The people who keep banks in compliance with consumer protection laws have one key annual gathering - the American Bankers Association's Regulatory Compliance Conference. Last week's conclave in New Orleans showcased how profoundly their world has changed.
For a meeting about regulation, it felt like a rock concert (okay, only slightly, but still....). A record crowd of over 1,700 jammed into a huge ballroom watching speakers on the faraway stage and jumbotron screens. And attendees didn't hear many dry regulatory updates. Instead they grappled with the breathtaking challenges raised by the financial crisis and the Dodd-Frank law, including creation of the Consumer Financial Protection Bureau.
I had the pleasure of moderating the first morning's general session on the sweeping new CFPB mortgage rules, which aim to prevent recurrence of the subprime bubble. My panelists - two veteran bankers and a top Washington lawyer - incisively analyzed the progress to date including whether the regulations will overcorrect, leaving credit too tight. I'll sum up the panel’s view as so-far-so-good-but-too-early-to-tell, and costly.
There was a showstopper, though, in a panel of three bank CEO's discussing compliance in ways never seen before. Ally Bank chief compliance officer Dan Soto queried his boss Michael Carpenter, plus Hancock Bank's John Hairston and John Ikard of FirstBank, on how consumer protection challenges have changed. The thoughtfulness and candor of these three leaders reflected, and may even accelerate, a turning point in how banks think about these issues. One or another of them - sometimes all - made these points:
- Bank business line leaders used to view regulatory hurdles as something to be "gotten around." No more. Now it's a top priority, permeating everything they do.
- Today's regulatory environment is so new and fast-changing that both banks and regulators need – but don’t have -- time to "practice" to get things right
- This "regulatory unpredictability" keeps CEO's awake at night, deterring them from serving marginal consumers who need access but who raise extra regulatory risk if the bank does something wrong - under standards not yet clear.
- One of these banks spent hundreds of millions of dollars to make itself acceptable to bank regulators
- One CEO said he "lost 2-3 times more money with the flick of a pen in Washington" changing regulatory requirements, than in all their loan and business losses. "Think about that," he said.
- One said the regulators' aborted foreclosure review project had found almost no foreclosures of people who could have kept paying, but damaged the system that will provide mortgage credit going forward
- One said he is a little afraid of his compliance officer (seated in the front row), and told stories of learning very hard lessons from her.
- One said if the compliance officers in the room don't have a great relationship with their CEO, "look in the mirror." CCO's must perform as top bank executives, at the table with the executive team and with the "stature to be there." This is very new thinking for many compliance professionals.
They were asking regulators to be clear. They were asking compliance officers to be leaders and change-agents, not subject matter experts. And they were telling us that CEO's, for the first time ever, have brought compliance into the heart of the competitive race in banking.
I’m writing my book because the aftermath of the financial crisis, combined with new technology, is creating an unprecedented chance to improve consumer financial services and how they are regulated. One critical new factor is that for the first time ever, bank CEO’s are genuinely interested. They used to delegate “compliance” to their technical experts. Today’s skyrocketing regulatory risks and costs have changed that. As this panel vividly illustrated, CEO’s are thinking deeply about these issues. Their engagement totally changes what can be done.
If you have thoughts for the book on the new engagement of banking leaders in these topics, please write to me.