Category Archives: Commercial Banking

2018 HMDA Q&A – Get the Facts

“When the HMDA rule was originally enacted in 1975, it required depository and non-depository institutions to collect and report data about mortgage originations. On October 15, 2015, the scope of the rule changed—expanding reporting coverage for non-depository institutions, increasing transactions covered, and increasing data elements to report. The new HMDA rule now requires 48 data points be collected, recorded and reported: 25 are new data points (including total loan costs or total point and fees, automated underwriting system, and open-end line of credit) and 14 are modified from the previous rule.”[1]

Enough said. With this type of expansive change to the HMDA-reporting and -recordkeeping rules, there are bound to be questions. Here’s a sample.

Q: For HMDA recordkeeping and reporting, what’s the story on HELOCs?

A: Beginning January 1, 2018, covered loans under the HMDA rule will include not just closed-end mortgages, but also “open-end lines of credit secured by a dwelling” (i.e., HELOCs). Not every financial institution will be subject to the rule. Institutions that originated at least 25 closed-end mortgages or 100 HELOCs in each of the two preceding calendar years will be required to collect, record, and report HELOC data under HMDA.

Q: We have always relied on the Federal Financial Institutions Examination Council’s software (reporting to the Federal Reserve Board) each year for HMDA reporting. We’ll be able to continue using it, right?

A: There are no changes to the submission process for HMDA data collected by financial institutions in 2016. Financial institutions will file HMDA data with the Federal Reserve Board (FRB) using the FRB’s instructions, file specifications, and edits familiar to HMDA users. Please visit the FFIEC website for resources to help you file.

There is a new data submission process beginning with HMDA data collected by financial institutions in or after 2017. Financial institutions will file HMDA data with the Consumer Financial Protection Bureau (CFPB). The HMDA agencies have agreed that filing HMDA data collected in or after 2017 with the CFPB will be deemed submission to the appropriate Federal agency. You should refer to the FFIEC and the CFPBwebsites for resources to help you file.

Q: What if we need to resubmit HMDA data following the change to the reporting process?

A: There is a new data resubmission process beginning with HMDA data collected by financial institutions in or after 2017. Financial institutions will resubmit HMDA data collected in or after 2017 by filing with the Consumer Financial Protection Bureau (CFPB). Refer to the FFIEC and the CFPB websites for resources to help you file.

Q: We keep the loan application register (LAR) to aggregate data for HMDA reporting? Is there anything we need to know about identifying our loan transactions on the LAR under the new HMDA rules?

A: If your organization originates loans that will be required to be reported on a HMDA Loan Application Register (LAR), you will need to obtain a Legal Entity Identifier, or LEI. This string of 20 characters is used in part to create the 45-character Unique Loan Identifier (ULI) that must be assigned to each loan reported on the LAR. You may obtain your LEI from the Global Market Entity Identifier Utility website at[2]

Have more HMDA recordkeeping and reporting questions? Ask the Compliance Experts, or, use these additional resources:


Around the Industry:

Effective Now:

The time to comply with new HMDA rules is now.

On the Horizon:

FDIC Summer 2017 Consumer News highlights 10 popular scams plaguing customers. How do they compare to your risk management?


How are you recapturing EPO or EPD fees? How might it affect your loan officer compensation practices? See this for more.

[1] Wu, B. (2017, June). Keep Calm and Compliance On. Mortgage Compliance Magazine, pp 40-43.

[2] Kilka, L. (2017, June). The Roadmap to HMDA Implementation. Mortgage Compliance Magazine, pp 36-39.


Why are Small Banks Disappearing ?

n 1994, nearly 500 banks were headquartered in California. Today, there are fewer than 180. By the end of the year, if current trends hold, Californians will have only one-third the number of banks to choose from for their mortgage, small business and personal savings needs than they did just a couple of decades ago.

There are a few reasons for this disturbing trend, which is happening across the country. But the most important one — the reason I hear more than any other from bankers who decide to merge, sell or close their institution — is the increasing federal regulatory burden.

That doesn’t mean I oppose all regulation. In the wake of the financial crisis, regulatory changes were necessary, and provisions in the Dodd-Frank Act passed in 2010 helped improve financial stability. But nearly a decade after the crisis, we’ve ended up with too many duplicative and sometimes contradictory rules that don’t always promote safety and soundness, and may actually hinder banks from serving their customers and growing local economies.

