Thursday, February 23, 2012

Bank Regulation is Going from the Ridiculous to the More Ridiculous

Bankers should be concerned about profits and making good loans and being good community citizens.

But, there is a new game in town.

Don’t grow your bank beyond $10 billion in assets.  But, if you do exceed $10 billion in assets grow your bank as fast as you can!

CEO Mitchell Feiger of MB Financial, Inc., a Chicago bank, is quoted as follows: “We are watching (deposit) accounts carefully.  We work to stay under $10 billion (in assets) until we can’t do it anymore and we’ll blow past it.  When you go past it, it doesn’t make sense to go over by $100 million.” (

“For regional banks, expanding beyond $10 billion in assets now comes with regulatory demands that are aimed at making the financial system safer but that add complexity and costs.

As such, some banks have made the unusual decision of expanding more slowly and even turning away money to stay under the regulatory benchmark.  Some banks have lowered the interest rates they pay for customer deposits in an effort to attract less cash.  And the timing of growth initiatives also is now a factor, as some banks think it makes little sense to trip the $10 billion trigger unless they are to grow much bigger.”

Is this what we want American commercial bankers to focus on.

Almost every day the banking scene seems to get sillier…if the situation weren’t so serious.

Bankers in the United States…and all over the world as a matter of fact…are spending too much time not doing banking but doing regulatory compliance and avoidance.  Bank managements are focusing on how to stay out of regulatory trouble or regulatory attention.

This attitude is not going to change.  The changes in the regulatory environment Congress has created is going to have to play out.  Too much has been started, too many institutional changes have been initiated and organizations created, and too many people have been hired for this tidal wave to stop in the near term.  

And, regulators are still fearful of bank failures as the number of problem banks remains large and bankruptcies and foreclosures stay near record levels.  We still hear about the fact that 22 percent of the homeowners with mortgages on their houses in the United States have mortgages that are greater than the market value of their home.  We also hear that the commercial real estate market is still sufficiently in trouble that many of the loans on these properties are below loan values.  There are a lot of banks that are not out of the woods yet.      

Unfortunately, the folly will continue.  I see no way out of this swamp at the present time.

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