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Business of Banking Won’t be the Same After July 21
As published in the Mississippi Business Journal.
Bankers unsure of when a particular provision of Dodd-Frank kicks in should put their money on July 21 as "the default effective date" for many of the provisions
Bankers in Mississippi and elsewhere in the country have penciled in July 21 as the day a new era in America banking regulation begins in earnest.
July 21 marks a year to the day that President Obama signed what one Mississippi banking executive calls an "absolute dramatic rewriting of the rules" of banking.
Few banking professionals who have delved into the 5,000-page Dodd-Frank Wall Street Reform and Consumer Protection Act financial services overhaul would disagree. On the whole, the reform consolidates regulatory enforcement and alters a host of longstanding practices by banking companies. But it has hundreds of other pieces to it that banks must understand and comply with.
For the most part, they've got only slightly more than two weeks to do it.
Bankers unsure of when a particular provision of Dodd-Frank kicks in should put their money on July 21 as "the default effective date" for many of the provisions, BAI Banking Strategies says.
As their managers, front line staffs and back office personnel begin navigating the new rules, Mississippi bankers will find out early on whether they have prepared well.
BancorpSouth has had a regulatory reform committee of about 16 members meeting monthly and initiating steps to ensure compliance. It's a new truckload of challenges that come on top of the many challenges already unfolding on the business side, said BancorpSouth's Michael Lindsey, senior vice president and head of retail banking.
Banks have to be nimble right now," he said. "We do not know what we're going to be facing, but we've got to be prepared for it," Lindsey said.
Lindsey's colleague Randy Burchfield, BancorpSouth's senior vice president for corporate marketing, said it's difficult to describe how huge a change Dodd-Frank represents across the entire financial sector. "It's unprecedented in scope what Dodd-Frank will usher in," Burchfield said.
Bankers say they could get a better fix on how well they are preparing if they knew more about the full implications of the overhaul.
Ostensibly, the reform is to apply to financial institutions with $10 billion or more in assets, but regulators and bankers alike say smaller institutions must comply with many of the changes, as well. Exemptions written by Congress can't erase the state's obligation to enforce compliance measures ordered by federal agencies against state chartered institutions, Mississippi Banking Commissioner John Allison said in an interview last fall.
All banks, regardless of size, will have to comply with extensive new disclosure and reporting requirements created by the bill, the American Bankers Association says
Sonny MacArthur, an audit partner with Atlanta banking services firm Porter Keadle Moore, said he expects that as the rule writing progresses smaller banks will fall more into the regulatory mix. "I think that once the rules are written, you'll see a lot of trickle down to those banks of less than $10 billion in assets," MacArthur said.
Meanwhile, Mississippi bankers say they especially need to know more about the full reach of the "Consumer Financial Protection Bureau," a new agency the reform act handed broad regulatory powers and a large measure of autonomy. Though the agency's rule making is far from complete and President Obama has yet to nominate a director, the American Bankers Association warns that banks of all sizes must prepare to devote significant time and money to compliance. They must be especially careful to ensure customers fully know what they are getting into before making a transaction or signing a contract.
"The CFPB is given sweeping authority to require whatever disclosures it thinks are necessary to permit consumers to understand the costs, benefits and risks associated with the product or service," the ABA said in advisory message to member banks.
Some professionals in the banking sector, such as financial services lawyer Cliff Harrison of Jackson-based Butler Snow, say the reform sacrificed "accountability" through efforts to give autonomy to the new agency by removing it from the political influence of Congress and meddling by the Federal Reserve.
"There's not much accountability as it is" now envisioned, Harrison said of the fledgling agency.
Harrison and other banking sector professionals say Washington has handicapped the financial services industry by missing more than a couple-dozen deadlines for rule making and by providing scant direction to the this point on compliance.
"Guidance and information to go on to implement these changes is an important piece but they are not getting much from the government," said Harrison.
He said he is concerned that absent a rule to clarify a particular statutory provision, the statute by default will become the rule. Banks will then be left to their own devices to interpret what they should be doing to comply with the statute, Harrison said.
As June gave way to July, only slightly more than two-dozen rules on Dodd-Frank had been issued and a 100 more remained pending in the proposal stage.
Rusty Butcher, chief of banking practices for HORNE LLP, said he expects that once the Consumer Financial Protection Bureau gets a director, directives will come out of the bureau at a rapid clip. "I think there's going to be a lot of activity real soon," he said, predicting the next three to four months could be especially busy with the issuing of new rules on banking disclosure.
But for now, "We're all waiting to see where this thing does shake out because there is so much uncertainty," Butcher said.
"Banks are doing a lot of contingency planning" on "what changes they need to make structurally to ensure they are going to make money."