For example, I recently heard from a bank in Southern California that, to its great regret, had to end its mortgage loan program. Dodd-Frank’s mortgage regulations and disclosures meant the bank would have to purchase expensive software to manage the new layers of red tape — so expensive, in fact, that the bank was going to lose money on every single loan.

Getting community banks out of the business of helping qualified Americans buy homes can’t have been what Congress intended when it passed Dodd-Frank. It makes sense to recalibrate some elements of that law to ensure that it’s working properly.

A proposal in the House would take important steps in that direction. The Financial CHOICE Act, which the Financial Services Committee recently voted to send to the floor, includes several sensible provisions that the banking industry endorses, as well as others that require further study and analysis.

Among the measures I support: The legislation would allow regulators to tailor their oversight to the unique risk profiles of individual financial institutions; provide greater opportunities for banks to appeal decisions by their examiners; and ease some requirements on mortgages that banks hold in their own portfolios (meaning they retain all the risk). The overall effect of these and other provisions would be to give banks more breathing space and consumers more choices.

Though banks adjust as best they can for the sake of their customers, the smallest banks have too few assets to keep up with ever growing compliance costs. Indeed, the vast majority of banks that have disappeared are community banks. At the end of 2016, California had just 11 small banks left; in 1994, these banks accounted for nearly half of the industry in the Golden State.

Some have pointed to strong bank profits as an argument for why reform is unnecessary. Profitability is, of course, a sign of economic strength that we should celebrate; profitable banks benefit their customers, investors, employees and broader communities.

However, the topline profit figure doesn’t tell the whole story. Increased regulatory compliance costs limit bankers’ ability to reach underserved communities. Moreover, tunnel vision on bank profits ignores macro-level trends.

Since Dodd-Frank was passed, just four new banks have formed nationwide. (The newest, I’m pleased to report, is in Orange County.) This abysmal pace of startups is principally due to the extraordinary regulatory burden placed on small banks and the excessive sums of capital new-bank investors are required to put up.

Our economy performs best with a healthy and diverse mix of banks to meet customers’ needs — large, small and everywhere in between. Without reasonable reform in Washington, California’s banking sector will continue to shrink and become less diverse. Californians — and all Americans — will pay the price in terms of lost opportunities for growth.

Depositors Biggest Complaints With Their Banking

As a new report from reveals, complaints filed against the six most popular banking services — bank accounts, consumer loans, credit cards, credit reporting, mortgages and student loans — have been steadily climbing over the past five years.

Last year was particularly tough for the bank-client relationship: Nearly all six services saw more complaints in 2016 than in any other year since 2012.

Most consumers are griping about mortgages. Of the 722,684 complaints made to financial institutions in 2016, more than 30 percent of them were regarding those particular loans.

“It could be that some banks have recognized this kind of loan may not be good for business,” explains. “In a memo to shareholders, JPMorgan CEO Jamie Dimon outlined that mortgages are offered as a benefit to customers, not because it’s a sound investment for the bank.” And since mortgage lending is not necessarily “good for business,” banks may be less motivated to accommodate consumers, which could explain the high number of complaints.

After mortgages, debt collection accounted for 18.7 percent of complaints filed and credit reporting accounted for 17.9 percent.

As for the recent rise of complaints overall, offers one possible explanation: “In a quest for higher profits, many [banks] have looked to acquire other banks and reduce or limit services to meet their investors’ needs.”


Major Challenges on the Horizon for Commercial Banks

Investors should avoid bank stocks as the sector’s fundamentals will deteriorate in the coming months, closely followed analyst Dick Bove said Thursday on CNBC’s “Fast Money Halftime Report.”

Bove, vice president of equity research and financial sector analyst at Rafferty Capital, said bank stocks “are even more treacherous than you think.”

“Over the last six months the ability to sell loans has evaporated. Basically commercial and industrial loans, which were roaring at 7 or 8 percent year-over-year gains, are struggling to grow at 1 percent,” he said. “The one thing you can be sure of with the banks over the next few months is loan losses are going to grow pretty substantially.”

Bove noted that bank loan underwriting standards have worsened especially in the subprime auto loan market.

“If you take a look at the consumer sector, you’re seeing major difficulties arising, in selling if you will, credit card loans. You’re seeing difficulties in the automobile space,” he added.

On the flip side, Bove praised regional lender First Republic Bank saying it has “an ability to lock into a concept that is really working” by issuing shares and not buying back stock.

