Banks may have to come to terms with a stricter regulatory environment following the re-election of President Obama, under whom Congress passed the contentious 2010 Dodd-Frank Act.
President Obama signed into law the controversial legislation, the biggest financial reform effort since the Great Depression, two years ago following the 2008 financial crisis.
As the repeal of Dodd-Frank has become less likely with the recent election, financial institutions and their employees have resigned themselves to the fact that Dodd-Frank will remain in place.
“The question becomes: ‘How are you going to act in this environment?’” Andrew Miller, the director of regulatory policy for PNC Financial, said, according to NJ.com.
Many financial institutions are currently planning to restructure as pending financial regulations, including rules pertaining to proprietary trading and mortgage servicing, are set to take effect. The institutions are also preparing for even more stringent regulation in the future.
“I believe we have a fundamental problem in our banking system,” Charles Morris, an economist at the Federal Reserve Bank of Kansas City and deputy to Thomas Hoenig, the director of the Federal Deposit Insurance Corp., said, NJ.com reports.
Both the Fed and the FDIC have called for restricting institutions that receive federal guarantees or subsidies from participating in almost any kind of trading.
“By restricting activities…we believe we can reduce the likelihood of future crises,” Morris said during a conference on financial regulation at Rutgers Business School, according to NJ.com.
Critics have targeted Dodd-Frank as overly burdensome and complicated. The regulatory environment has become even more tense as regulators struggle to coordinate and write the rules mandated by the legislation.
Dodd-Frank has been especially criticized for its size, which many maintain is unworkable.
“Who the hell can understand 30,000 pages [of rules] and know what that actually means and know what we’re supposed to be doing?” Doug Peebles, the chief investment officer for fixed income at Alliance Bernstein, said, NJ.com reports.
While a lot of work remains to make the U.S. financial system more stable, many financial institutions have made an effort to decrease the risk they pose to the financial system. Ron Cathcart, the senior vice president of financial institutions supervision for New York’s Federal Reserve, said that bank boards are spending more time focusing on risk strategies that were, at one time, lower on the list of priorities.
Some Wall Street firms have also restructured pay packages to reduce outsized risk-taking, which historically provided short-term profits but also included long-term problems, according to NJ.com.
The creation of the Consumer Financial Protection Bureau, a newly established federal consumer watchdog agency, has also ramped up efforts on behalf of financial institutions. Beverly Reynolds, a compliance manager at Wells Fargo’s fair and responsible lending office, said that the CFPB has pushed the bank to more carefully consider customer complaints.
“Those complaints drive the activity of the CFPB,” Reynolds said, NJ.com reports. “They are cracking open files. They are listening in on recorded conversations with customers. They are in our stores.”
Cathcart said that banks can expect such a regulatory environment to remain in coming years.
“The type of regulations that we now see are going to be here to stay,” Cathcart said, according to NJ.com.