Bank regulatory actions under Trump fall to historic lows

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Bank regulatory actions under Trump fall to historic lows


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The issuance of financial regulations has dropped to a 40-year low, new data shows, a sign that the Trump administration is fulfilling its deregulatory agenda.

Companies that track financial regulations started to see a slight drop in the volume of regulations last year with a major drop-off in issuances and revisions in the first quarter.

Regulators now are issuing or revising two to four items a week, a dramatic drop from the five to seven items a week, on average, that companies have had to comply with for years, according to Continuity. The new range is the lowest that the compliance management provider has found since tracking the issuance of regulations dating back to the 1970s.

The company’s “bank compliance index” currently measures an average range of 24 to 48 regulatory actions per quarter, compared with a 30-year average of 60 to 85 per quarter that had held steady through the financial crisis and dates back to the 1980s.

“It’s clear that at the agencies issuing these rules, whether officially or not, the gears are grinding to a halt, and there is some paralysis,” said Pam Perdue, an executive vice president and chief regulatory officer at Continuity and a former senior examiner at the Federal Reserve Bank of Kansas City.

The sharp reduction in regulatory activity comes as Congress is also aiming to ease the industry’s load. A bipartisan regulatory relief package that recently passed the Senate, which makes targeted reforms to the Dodd-Frank Act, is now pending before the House.

On Thursday, President Trump gave the bipartisan legislative effort a ringing endorsement.

The regulatory relief bill “should be done fairly quickly,” Trump said at a roundtable event in West Virginia.

Addressing a community banker at the roundtable event, Trump said a focus of regulatory efforts has been to help smaller institutions.

President Trump

“We made it a lot easier for you to lend now to great people that a short period of time ago you were not able to lend [to] because of rules [and] regulations,” President Trump told a banker at a roundtable event.

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“We made it a lot easier for you to lend now to great people that a short period of time ago you were not able to lend [to] because of rules, regulations, and you were lending to people that you didn’t even want to lend [to],” Trump said.

Perdue said the tone set by the administration is likely having a trickle-down effect on the approach by independent regulatory agencies. That tone has been seen most clearly at the Consumer Financial Protection Bureau, whose White House-appointed acting director, Mick Mulvaney, has swiftly moved to change the bureau from an aggressive rules enforcer to an agency appearing to advocate for the industry.

“When you’ve got any change in leadership, there’s an adjustment period, but when you combine the change of leadership with the perception that that leadership is doing some kind of housecleaning, overhaul or reorganization of priorities, you just stop in giving guidance,” Perdue said.

The tracking of changes and additions to regulations encompass seven federal regulators including the CFPB, the Federal Deposit Insurance Corp., the Federal Reserve System, the Financial Crimes Enforcement Network, the Office of the Comptroller of the Currency, the Office of Foreign Assets Control and the National Credit Union Administration.

Many observers note that the slowdown in regulations is not a surprise. Shortly after taking office, Trump issued a directive that “for every one new regulation issued, at least two prior regulations [must] be identified for elimination.” The administration’s “core principles” order recommending changes to the regulatory structure has also been the basis for policymakers to pursue reforms to ease the industry’s burden.

Experts say it is hard to gauge whether those directives directly correspond with the sharp reduction in regulatory actions, but they note that as new leaders at the CFPB, Fed, OCC and elsewhere adopt similar stances on regulatory reform and other agency personnel retire, a pullback in regulatory activity is likely to continue.

“It was a stated policy at the outset of the administration that they wanted less regulation in every way,” said Bonnie Hochman Rothell, a partner at Morris Manning & Martin. “I definitely think there’s going to be a reduction in regulations. I also expect to see a lot less enforcement over the next year, probably nothing over the next year.”

To be sure, Continuity’s data contains considerable ambiguity. The company’s tracking of regulatory activity has a broad definition for the items it considers “regulatory changes.” It can include a significant rule change or more subtle revisions or even mere technical amendments. For example, last month the CFPB made a minor change to its mortgage servicing rules, which counted as one item. When the Treasury Department issued sanctions last month against North Korea, that also counted as one item, according to Continuity.

As officials weigh reforms in the Trump era, the resulting rule changes can also increase the amount of regulatory activity. This could be why, even though “regulatory changes” stayed low in the first three quarters of 2017, the fourth quarter showed an uptick. For example, the fourth quarter included a CFPB rule criticized by the industry — imposing new restrictions on payday lenders spearheaded by former CFPB Director Richard Cordray — but it also included a move hailed by the industry: Mulvaney’s decision to reopen a rulemaking dealing with the Home Mortgage Disclosure Act.

The fourth-quarter total of regulatory changes — 86 — was still lower than the 116 issued in the fourth quarter of 2016.

Perdue said the new data showing lower regulatory activity in the Trump administration compared with historical averages is a break from the norm. Before Trump took office last year, the higher average issuance of regulatory items was relatively constant regardless of which political party was in power.

“It didn’t matter who was in the White House or which party held Congress, we would find between 60 to 85 changes per quarter, and that band held even through last year, when there were a high number of changes,” Perdue said.

Still, some speculate that the slowdown could be reversed by changing political winds. If the Democrats retake the House or even the Senate in the midterm elections, lawmakers in the opposition party could apply pressure on regulators to toughen regulations, not ease up on the pedal. A change in the party controlling the White House in 2020 could trigger another shift in the pendulum toward regulatory tightening.

“The zeal for adding more to the regulatory pile may be diminished by the Trump administration,” said Denis Brosnan, the president and CEO of Dimont, a Dallas technology provider to mortgage lenders and servicers. “But there are huge concerns that if the administration changes again, do we go back in the opposite direction?”

Banks and financial firms could conclude from the lull in regulatory and enforcement actions that they may not need as many compliance personnel.

“I would not be rushing out to revise my regulatory budget just yet,” Perdue said. “The pendulum swing is exactly what you have to hedge against. Let’s say that these deregulation efforts do persist and succeed; they are going to have to go out and hire all those bodies again, so operationally it would be shortsighted to make too many preemptive cuts.”


Kate Berry

Kate Berry

Kate Berry covers the Consumer Financial Protection Bureau for American Banker.



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