A First Republic spokesperson declined to comment for this story.


CFPB’s Impact on Credit Unions

Putting an end to remarks from the Consumer Financial Protection Bureau that its regulations are, in fact, helping credit unions, the Credit Union National Association published a detailed report that outlines exactly how the new rules have suffocated growth.

CUNA is a national association that advocates on behalf of all of America’s credit unions, which are owned by more than 100 million consumer members.

CFPB Director Richard Cordray has commonly gone on record to denounce doomsayers who say that new regulations are killing the banks, especially when it comes to credit unions and community lenders.

In response, CUNA submitted a letter to the CFPB detailing each of the ways the agency’s rulemakings have affected America’s roughly 6,000 credit unions.

The letter also includes recommendations on how the bureau can improve its regulations to provide relief to credit unions and their members.

“We urge the bureau to take immediate action and implement our suggestions for the protection of credit union members, who have fewer choices and are incurring increased costs due to CFPB rules,” said Jim Nussle, CUNA president/CEO. “CUNA, our state league partners, and credit unions—the original consumer protectors—stand willing to provide the CFPB any further details or analysis necessary to achieve regulatory relief, the ultimate goal of our Campaign for Common-Sense Regulation.”

“The CFPB continues to cite the very minimal accommodations it has made in some rules for credit unions,” Nussle explained.

“However, in practicality, credit unions’ ability to provide top-quality and consumer-friendly financial products and services has been significantly impeded by a one-size-fits-all regulatory scheme that favors large banks and less regulated nonbank lenders—institutions that have more resources for overly complex compliance requirements,” he said.

While CUNA is are pleased to hear that the CFPB recognizes the very important role credit unions play in serving consumers, there are still plenty of areas to improve on, which is outlined in the letter and recommendations.

According to CUNA’s Regulatory Burden Study, it found that in 2014, regulatory burden on credit unions caused $6.1 billion in regulatory costs, and an additional $1.1 billion in lost revenue.

And this data doesn’t even include the CFPB’s recent regulatory additions to the Home Mortgage Disclosure Act (HMDA) and Truth in Lending Act/Real Estate Settlement Procedures Act Integrated Disclosure (TRID) requirements.

“The CFPB regularly cites modest thresholds and accommodations it has provided in some mortgage rules and the remittances rule as proof that it is considering the impact its rules have on credit unions and their members,” the letter stated. “Regrettably however, credit unions continue to tell us that the accommodations the CFPB continues to cite are not sufficient exemptions and they do not fully take into consideration the size, complexity, structure, or mission of all credit unions.”

The letter breaks down the following four categories:

1. Ability to Repay/Qualified Mortgage (ATR/QM)

According to a recent survey of CUNA members, 43% cited the QM rule as most negatively impacting the ability to serve members with mortgage products.

So even though the bureau commonly cites the expanded qualified mortgage (QM) safe harbor for small creditors as proof that it has helped credit unions continue to serve members, CUNA explains that it did not provide full relief for many credit unions.

2. Mortgage servicing

The CFPB claims that it has tailored its servicing rules by making certain exemptions for small servicers that service 5,000 or fewer mortgage loans, but the latest survey results from CUNA members say otherwise.

In the recent survey, more than four in 10 credit unions (44%) that have offered mortgages sometime during the past five years indicate they have either eliminated certain mortgage products and services (33%) or stopped offering them (11%), primarily due to burden from CFPB regulations.

3. Home Mortgage Disclosure Act (HMDA)

CUNA cites that it is hard to say HMDA is tailored to minimize the impact on small entities given that prior to the rule credit unions were not required to report HMDA data on HELOCs.

CUNA’s recent survey of its members showed that nearly one in four credit unions (23%) that currently offer HELOCs plan to either curtail their offerings or stop offering them completely in response to the new HMDA rules. And CUNA says it believes this is a conservative estimate.

4. Remittances

Although the CFPB regularly cites the exemption to entities that provide fewer than 100 remittances annually as an example of providing relief to small entities, CUNA states that this is probably the clearest example that the CFPB is simply not listening.

Instead, the letter states, “This rule has made it more expensive for members to remit payment and has drawn consumers away from using credit unions and into the arms of the abusers for which the rule was designed.”


PACE Financing for Clean Energy is the New Mortgage Loan ??

