On March 26, 2016, The Economist published an article entitled “The Problem with Profits.” That article discussed the high profitability of U.S. firms and why that seemingly positive fact is actually harmful to the overall economy, mainly because those profits are not being distributed for spending by shareholders or reinvested in business growth. As a result, the economy shrinks as resources flow to these firms and remain on their balance sheets. The focus of the article was a call for increased competition, but we believe we should focus on other conclusions.

While the article gives a tip of the cap to the impact of regulation generally and bank regulation specifically, banks represent the poster child for the negative impacts of limiting the ability of domestic firms to reinvest, an impact that is not directly reflected on balance sheets or income statements.

Since the onset of “new and improved” regulation stemming from Dodd-Frank and other regulatory reforms, we are seeing are clients use their resources to

• hold capital on their balance sheets, in some cases to protect against the anticipated negative impacts of an imaginary doomsday scenario;
• retain “high quality liquid assets;”
• invest in extraordinary compliance expertise and management systems; and
• fill buckets left empty from reduced interchange fees, the impact of stress testing, and higher costs to originate mortgage loans, among other things.

As an industry, we frequently point to decreased lending to small businesses and increased consolidation as the evils of increased regulation. In our view, however, the dampening of reinvestment initiatives is much more significant for the industry and for the economy in general.

On February 18, 2011, Rob Klingler gave the 2011 Regulatory and Legislative Update for the annual Banking and Finance Law presented by the Institute of Continuing Legal Education in Georgia.  A copy of the slides used in the presentation is available online.

Jerry Blanchard served as the program chair and gave an update on recent case law developments.  BT Atkinson also moderated a panel on Bank Acquisitions and Mergers in Non-Loss Share Transactions.  The seminar will also be available on the ICLE’s website as an archived online course, and is eligible for 6 Georgia CLE hours, including 1 trial practice hour.

In October through December, 2010, Bryan Cave attorneys will be presenting a four-part series that explains the key provisions of the Dodd-Frank Act under the BAI umbrella.  The BAI Regulatory Reform Webinar Series will uncover Dodd-Frank’s operational and revenue impact on financial institutions.

The BAI Regulatory Reform Webinar Series includes the following webinars:

• The Dodd-Frank Act: From A to Z – October 28, 2010 – Rob Klingler
• The Impact of Dodd-Frank on the Future of Bank Operations – November 17, 2010 – Walt Moeling & Jerry Blanchard
• The Consumer Finance Protection Bureau: How it Affects You – December 1, 2010 – John ReVeal
• The Durbin Amendment Impact on  Credit, Debit, and Prepaid Cards – December 16, 2010 – Judie Rinearson

In an effort to make it a little easier to find information about the Dodd-Frank Act, we have created a new page on BankBryanCave.com that highlights our best summaries of the Regulatory Reform Act and also provides copies of several of the presentations that Bryan Cave has given on the Act.

The latest and greatest information will continue to be posted directly on BankBryanCave.com, but if you’re looking for quick overview of the Act or easy links to our most popular posts on Dodd-Frank, please check our our new Dodd-Frank page.

Consumer Protection Act & What It Means to You

Wednesday, October 6, 2010 11:00 AM – 12:00 PM EDT

The Dodd–Frank Wall Street Reform and Consumer Protection Act significantly modified the consumer protection landscape. The act created a new financial protection regulator with broad enforcement powers, modified the federal preemption standard applicable to national banks and federal savings associations and added a wide range of anti-predatory and mortgage reform laws.

Join experts from Bryan Cave LLP and BKD, LLP to hear what this reform could mean for you now and in the future.  Our presenters will discuss the Consumer Financial Protection Bureau, federal pre-emption standards, new mortgage loan originator compensation rules, debit card interchange fee limits, numerous new mortgage-lending rules and more.

If you are interested in attending, please register online for this free webinar.

In a speech before the nation’s banking accountants and auditors, OCC Senior Deputy Comptroller for Bank Supervision Policy Tim Long previewed key areas of regulatory concern in the wake of the financial crisis.  He lamented the state of loan loss reserve provision rules and pontificated on community bank concentrations in commercial real estate and capital requirements.  Specifically, he wants to see capital buffers that are over and above minimum regulatory requirements and are proportional to high CRE concentrations.  He is evidently “struck by how often [analysts of the current financial crisis] miss a crucial point” that its root causes were remarkably similar to those of past crises, and he says the OCC intends to refocus on the fundamentals of sound banking.

Long was not shy in assigning blame for industry and regulatory distance from these fundamentals.  He decried a period that “allowed accounting doctrine and the accounting profession to encroach on what is fundamentally a process of credit estimation” and a matter of banker expertise.  Echoing a previous OCC take on FASB 114, he argued that the “incurred loss” model underlying current GAAP standards limits banks’ ability to provide for loan loss reserves in good times, when historical data substantiating credit risk is harder to produce.  Banks should, in the opinion of Mr. Long, instead be permitted (and instructed by examiners) to make provision for losses on a more forward-looking basis and in light of macroeconomic trends.  Related FASB changes are pending but are far short of the “expected loss” model Long has previously espoused.  Accountants argue that the incurred loss model provides the more accurate financial snapshot and reduces the risk of earnings manipulation.

In addition, Long singled out community bank concentrations in commercial real estate and discussed the need for more rigid limits.  Here he acknowledged some degree of regulator responsibility and argued that the principles of the 2006 interagency guidance on CRE concentration appropriately identified this risk and should have been more formally implemented.  Long argued that regulatory capital minimums are just that—minimums—and that regulators should be more precise in calling for greater capitalization.  In particular, it is Long’s contention that certain CRE concentrations should trigger mandatory capital buffers above regulatory minimums that scale with increasing concentrations.

