Former banker and bank regulator, and current bank consultant, Mark Olson, had a lot of things to say at a recent ABA Directors Forum. However, perhaps the most disconcerting prediction he made is that when it comes to Dodd-Frank, the pain for financial institutions is only going to get worse.
Dodd-Frank, related crisis-era legislation and regulation, and a gearshift in the regulatory mindset promise a much rougher road ahead, predicted banking expert Mark Olson in a presentation to ABA's Director's Forum, held in early October in conjunction with ABA's Annual Convention.
Due to Dodd-Frank and the other fallout, "banking is going to be more expensive," predicted Olson, but he added, "I can't find that yet in the industry's numbers." He noted that banking's efficiency ratios continue to be favorable, which he believes means that the increased costs of compliance have yet to really bite.
Olson cited recent research by Standard & Poor's that indicates that 25,000 jobs are being created in the course of handling Dodd-Frank, even as many regulations remain unwritten or still in proposed form.
How nice for banks to know that Dodd-Frank compliance will continue to be a growth industry. Of course, that's a growth industry that saps the bottom line rather than enhances it.
Olson was also spot-on, if depressingly so, in his observations about the trends in regulatory supervision.
"The regulators are still very defensive--very, very defensive," said Olson, "and they are very risk averse." They don't wish to be embarrassed again, and as a consequence, bankers will have to make their case to regulators when they want to do anything out of the ordinary.
"If I were in the regulators' position," said Olson, "I would see that there is zero upside for my being flexible."
"There is a trend toward enforcement over supervision," Olson explained. Where agencies may have nudged, shepherded, and jawboned beforehand, now they are likely to smack.
Activities and policies that banks have engaged in and maintained for many years are now considered suspect, Olson said.
I keep waiting for the pendulum to swing back, because at some point, if it doesn't, the regulators will continue to impede the recovery in the banking business, and perhaps the larger economy served by bank lending, by clamping down too hard on risk taking. "No risk, no reward."
I hope the pendulum swings back while I'm still young enough to enjoy it. The odds are growing slimmer with each passing month.