Residential Property Assessed Clean Energy (PACE) programs have been an unqualified success story for consumers’ pocketbooks and the economy, helping to finance almost $4 billion in clean energy upgrades and create tens of thousands of jobs. Despite this success, some in Congress are advancing a bill that would undercut the future of these programs.

In early April, Senator Tom Cotton (R-AR) introduced legislation that aims to increase consumer protection for homeowners using PACE financing to upgrade their homes. ACEEE applauds Senator Cotton for his attempts to ensure that vulnerable consumers, particularly seniors, have the information they need to decide whether to use PACE financing.

We appreciate the good intentions behind S. 838. Unfortunately, instead of helping consumers make more informed choices, the bill could leave consumers unable to make any choice at all. The bill would force regulators to treat PACE financing as a mortgage, which it isn’t. Forcing PACE financing into a regulatory structure designed for a different industry would impose requirements that would be extremely difficult, or even impossible, to meet. The result might not be a safer residential PACE industry, but rather no residential PACE industry.

The bill seems innocuous enough: It would require that PACE financing be regulated under the Truth in Lending Act (TILA).

It’s hard to oppose something that sounds as virtuous as “Truth in Lending,” and TILA is a very important safeguard for people who want to take out mortgages and borrow money in other ways. As its name suggests, TILA requires lenders to be clear in disclosing the details of the loans’ terms. It offers additional protections for mortgages, triggering added requirements for anyone engaged in making mortgage loans.

Requiring PACE programs to disclose financial terms and details the same way mortgages and other loans do is a great idea. Markets function best when both lender and borrower understand what they are getting into, and some of the additional protections that TILA gives mortgage borrowers make sense for the PACE industry as well. In particular, giving prospective borrowers three days to change their minds for any reason and without penalty seems like a common sense addition and is one that the PACE industry supports.

However, regulating PACE as though it were a mortgage goes much further and has broader consequences. The Cotton bill would trigger other state and federal regulations intended specifically for the mortgage industry. The combination of regulations would require PACE financers to be licensed mortgage originators, which also doesn’t sound like a bad idea, until you realize that residential PACE programs require local governments to participate. The local governments would have to become licensed mortgage originators, something that would be practically impossible. It would also place restrictions on how the local governments could bill PACE recipients, which would impact their entire property tax collection system. These and related problems demonstrate the perils of trying to apply a regulatory system meant for one industry to another. It would be a shame if well-intended efforts to protect consumers resulted in the elimination of residential PACE.

As we noted in a previous blog post, the Department of Energy, PACE financers, and consumer advocates have been working together to develop guidelines that protect borrowers and still allow PACE to function. California, which is home to the vast majority of PACE activity, recently passed its own legislation to regulate the PACE industry, including the same kind of disclosure requirements and three-day right to cancel as in TILA. That bill had the support of California Realtors, mortgage bankers, and the PACE industry. Leaders in the PACE industry are actively asking Congress to regulate them in a way that offers security for homeowners and allows PACE to continue.

ACEEE is a strong proponent of energy efficiency – when it makes sense. We won’t support a program that takes advantage of consumers. We support efficiency in large part because of the benefits it provides them. Consumers deserve protection, but that doesn’t mean we should throw the baby out with the bathwater.

Rather than pursue a strategy to shoehorn PACE into a regulatory framework meant for something else, a better approach would be to create a new structure that fits the specific features of PACE financing. That would bring security to both sides of the equation and help make the benefits of PACE available to more consumers, not fewer.


Dodd Frank Changes Are Coming and the Potential Impact on Commercial Banks

The House Financial Service Committee approved the Financial CHOICE Act 2.0 today, signaling the first concrete move to roll back consumer protections and gut the Dodd-Frank Wall Street Reform and Consumer Protection Act. 

The committee voted today to send the Financial CHOICE Act 2.0 — introduced by bank-backed Texas Rep. Jeb Hensarling last month — to the full house for consideration, likely sometime next month.

According to The Hill, today’s 34-26 party-line vote came after nearly 24 hours of debate and markups of the bill, which included several amendments that would have preserved some of the provisions under the Dodd-Frank Act.

The 589-page legislation [PDF], which has received significant opposition from advocates, retailers, and others, is a revision of the previous Financial CHOICE Act introduced by Hensarling last year.

