The regulatory environment for banks is “simply insane” and community bankers should make the most of the current opportunity to improve their operating environment. “It will be up to bankers to drive the agenda,” Eugene Ludwig told a packed ballroom at the Acquire or Be Acquired seminar. “Congress and the agencies won’t do this on their own.”
Ludwig, comptroller of the currency from 1993-98, is an active advisor to the industry, as well as entrepreneur and venture capitalist. He is an influential advocate for community bankers.
Speaking about a week before the Trump Administration put a hold on the Consumer Financial Protection Bureau’s activities, Ludwig said: “It is crazy to have the CFPB as a regulator of banks. It can do some good in the non-banking arena, focusing on fly-by-night operations. The CFPB should be a regulator of nonbank financial institutions.”
Illustrating the extent of the regulatory mission creep that is handicapping community banks, Ludwig cited the Community Reinvestment Act. When he was Comptroller under President Clinton, he proposed sweeping CRA reform in a document he said was a few pages long. The recent CRA reform proposal, he noted, is some 1,500 pages.
“Nonbanks have no regulation at all,” Ludwig railed. “We have got to get a sense of urgency about the need for improvement.” He said that the “playing field” needs to be leveled among taxed and non-taxed entities, whether they are banks or nonbanks.
Regulatory reform, he said, is a matter of modernization, not deregulation. Furthermore, technology needs to be part of the solution. “We need an environment that encourages banks to use the tech that helps them,” Ludwig said. “Regulators have been so cautious, they have pushed innovation outside the industry.”
Ludwig lamented the unfairness of the ‘too-big-to-fail’ attitude that protects the nation’s largest banks at the expense of community banks. “The way to solve the problem is to have meaningful limits on deposit insurance. We should raise the limits so community banks can play at the same level as the largest banks. We need to make it a reality — not a fiction — that your deposits are safe in your banks.”
As regulators loosen the reins on banks, bankers’ responsibility will grow. “More safety and soundness will be on your shoulders,” Ludwig told the room full of bank managers and directors, indicating he believes the industry can handle it. “My sense is board quality is high.”