Treasury Secretary Timothy F. Geithner has challenged bankers to give him specifics on their longstanding complaint that the Dodd-Frank Act is imposing costly, confusing and burdensome regulations on them, according to four people familiar with the matter.
The Federal Advisory Council, a group of bank executives from each of the 12 Federal Reserve districts, complained to Geithner at a May 10 meeting about overlapping and duplicative rules, according to the people. Geithner urged the bankers to prepare a study with examples of regulatory burden, said the people, who are preparing the report.
Geithner offered to use his ability to reach across agencies to better coordinate and streamline rules if he found the report convincing, according to the people, who asked not to be identified because they weren’t authorized to discuss the study. The complaints include the handling of so-called stress tests of banks’ ability to weather a crisis, capital requirements and restrictions on mortgage servicing.
“It’s a helpful step,” said Joe Engelhard, senior vice president of Washington-based investment advisory firm Capital Alpha Partners LLC and a former Treasury official. Dodd-Frank is “overly complicated and excessive in certain areas, but I like what Geithner is saying of identifying where it is overly complicated and we’ll work on that.”
Treasury spokesman Anthony Coley declined to comment on the May 10 meeting or the report.
The 2010 Dodd-Frank Act ushered in the most sweeping overhaul of financial rules since the 1930s in a bid to prevent a repeat of the crisis that prompted taxpayer-funded bailouts of firms including Citigroup Inc. (C) and Bank of America Corp. (BAC)
Bankers have complained that Dodd-Frank will crimp credit while slowing economic growth and job creation. U.S. Bancorp Chief Executive Officer Richard Davis said in an April 17 earnings call the “big majority” of Dodd-Frank for the company will involve paperwork transactions and managing details.
The act imposes nearly 400 new rule-making requirements on regulators, of which 110 have been finalized and 144 have been proposed, according to a June 1 report from law firm Davis Polk & Wardwell LLP, which advises many of the world’s largest financial institutions.
“The quantity and quality of regulation has been increased so dramatically that it makes it difficult to do business in the financial services area, and a lot of those huge costs are going to be passed on to consumers,” said Tom Vartanian, a Washington-based partner at the law firm Dechert LLP. “The question is, ‘Where’s the balance?”’
“I don’t blame them at all with their response of ‘Show us the facts,”’ he said. “That’s a response we should embrace.”
Among the members of the Federal Advisory Council are Joseph Hooley, chief executive officer of Boston-based State Street Corp. (STT); Vikram Pandit, CEO of Citigroup in New York; James Rohr, chairman and CEO of PNC Financial Services Group Inc. in Pittsburgh; and U.S. Bancorp’s Davis.
The KBW Bank Index (BKX), which tracks shares of 24 financial institutions, has dropped 9.3 percent since July 21, 2010, the day Dodd-Frank was signed into law, compared with a 20 percent gain in the Standard & Poor’s 500 (SPX) Index.
U.S. economic growth slowed to a 1.9 percent annual pace in the first quarter, and employers added 69,000 workers in May, the fewest in a year. The unemployment rate rose to 8.2 percent last month from 8.1 percent in April.
Bank executives held a conference call on May 29 to solicit assistance on the white paper from other institutions and trade groups, including the Clearing House Association. The bankers plan to deliver the report to the Treasury by the end of this month, according to the people preparing it.
Bankers are seeking to persuade Geithner to use his position as chairman of the Financial Stability Oversight Council to encourage greater coordination among the agencies that enforce Dodd-Frank.
The oversight council’s 10 voting members include Federal Reserve Chairman Ben S. Bernanke; Comptroller of the Currency Thomas Curry; Securities and Exchange Commission Chairman Mary Schapiro, and the Federal Deposit Insurance Corp. Acting Chairman Martin J. Gruenberg.
“If you took mortgage lending, you have anywhere from six to seven federal, state agencies involved in the creation of new rules or servicing standards,” said Vartanian, who has represented banks including Capital One Financial Corp. and Bank of America. “There is substantive overlap in terms of the requirements of regulations and jurisdictional overlap in terms of how many agencies you have to deal with.”
The Fed, OCC, FDIC and the Consumer Financial Protection Bureau all have authority over mortgage servicing standards, for example. The Federal Housing Finance Agency is also reviewing mortgage servicing standards for the government-sponsored enterprises. The Justice Department and the 50 state attorneys general are requiring the largest banks to implement mortgage servicing underwriting procedures as part of an industry settlement.
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