These statements by Mr. Long exemplify a regulator philosophy that is likely to pervade the implementation of Dodd-Frank and the regulatory environment going forward.  Regulators seem to be happy to put the Congressional focus on their role in the financial crisis behind them and eager to position themselves within the new supervisory landscape.  In case of the OCC, although it will be gaining federal thrift supervision authority under this new framework, it will also have to work more closely with the Fed in regulating banks held by systemically risky bank holding companies.  Long’s comments assume an interagency approach to bank supervision.

Mr. Long was appointed by then-Comptroller John Dugan to his current post in 2008, in which role he also serves as Chief National Bank Examiner and as Chairman of the Committee on Bank Supervision, which coordinates the OCC’s supervisory activities.  He has been with the OCC since 1979.

Goolsbee to Chair White House Council of Economic Advisors

On Friday, President Obama named a longtime adviser, Austan Goolsbee, to be the chairman of the White House Council of Economic Advisers. Goolsbee is a former University of Chicago economics professor and one of three economists currently serving on the council. He previously was confirmed by the Senate and will not need to be reconfirmed. Goolsbee, 41, replaces Christina Romer, who has returned to her teaching position at the University of California, Berkeley.

Clash Over Tax Cuts Extension

With the Bush tax cuts set to expire at the end of 2010, President Obama, speaking at a White House news conference on Friday, proposed extending tax cuts for families earning less than $250,000 a year while allowing taxes to rise for those with higher incomes.  However, the President stopped short of promising a veto should Congress send him legislation extending, perhaps temporarily, tax cuts for everyone. Republicans have proposed extending the tax cuts for all income brackets. The cost to the Treasury of extending the top two income tax bracket rates, which the Bush tax cuts lowered from 39.6% to 35% and 36% to 33%, would be $700 billion over 10 years.

Stimulus Round Two

During a speech Wednesday, President Obama unveiled his new proposal to allow companies to expense 100 percent of their investments in new plants and equipment through the end of next year in effort to spur job creation. The President also announced a plan to invest $50 billion in new roads and railways, as well as permanently extend a tax credit, valued at close to $100 billion over 10 years, for businesses that conduct new research and development.

The federal banking regulators recently took their first official Dodd-Frank rulemaking step, inviting public comments in advance of proposed rulemaking on the use of credit ratings in the formulation of risk-based capital standards.  The reality is that years of such rulemaking and interpretation by regulators will determine the true impact of the law.

More important to community banks, the FDIC announced the establishment of a department—the Division of Depositor and Consumer Protection (DCP) —that will soon become a household name for smaller insured state nonmember banks.  This unit will be dedicated to the enforcement of consumer protection rules promulgated by the new Consumer Financial Protection Bureau (CFPB) as to banks exempt from that agency’s oversight.

The New Community Bank “Regulator”—FDIC’s DCP

On August 10, 2010, the FDIC Board created two new offices specifically for the purpose of implementing Dodd-Frank:  the Office of Complex Financial Institutions (CFI) and Division of Depositor and Consumer Protection (DCP).  The first will be the FDIC vehicle for carrying out the agency’s role in overseeing systemic and large bank holding company and non-bank financial firms.  The DCP, on the other hand, is in a sense a community bank regulator.  According to the FDIC, this body will be charged with enforcing consumer protection rules promulgated by the CFPB as against banks outside its purview:  those with $10 billion or less in total assets.  In the words of Chairman Bair:

Our depositor protection and compliance examination and enforcement responsibilities are integral to our unique responsibilities as deposit insurer and supervisor of thousands of community banks. The creation of this new division emphasizes the importance we place on these responsibilities and is directly responsive to Congress’s intent in the new legislation.  DCP will also complement the activities of the new Consumer Financial Protection Bureau that is being established within the Federal Reserve. The FDIC supports the CFPB, and we are committed to doing our part in carrying out the consumer responsibilities Congress has entrusted to us.

The Dodd-Frank Reform Act & What It Means to You

Wednesday, September 8, 2010 11:00 AM – 12:00 PM EDT

The Dodd-Frank Wall Street Reform and Consumer Protection Act represents a historic restructuring in the regulation of financial institutions.  This comprehensive reform bill will have substantial effects on all facets of the financial services industry.  The new law requires the development of numerous rules and regulations that will continue to evolve over time.

Join experts from Bryan Cave LLP and BKD, LLP to hear what this reform could mean for you now and in the future.  You will receive insight on specific provisions such as consumer compliance regulations, regulatory agency shifts, the Collins Amendment and other capital requirements.  Other changes covered include those to Federal Deposit Insurance Corporation insurance, affiliate transaction and legal lending limits, private securities offerings and executive compensation.

If you are interested in attending, please register online for this free webinar.

Department of Labor Weekly Unemployment Report Released 

On Friday, the Department of Labor announced that the unemployment rate fell in 18 states during the month of July. The Department also said the jobless rate rose in 14 states and stayed the same in the remaining 18 states. Nationwide, the unemployment rate remained stuck at 9.5 percent in July. New York and Massachusetts reported strong job gains with Massachusetts reporting that it added 19,200 private-sector jobs in July, the largest monthly gain for any state in more than 20 years.　

On Tuesday, the Departments of Treasury and HUD invited a cross section of housing and banking industry participants to Washington for a summit on the future of the housing finance industry. The industry representatives voiced overwhelming support for the government to maintain a large role in supporting the nearly $11 trillion mortgage market. Participants expressed support for a new program that would allow homeowners to refinance their mortgages at lower interest rates through Fannie Mae and Freddie Mac, although Treasury officials indicated they have no plans to enact such a program.