As it stands, the Financial CHOICE 2.0 Act would, among other things:

• Require the Consumer Financial Protection Bureau to get congressional approval before taking enforcement action against financial institutions

• Restrict the Bureau’s ability to write rules regulating financial companies

• Revoke the agency’s authority to restrict arbitration

• Revoke the CFPB’s authority to conduct education campaigns

• Prevent the Bureau from making public the complaints it collects from consumers in its Consumer Complaint Database

• Revamp the agency’s structure by allowing the CFPB director to be fired at will by the President

• Require the agency’s budget to be subject to the annual congressional appropriations process

• Prevent the CFPB from having oversight over the payday lending industry

• Rename the CFPB to the Consumer Law Enforcement Agency

• Require banks to undergo stress tests every other year, with banks agreeing to increase their capital never having to undergo stress tests

• Revoke the so-called qualitative test that evaluates a bank’s plan for managing capital and risk

• Remove requirements under the Durbin Amendment [PDF] that guided how much credit card networks could charge retailers for processing debit card transactions

The bill’s approval by the House Financial Service Committee was met with strong opposition by consumer advocates, the retail industry, and other lawmakers.

Our colleagues at Consumers Union say the bill’s approval puts consumers at risk while protecting the financial interests of big banks and shady lenders.

“Congress created the CFPB to ensure consumers get a fair deal and to protect them from predatory practices that can undermine their financial security,” Pamela Banks, senior policy counsel for Consumers Union, said in a statement. “This bill strips the CFPB of most of its power and would leave consumers vulnerable to fraud, hidden fees and costly gotchas by banks and unscrupulous financial firms.”

Several groups, including the National Consumer Law Center, Americans for Financial Reform, and Public Citizen, lambasted the bill’s provision restricting the CFPB and Security and Exchange Commission’s authority to restrict forced arbitration.

“Contrary to its title, H.R. 10 would deprive consumers and investors of any choice of their day in court when resolving serious disputes with powerful financial institutions and force them into a rigged system,” Amanda Werner, arbitration campaign manager with Americans for Financial Reform and Public Citizen, said in a statement.

Werner noted that forced arbitration clauses “only serve to kill consumer class action lawsuits and cover up widespread fraud and abuse.”

The Center For American Progress said in a statement that the Financial CHOICE Act is only the right choice for Wall Street bankers.

“It shows a blatant disregard for the painful lessons learned during the 2007–2008 financial crisis,” Marc Jarsulic, Vice President for Economic Policy at the Center for American Progress, said in a statement. “The so-called CHOICE Act removes protections against taxpayer-funded bailouts, erodes consumer protections, and undercuts necessary tools to hold Wall Street accountable.”

Even the retail industry, which had urged Congress to not roll back financial reforms involving debit card transactions, called out the Committee for moving forward with the legislation.

The Retail Industry Leaders Association — which counts a number of major retailers, such as Apple, Best Buy, Gap, Target, Walmart, and others, as members — said in a statement that it would keep fighting the Financial CHOICE Act’s provisions related to swipe fees. RILA and other industry groups believe that by revoking the swipe fee reforms, retailers would pass on the new, more expensive processing costs to consumers.

“While we believe in financial reforms that make sense for America’s community banks and local credit unions, the repeal of hard-fought debit swipe fee reform included in the CHOICE Act gives big banks and card networks a green light to raise costs on every business in America that accepts debit cards,” Austen Jensen, Vice President of Government Affairs and Financial Services for RILA, said in a statement.

On the other side of the debate, the American Bankers Association called today’s vote an important step.

“We commend Chairman Hensarling and members of the Committee for their tireless efforts to help our nation’s banking industry serve their customers and communities,” Rob Nichols, ABA president and CEO, said in a statement, calling the Financial CHOICE Act “needed regulatory relief.”


What Innovations are Critical for Smaller Commercial Banks

When it comes to innovation, community banks generally don’t have the resources—either financial or people—to compete with the country’s largest banks—where the technical staff focused just on innovation alone is probably several times larger than a smaller institution’s entire workforce.

Of course, no one expects smaller banks to compete with a megabank like Wells Fargo & Co., but there are smaller institutions that are playing the innovation game very well.

