Consolidation in banking industry possible because of regulations
The final part in our series.
Earlier, we laid out the issues at hand. Then it was a look at the barriers to getting a business started. Next, to the transportation industry, where new regulations require drivers to park their trucks for a while. And then, the confusion some face when sorting through child care regulations.
It’s an industry most rely on, after all, we need money to make it day to day. But it’s also one that, in recent years, has been questioned. From robo signing to dual tracking, where banks tried to foreclose on borrowers while also trying to work out a deal with them. In the final part of our series, the current state of regulation in banks, and how it impacts you…
I’m inside Valliance Bank, just off I-44 in Oklahoma City.And Alicia Wade is explaining to me how regulations affect them.
“But what small bank doesn’t have a handle on it? If you’re a bank in Fletcher, Oklahoma, you know every customer that walks in that door, you know if their child’s in the hospital, if their parent just passed away. So you know what they’re dealing with.”
Wade is Vice President of Operations and Compliance at the bank. Basically, she does everything from manage tellers to branches to regulations. There’s a long history of regulation in the banking industry, and she sprinkled the conversation with shorthand like Basel 3, RESPA, and BSA.
“The burden has become so great it is actually making it to where community banks can’t offer them. It’s not that they don’t want to. It’s that the rules were written to regulate large banks, investment banks, brokers, non financial institutions.”
I talked with David Cook at one of those community banks, the Bank of Laverne out in the Panhandle. There’s a new requirement to collect taxes and insurance on every home loan at the start, and hold that money in escrow. They didn’t already have an escrow system set up, and for David, it didn’t make business sense to put one together. So now they send customers to Woodward, about 40 miles away.
“Hundreds of regulations and thousands of pages that you have to understand, weighs disproportionately on a smaller bank because you don’t have enough people. You don’t have anybody that can be dedicated solely to keeping up with rules and regulations,” said Roger Beverage, President and CEO of the Oklahoma Bankers Association, a trade group. He knows of other banks forced to skip out on the business. So that home loan may cost you a little more miles on your car. But that’s not everyone, not nearly.
It may not sound like a big thing, but Alicia says the bottom line can take a hit. And a for profit bank has to answer to shareholders too.
“It has to make money to stay in business. And as a result, you have to start looking at some of the things that you’ve been doing, and giving away before. Because you got revenue from another source. Now that revenue from the other source is gone,” said Roger.
Again, this comes back to what this loss in revenue means for customers. Alicia maintains with the pressure from shareholders, combined with the competitive nature of the market there’s little room. At Valliance, they have a team devoted to compliance.
“Sitting around my office is Katherine and she spends most of her day printing reports, going through the reports. We follow trends very closely.”
Okay, but for you, the bank customer. Higher fees maybe, free checking could be harder to find, but Roger Beverage says what’s most likely is less choice on the whole.
“I think it’s going to cut even further. Why? Because smaller banks aren’t going to be able to afford to keep up with the regulatory requirements that they’re going to have to keep up with, and so they’re going to merge or consolidate with a larger organization that can operate on a larger scale.”
Despite that, every time a regulation comes down, Alicia takes a step back. She is a customer, too…
“This makes sense for my job, this makes sense for my business to grow. But if I were on the other side of the desk, which we are some times, how is this helping me as a consumer?”
We asked the Consumer Financial Protection Bureau for comment, but haven’t heard back from them. In the past, defenders of some of these regulations cite the importance in protecting the consumer from deceptive or abusive practices.
In some regulations, there is a different standard for different types of banks. What do you think? Should there be more unique rules, or is a one size fits all process best?