Regulatory red sky dawns at the beginning of 2024

Red sky at morning, sailor take warning,” goes the old nautical adage.

Bankers see a dangerous red sky situation. Several regulations are being proposed or finalized, all at the same time. Unfortunately, the regulators seem uninterested in assessing the true impact of these rules on a standalone basis — let alone what might happen if they all take effect simultaneously.

Dan Robb photo

The ultimate effect could be a regulatory tidal wave that could severely harm the ability of banks of all sizes that serve their communities.

Consider four key rules:

  • The Basel III “endgame” regulatory capital proposal.
  • The Community Reinvestment Act modernization final rule.
  • The Federal Reserve’s Reg II rule slashing what banks can charge for debit interchange.
  • The CFPB’s Section 1071 final rule that will create significant regulatory burdens on small business lending.

There are more, all of them taking place simultaneously over the next year or so. The cumulative effect would be to require banks to put more capital aside, thus reducing funds available for lending, at the same time as a significant source of non-interest income is constricted. Meanwhile, the complexities of the CRA and Section 1071 final rules could push more lending out of the regulated bank space.

And for anyone who says the Basel III endgame capital rule and Reg II would only apply to the largest banks, I can say we’ve always seen these rules trickle down to smaller banks, either by regulatory or economic pressure. 

Banks like mine — a rural, three-branch community bank with $130 million in assets — are concerned about every one of these rules. It’s imperative that we remain united as an industry. A storm is never the time for seafarers to start rowing in different directions. It’s never been more important that we all row together.

In addition to advocating with regulators and seeking legislative solutions, the American Bankers Association is also fighting back in the courts as well. As much as we never want to have to sue a regulator, in many cases we’ve exhausted all other options. Some of these rules exceed the agencies’ authority and violate proper procedures. Our legal actions have already secured relief for bankers in two cases and we will continue to evaluate all options to protect our banks, our clients and the communities we serve. 

We must all keep our clients and communities front and center. Our customers are our greatest assets, and we treat them accordingly. We know that we are all blessed to serve our clients and communities in a powerful and meaningful way. 

Despite the challenges of this “red sky” moment, I remain convinced that we have an extraordinary opportunity to make a difference for our communities. Bankers make dreams possible, and our communities cannot thrive if their banks are not thriving. 

We’ve navigated rough seas before. If we remain united, stay focused and remain positive, we can survive everything that 2024 has to throw at us.

With that positive spirit, shaped by gratitude for all we’ve been given, we’ll be able to sail our customers confidently to safe harbors.

Dan Robb is immediate past chair of the American Bankers Association and president and CEO of Jonesburg State Bank, a 100-year-old, community bank in east central Missouri. He has more than 37 years of banking experience since starting his career in 1985 as a teller.