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Financial Industry Scurries to Understand Dodd-Frank Reform Bill
SEPTEMBER 2010
As published in the Memphis Business Journal.
The recently passed Dodd-Frank Wall Street Reform and Consumer Protection Act could turn out to be the biggest stimulus bill ever - for the lawyers and accountants who will be paid to interpret and implement it.
To fully grasp the complexity of the legislation, Horne LLP certified public accountant Rusty Butcher says to consider this: The Public Company Accounting Reform and Investor Protection Act of 2002, also known as Sarbanes-Oxley, was introduced in only 100 pages and the industry continues to realize new ramifications of that legislation.
The Dodd-Frank Act passed in July weighs in at a hefty 2,300 pages. And there are still 144 rules that regulators will have to write and start imposing over the next 24 months.
The legislation is a sweeping overhaul of the financial regulatory system resulting from the collapse of the housing market, claims of improper lending, the uncovering of several financial scandals and the bailout of large financial firms like Lehman Bros. and American International Group, or AIG.
"Everyone is just sitting on pins and needles wondering what's going to come from all of this stuff," says Butcher, a partner at Horne and director of its financial institutions practice. "There's so much uncertainty out there."
Butcher was speaking from a Washington hotel where he was attending the three-day "Bank and Savings Conference" sponsored by the American Institution of Certified Public Accountants. Almost 1,200 bankers and auditors were in attendance to hear from, among others, the heads of the Office of the Controller of the Currency and the Office of Thrift Supervision, which will be consumed by the OCC as part of the Dodd-Frank Act.
"They are all huddling up and trying to figure it out," he says.
When they do, Commercial Bank & Trust vice chairman and CEO Mott Ford says he's sure of one thing.
"It's going to be very expensive," Ford says. "It's going to make credit more expensive and possibly harder to get. That's my fear."
Paris, Tenn.-based Commercial Bank & Trust, a $608 million institution with 12 retail branches that include three in the Memphis area, has historically been among the more profitable community banks.
Ford is determined to keep it that way, but at the same time expects there to be not only increased compliance costs but also more legal and accounting expenses, lost productivity due to paperwork and more training expenses.
The added costs come at a time when banks are still seeing weak loan demand, which has retarded interest income and forced many banks to start considering raising fees, Ford says.
"We have to look at everything," he says. "We'll look at our product offering in the future as we get a better feel for the impact of regulations."
Bankers like Ford aren't the only ones doing the regulation shuffle.
Trade associations for almost every financial-related group have been weighing in on Dodd-Frank for its members.
On Sept. 9, the Mortgage Bankers Association sent its "Regulatory Reform Principles" to the heads of nearly a dozen federal agencies, including the OCC, the OTS, the FDIC and National Credit Union Administration, asking they follow eight principles during the reform process. Those include increasing transparency, ensuring market liquidity and promoting uniformity.
A survey of financial advisers by the account aggregation firm ByAllAccounts Inc. found that just one mandatory audit now required by the U.S. Securities and Exchange Commission as a result of the Dodd-Frank Act has cost some firms in excess of $20,000.
Consumer advocates see Dodd-Frank as monumental and perhaps even beneficial to many in the finance arena who have never ventured into to more exotic products like stated income loans many say were responsible for the current high level of foreclosures.
"Most community banks and credit unions offer basic goods and financial services," says Corky Neale, director of research for the Memphis-based Rise Foundation.
One of the more ambitious aspects of Dodd-Frank is the creation of the Consumer Financial Protection Bureau, or CFPB, which will regulate consumer financial products and services. The bureau will help create more transparency for many of the financial products and services that impact most consumers, Neale says. Concerns with credit report discrepancies is a big one, he says.
"The number of people who protest something wrong in their credit report is huge," he says. "Yet there is little power for the consumer to do anything."
Butler, Snow, O'Mara, Stevens & Cannada PLLC attorney Virginia Wilson says the Dodd-Frank Act is the biggest regulatory overhaul in 20 years, dating back to when she first tackled regulatory issues in the savings and loan crisis.
One big difference between that era and now, Wilson says, is that the response by the government was to simply shut down troubled S&Ls. That's not possible today, or at least not preferred, she says.
"The size of the institutions was so much smaller then," she says. "They didn't have the impact these large institutions have had. The FDIC has had to spend a lot more to resolve the banking problems."