One of those is Radius Bank, a Boston-based bank that has approximately $1 billion in assets and four years ago made the radical decision to close all of its branches except for one, and convert its local brick-and-mortar retail operation to a digital platform that operates nationally. President and CEO Michael Butler, who appeared on a panel of like minded bankers at Bank Director’s FinXTech Annual Summit in New York on April 26, said that one of the more challenging aspects of that decision was changing Radius’ culture to support its new business strategy. Not all of the bank’s employees were happy about the change in strategy, and Butler said there has been approximately a 50 percent turnover in the bank’s workforce over the last four years. Many of the older employees who resisted the change have been replaced by younger, more tech savvy employees who normally would choose to work at a tech company rather than a bank. Butler said the company has spent a lot of time trying to create the kind of “vibe” that will attract those kind of individuals. “It’s a lot about the people you bring into your organization,” said Butler. At 57, Butler has the background of a traditional banker even though he has led the charge towards digitalization. “My job as the grey hair is to not let them kill themselves,” he joked about some of the bank’s younger staff members.

Another panel member—Jay Tuli, senior vice president for retail banking and residential lending at Leader Bank, a $1 billion bank located in Arlington, Massachusetts—was instrumental in creating ZRent, an online portal that the bank launched in January 2015. It enables landlords to automatically collect rent payments via ACH transactions. ZRent has been a successful customer acquisition tool for Leader Bank, and it is now licensing the software to other banks that want to use it.

Radius and Leader Bank are both located in the Boston area (Arlington is just six miles northwest of the city), so they have the advantage of taping a deep talent pool in one of the country’s most attractive locations, with a number of highly regarded universities in their backyard. Like Radius, Leader Bank has seen a big turnover in its staff over the last eight years. Tuli said that the average age of its 300 or so employees is 31. “There’s a lot of young talent in Boston, and we’ve benefited from that,” he said.

So, if being located in a large urban market is a key element in the innovation game, how to account for the success of Somerset Trust Co., a $1 billion bank headquartered in Somerset, Pennsylvania, a small community situated about 80 miles southeast of Pittsburgh? Somerset had just 6,277 residents according to the 2010 census. A third panelist, Chief Operating Officer John C. Gill, said the bank has always placed a very high premium on having excellent technology, and sees this as a critical component of its organic growth strategy. Only about 19 percent of its consumer banking transactions occur in the branch today. It sees innovation as an imperative despite its rural location.

Somerset has learned to play the innovation game by partnering up with fintech companies. A couple of years ago, Somerset teamed up with Malauzai Software in Austin, Texas, to develop a mobile banking solution that allows Somerset’s retail banking customers to securely check balances, use picture bill pay and remotely deposit checks from any location or device. There are banks much larger in size that are still working on delivering these capabilities to their retail customers. Working with another fintech company, Bethlehem, Pennsylvania-based BOLTS Technologies, Somerset has also launched a new mobile account opening platform that has greatly reduced the time it takes to open a new account, and is expected to save the bank approximately $200,000 a year. Somerset and BOLTS were finalists in the 2017 Best of FinXTech Awards, which were announced at the event.

Gill said that Somerset is very comfortable partnering with fintech companies to develop product capabilities that it would not be able to develop on its own. “Banks have the customers and low cost funding,” he said. “Fintech companies bring innovation.”


Outlook for the Big Banks Under the Current Administration

For a brief moment, Wall Street stopped on Monday, as if time was suspended in an alternative reality.

President Trump, for the first time as resident of the White House, said aloud that he was considering breaking up the nation’s biggest banks. Of course, he had said it on the campaign trail, but this seemed different.

“I’m looking at that right now,” Mr. Trump told Bloomberg News during an interview in the Oval Office. “There’s some people that want to go back to the old system, right? So we’re going to look at that.”

The headline ricocheted around the email boxes of senior bank executives across the industry. At the Milken Global Conference in Los Angeles, where Treasury Secretary Steven Mnuchin had just finished speaking — and didn’t mention breaking up the banks — the hallways quickly buzzed about the comment, according to participants, as their phones lit up. Shares of bank stocks dived lower within seconds of the headline, only to recover quickly.

Mr. Trump’s comments shouldn’t come as a surprise: His chief economic adviser, Gary D. Cohn — formerly president of Goldman Sachs — has been not-so-quietly trying to socialize the idea of bringing back the Glass-Steagall Act, the Depression-era law that was enacted to prevent investment and commercial banks from combining. The law was repealed in 1999, helping to bring about the supersized banking giants that dominate the market today.

Before Monday’s musings, Mr. Trump’s thoughts on the matter had felt like a theoretical exercise, those who have met with him say.

