview after his speech. "I think it will be next year things take off." And while community bank executives, sitting on their own panel about issues facing smaller institutions, expressed concerns about the regulatory climate, they were generally positive about their sector's future.

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Size Is Overrated in Charting a Bank's Success, Scope of Rules

A theme that came up multiple times was how asset size may not be the most reliable predictor of a bank's destiny or risk to the financial system. Curry said the $50 billion-asset threshold -- the yardstick determining whether a bank must follow many Dodd-Frank Act and Basel rules for large institutions -- is inadequate in assessing risk when used alone. "Fifty billion dollars [in assets] was a demarcation at the time" but "it doesn't necessarily mean you're engaged in that activity that they are trying to target," he said. Meanwhile, executives on the community bank panel discussed how smaller institutions can still thrive despite their size. "Community bankers are a scrappy bunch," said Jill Castilla, president and chief executive at the $252 million-asset Citizens Bank of Edmond in Oklahoma. "We know how to survive."

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DOJ's Operation Choke Point Is as Divisive as Ever

Perhaps the most spirited debate came during a panel on Operation Choke Point, a Justice Department effort to root out fraudulent businesses through their access to the payments system. Industry advocates said the DOJ and bank regulators have seriously overreached, forcing banks to end business ties with merchants such as payday lenders, gun shops and others that are legally operating. "The core goal of combatting mass consumer fraud is a worthy objective, ... but where it's done on a mass basis without necessarily discriminating and it has a substantial chilling effect... the impact of that potentially is enormous on the economy," said Jeffrey Knowles, a partner at Venable. But supporters of the program said the DOJ is only pursuing investigations when there is real evidence of fraud. The Justice Department goes "where the facts lead them. They don't issue subpoenas ... unless there is evidence of fraud and unless there is complicity from the bank or third-party processor," said Kenneth Edwards, vice president of federal affairs at the Center for Responsible Lending.

Banks, Regulators Still Disagree over AML's Value

In a speech to the conference, Jennifer Shasky Calvery, director of the Financial Crimes Enforcement Network, took issue with the assertion that banks' anti-money laundering filings submitted to regulators disappear into a "black hole." "It appears that more reports are reviewed by law enforcement and other users on a given day than are actually filed by financial institutions," Calvery said. "As you can see, [Bank Secrecy Act] reporting does not go into a black hole as suggested by some in the financial industry." But on the community bank panel, H. McCall Wilson, chief executive of the $339 million-asset Bank of Fayette County in Tennessee, said regulators have gone "beyond what is reasonable" in AML enforcement. "It has gone so far out of whack," he said. "The paperwork is not worth the effort we are putting into it."

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There Are Still Lawmakers Hopeful About GSE Reform

A Senate bill to create a new government backstop for the housing finance system failed to reach a full vote earlier this year, but Rep. John Delaney told an audience at the symposium that legislative reform of the government-sponsored enterprises is not dead. While it is unclear if any housing finance proposal could clear the obstacles needed for passage, Delaney, a Maryland Democrat, is pushing a bill to create an insurance program through Ginnie Mae to support the mortgage market. "I'm fairly optimistic that the next Congress will actually act on comprehensive housing finance -- we did have a decent amount of action on the committee level in the House and Senate," he said. "There's nothing that ideological or that principled about it, in terms of attracting a lot of political attention."