Bankers hope Republicans provide regulation relief

Now that Republicans have seized control of Congress, bankers are hoping they might see a loosening of regulations created in the wake of the 2008 financial crisis.

That's certainly the case among some bankers in North Carolina.

This week, I spoke to banking industry officials who told me an easing of regulations ranks high on their wishlist for the new, Republican-controlled Congress.

Among other things, the banking industry is hoping Republicans take aim at the Consumer Financial Protection Bureau, a federal agency created by Congress after the crisis to strengthen protections for consumers.

Thad Woodard, CEO of the North Carolina Bankers Association, said he would like to see more oversight of the bureau.

That's not all that surprising. After all, the banking industry has sought to limit power of the bureau, which has rule-making authority. (One of the bureau's new regulations, which requires mortgage lenders to ensure a borrower can repay the loan, took effect in January.)

Woodard said Democrats have allowed the bureau to function "unencumbered."

“Its lack of oversight and its budgetary process have been of great concern to banks," Woodard said.

Woodard said he is also concerned about "duplicative" post-crisis regulations, which he said are increasing compliance costs for banks and making them less profitable. Regulations, he said, are "sitting like a heavy weight on the banks and inhibiting their ability to do business."

That doesn't mean banks should not be regulated at all, he said.

“Never should the industry not be overseen for the safety of the public and the soundness of the institution," he said.

(You can read more of what Woodard told me here.)

To be sure, banks have seen an increase in regulations since the crisis, the worst economic downturn since the Great Depression. And more regulations are to come: Many of the rules mandated by the Dodd-Frank Act, passed in July in response to the crisis, still have not been written.

What do all those post-crisis regulations cost banks?

Jim Engel, CEO of Cornelius-based Aquesta Bank, told me his bank spends about $200,000 a year to comply with the additional regulations. To put that in perspective, the six-branch, community bank made $1.47 million in profit last year.

Engel said costs to comply with regulations limit the return banks can provide investors, which hurts banks' ability to raise capital and expand.

Any banker hoping for easing of Dodd-Frank regulations in the near future might be in for disappointment, according to Mark Vitner, senior economist for Wells Fargo Securities.

"Reforming Dodd-Frank would really use up a lot of political capital, and it’s just too complex to do” before the next presidential election, he said.

(For more on Vitner's thoughts on the new Congress, click here.)

Engel said regulations are just one issue banks are dealing with. The best thing Congress could do for community banks is pick up the pace of the economic recovery, he said.

Community banks in rural areas are especially struggling from low loan growth, he said. And when banks do make loans, they are at lower rates than in the past, which is hurting their net interest margins, he said.

“No. 1 on most community banks' wishlist is for a continuing improving economy," he said.