Community banks facing new rules imposed by the Dodd-Frank Act may face an impact similar to a “drug interaction,” where multiple measures aimed at improving health combine to cause a negative outcome, Acting Comptroller of the Currency John Walsh said.
“It’s not that any one requirement is a bad idea, but it’s hard to judge the cumulative effect when so many changes are made at once,” Walsh said today in remarks prepared for an Independent Community Bankers of America Conference in San Diego. “I worry there could be ‘drug interactions’: one pill that’s good for the heart, one for the head, but taken together they’re dangerous.”
Walsh, outlining Dodd-Frank measures that may increase costs and limit profits for banks, pointed to a small-lender exemption from a proposed cap on debit-card “swipe” fees paid by retailers as an example of a rule with potential for unintended consequences.
“Community banks recognize that the exemption granted has little practical benefit because the price the Fed sets for large banks will end up being the price smaller banks can charge,” said Walsh, who has joined Federal Reserve Chairman Ben S. Bernanke and Federal Deposit Insurance Corp. Chairman Sheila Bair in raising questions about the measure’s impact.
Walsh, who became acting comptroller when John Dugan stepped down after Dodd-Frank was enacted in July, said the law’s prohibition on use of credit ratings in bank regulations “is overbroad and becoming unworkable.”
“Normally Congress would go back and fix obvious problems, but the current political climate offers little hope of that,” he said. “So we will pursue the art of the possible in rulemaking.”
The new Consumer Financial Protection Bureau, whose rules will be enforced by existing regulators, may pose additional challenges once it begins operations in July, Walsh said.
“The Bureau is a new agency; it may have a different approach to consumer rules,” he said. “It remains to be seen how conflicts between safety and soundness and consumer protection will be addressed in rulemaking. I believe it will be important for all of us -- banking regulators and the consumer bureau -- to establish and maintain a constructive dialogue.