Regulatory reform in a new era

Twelve years ago, on July 21, in the wake of the 2008 financial crisis, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law in an effort to prevent excessive risk taking. by financial institutions and to protect consumers against credit card abuse. , mortgages and other financial products. The law is considered the most ambitious regulatory banking reform in history.

Fast forward to today, one of the constructive benefits of these reforms is the increase in capital standards, which has put the banking system in one of the strongest positions it has ever been, despite a possible impending recession. Banks today have more capital and liquidity than they have ever had and, according to The latest “stress test results” from the Federal Reserve, banks retain enough capital to cope with an economic catastrophe. What’s more, the capitalization levels of the big banks in 2008 were a far cry from what they are today, proving that we are much better equipped to weather the storms to come.

That said, the direction of much of Dodd-Frank’s regulation may have been a solution in search of a problem and allowed the rise of neo-banks and unregulated FinTechs to thrive. . The question remains: is the regulation where it should be? With so many mergers and acquisitions (M&As) in the banking industry, as well as digitization and technology adoption during the pandemic, it might be time to take a look at the Dodd-Frank Act and put it up to date. day to adapt to the world we are in today. live in.

A recent report from Deloitte discusses the regulatory outlook for 2022 and highlights the evolution of the banking industry, people’s understanding of what banking is and how it is being challenged by industry players as well as state regulators , federal and global. In the report, he references a number of regulatory topics that are at the heart of the concerns of the financial sector, including compliance, digital assets, data infrastructure, technology and consumer protection, among others.

Some of these issues are already being addressed. For example, last March the Federal Deposit Insurance Corp (FDIC) sent a information request on potential changes to its merger review process. The goal of this request is for regulators to ask more questions and put in place more hurdles to clear before signing off on proposed deals involving more than $100 billion in assets. Since then, we have already started to see a slowdown in M&A activity.

For regional and commercial banks like ours, M&A transactions have provided us with tools to navigate changing environments amid the pandemic. And the new regulations support the case for most transactions, given the digital demand and the need to evolve in banking. As banks steer their models toward efficient growth, we will continue to see more fintech transactions and partnerships in banking.

In addition, the Federal Deposit Insurance Fund has just proposed to increase deposit insurance assessment rates 2 basis points for all insured depository institutions. While this theoretically makes the system more secure, in reality it reduces the capital available for banks to lend to their communities.

Over the past few years, fintech has exploded and it’s fair to say that many banks have caught up when it comes to offering a digital touch to their services. But while it may be worth applying for a loan at 1:30 a.m. and having the funds in your account the next day, unregulated financial entities are now holding consumers hostage at a 24.7% rate on a small business loan they could have gotten at 7%.

Cryptocurrency, along with other digital assets, is another reason we need to recognize the strength of our banking system. Some consumers decided to invest their money in uninsured digital tokens and lost thousands or even millions of dollars. In light of this volatility, we’ve seen a lot of talk about opportunities to embrace technology while maintaining a safe and secure environment. New draft regulations under discussion, such as the Responsible Financial Innovation Act aim to better regulate digital currency transactions. And while the intention of this proposal is to create parameters around digital asset transactions, it creates a great separation between the standards that banks and non-banks are held to, ultimately leaving gaps in consumer protection. .

The word ‘regulation’ has been getting scary lately, but what needs to be remembered is that ‘smart regulation’ is necessary for the protection of your assets and to protect your money, especially in the environment. in which we currently find ourselves. Organizations will need to keep an eye on the fundamentals while preparing for new laws and regulations in emerging areas.

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