What would be surprising, however, is if Mr. Trump made it a reality. It would be one thing for him to “do a big number” on Dodd-Frank, the 2010 law that imposed stricter regulations on banks in the aftermath of the financial crisis — he has repeatedly stated that he wants to pare it back, repealing parts of the law. But it would be a much more seismic shift to bring back Glass-Steagall, which would be the equivalent of doing “a big number” on the banks themselves. The biggest names in banking would presumably face the choice of having to shed either their commercial banking arm or their investment banking division.

When Mr. Trump met with business executives in February at the White House, he turned to Jamie Dimon, chief executive of JPMorgan Chase, an unabashed defender of big banks, for advice. JPMorgan Chase would not exist in its current form were it not for the 1999 repeal of Glass-Steagall.

“There’s nobody better to tell me about Dodd-Frank than Jamie, so you’re going to tell me about it,” Mr. Trump said at the time, to the consternation of proponents of more banking regulation.

Viewed through the prism of goosing the economy and creating jobs — as Mr. Trump has pledged his efforts should be viewed — it’s hard to see how breaking up the biggest banks would help, especially in the short term. Indeed, it would most likely have the opposite effect.

Mr. Trump’s chief complaint about Wall Street is that he doesn’t think lenders are extending enough money. “I have so many people, friends of mine, that had nice businesses. They can’t borrow money,” he famously said. “They just can’t get any money because the banks just won’t let them borrow, because of the rules and regulations in Dodd-Frank.”

Given that commercial lending is at a record, according to the Federal Reserve, that’s a hard statement to square.

But let’s be generous and assume for a moment that he is right. What is undoubtedly true is that big banks would probably be even more conservative with their loan books during whatever transition would be required to comply with a new version of Glass-Steagall. Such a law would inject as much uncertainty into the economy as Dodd-Frank did initially, when banks were sorting out how they would comply. The process did throw some big banks’ lending into a state of paralysis.

And while proponents of ending too-big-to-fail love to point to the repeal of Glass-Steagall as the culprit, by now that meme should have resolved itself.

“I don’t think that Glass-Steagall was a cause of the crisis,” Ben Bernanke, the former Federal Reserve chairman, who has no horse in this race, told me matter-of-factly.

Indeed, he said, he would be worried if the law were brought back, because it would hamstring the government if it ever needed to intervene in a crisis similar to what happened in 2008. “If Glass-Steagall had been in effect, we couldn’t have had some of the failing firms taken over,” Mr. Bernanke said. “JPMorgan took over Bear Stearns, and so on.”

On the other hand, Neel Kashkari, the president of the Minneapolis Federal Reserve and a former Treasury staff member who oversaw the bailouts of the banks, has been on a campaign to break up the biggest banks, concerned that they still pose too much of a risk to taxpayers if they were to fail.

Mr. Trump’s comments came on the same day that he and his team spoke with about 100 community bankers led by Cam Fine, president and chief executive of the Independent Community Bankers of America. One issue they discussed was the idea of a two-tiered system of regulations, one for big banks and another for community banks. Whether that construct is now being interpreted as a new version of Glass-Steagall or a breakup of the banks remains an open question.

But let’s be clear: If Mr. Trump were to try to bring back what he described on the campaign trail as Glass-Steagall, it wouldn’t be to prevent the next crisis. He would have to be convinced that bringing back the law would stoke the economy. And that’s an even scarier prospect, because it means firms like Morgan Stanley, Goldman Sachs and Bank of America, which have been forced to reduce the risk they take, would ultimately be less regulated.

There are a lot of good reasons to reform Dodd-Frank. And there are lots of good ways to make regulations less onerous to the nation’s smaller banks, which complain they are drowning in legal and compliance bills; giving them some relief could indeed open the loan spigot even more. But both of those measures would be very different from bringing back Glass-Steagall.

Whether Mr. Trump’s talk translates into action on this front remains to be seen. The prevailing view seems to be: “Be prepared for more headline risk for big banks as lawmakers keep piling on the anti-Wall Street rhetoric — most of it will be substantively meaningless,” according to Ian Katz of Capital Alpha, whose comments were highlighted by Ben White of Politico.

Of course, with President Trump, the prevailing view could change in an instant.


Strategies to Improve Your Commercial Loan Origination

Today’s business borrowers demand a lot more than just good rates. They expect to communicate with their lender via a variety of channels at a time that suits them. They are too busy running their own businesses to prepare thick files of financial information. And they want to deal with partners whom they regard as having a modern, world-class business model and technology stack. Continue reading Strategies to Improve Your Commercial Loan Origination

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