Fast Facts: Dodd-Frank Cumulative Weight

The Financial Services Roundtable recently released another iteration of its Fast Facts, reliable, bullet-point research about issues facing the financial services industry. Topics span TARP, Dodd-Frank, insurance, lending, retirement savings and more.  Below are some updated Fast Facts on The Dodd-Frank Act, which was passed in July 2012 in an effort to reform the financial industry. To date, the complex legislation has been met with mixed success and unintended consequences.

FACT: According to a Davis Polk report, as of March 1, 2013, 148 of the 398 total rulemakings required by Dodd Frank have been finalized, with 129 yet to be proposed.

  • 279 rulemaking requirement deadlines have passed. 176 of these deadlines have been missed, and only 103 have been met with finalized rules.
  • Over the month of February, 12 out of 42 deadlines were met with finalized rules, and no new rules were proposed.

FACT: The General Accounting Office stated that the Dodd Frank Act has had two main financial impacts on institutions; increased regulatory compliance and other costs, and reduced revenue due to restrictions on certain activities.

FACT: In order to understand and comply with the far reaching regulations of the act, agencies and financial institutions have hired more full time employees.

FACT: In August 2012, Standard & Poor’s reported that the Dodd Frank Act could reduce pretax earnings for eight of the largest banks by between $22 billion and $34 billion each year.

  • Much of the higher projected costs reflect the regulators’ likelihood to take a more strict interpretation of the Volcker Rule.
  • The Volcker Rule’s restrictions on proprietary trading and investment in hedge and private equity funds will eliminate past sources of trading and income for some banks.

FACT: The Dodd Frank Act required banks to hold more capital while restricting what qualifies as capital, making payments to investors or retaining earnings more difficult.

The FDIC has announced plans to double the size of the Deposit Insurance Fund, which would take an additional $50 billion out of the industry’s earnings and capital.

You can view all previous Fast Facts at www.RoundtableResearch.org. Copyright © 2013 The Financial Services Roundtable, All rights reserved.

Market Outlook: Good Times Ahead, But. . .

Another day, another ray of hope in an otherwise dour environment: A new report based on a poll of 137 banking executives from over 100 financial institutions reveals an optimistic outlook for the SMB market. How strong? Try this: 95 percent of bankers describe the untapped potential of this market as equal to or greater than any other current opportunity, while more than half, 57 percent, say it’s huge.

That’s the word from the North American Insights conference held by Fundtech, a provider of financial technology solutions to banks and other corporations. And the good news doesn’t end there: 60 percent say demand for new services from this market sector is higher than usual, while nearly 20 percent call it “unprecedented.” Of course, mobile is a big issue: 38 percent report that building the mobile banking channel is a top priority. Perhaps strangely, almost as many, 34 percent, also note that cutting costs in this area is a top priority. And to top it off, a strong 67 percent of the respondents believe that social networking will play a major role in their growth, but add—and this is critical—they don’t quite know how.

That isn’t the only dark note in an otherwise bright scenario. While no one denies the viability of competition, almost 60 percent of the respondents, banking professionals all, say they see signs of inroads into their business coming from non-banking companies. That would be a tip of the hat to organizations associated with the technology sector—think Facebook, eBay and PayPal. This is by no means an isolated concern. In fact, numerous other analyses have stressed that many successful entries into this market will be made not only by innovative startups but also by companies that have achieved success in the technology arena and apply those techniques to the banking sector.

That’s just one reason why another subject covered in the report is so intriguing: regulation. Bankers confirm that they’re already not clear exactly how to comply with new mandates such as the Dodd-Frank Act—to be fair, almost half say they “mostly” understand—and yet they expect more such mandates to come down the pike.

What’s completely unrelated yet very relevant in this regard are the statements made this week by former Citigroup head Sanford Weill. He startled everyone by essentially calling for the resurrection of the Glass-Steagall Act, the Depression-era legislation that separated commercial banking from investment banking, and was abandoned more than a decade ago. This is one reason why banks got to be ‘too big to fail,’ and as has been widely reported, Mr. Weill himself was a prime mover behind the change. Now he seems to have changed his mind.

Taken together, these are some strange winds blowing for the financial services industry. There are good times for banks working with the SMB sector, but one potential concern is that non-banking institutions might steal some of that thunder. Meanwhile, one of the people most responsible for shredding the legislation that separated commercial and investment banking would like to see it return, a major reason for their existing strength, recommends reducing that power.

This should be very interesting to watch. Stay tuned.

Debit Card Fees: A Break For Small Banks?

Debit cards, while a seemingly easy source of payment for consumers, can be a costly add-on for merchants due to charges put in place by the debit-card issuers: banks and credit unions.

Although a hindrance for some merchants, banks and credit unions view these charges as an important part of their business model. Currently, there are heated debates among lawmakers and bankers alike about the pros and cons of debit card fee limits, especially for smaller banks and credit unions. A new provision recently proposed in the Dodd-Frank legislature suggested capping “swipe fees,” but that financial institutions with less than $10 billion in assets would be exempt. Call it the “small-bank exemption.”

In December, the Federal Reserve issued a draft rule capping fees that banks charge at 12 cents per transactions, which is much lower than the average 44 cents banks currently charge. Banks argue that the significant drop in transaction fee will not cover what debit cards cost them, which in turn will cause them to charge higher account fees to consumers.

The Wall Street Journal reported on the issue, quoting Federal Reserve Chairman Ben Bernanke, “there are two reasons why the small-bank exemption may not work. Merchants may choose to refuse to accept higher-fee cards from smaller banks. Or, payment networks such as those run by Visa Inc. and MasterCard Inc. may decide that it doesn’t make financial sense for them to have a two-tier system.”

So what are outside credit card companies and merchants saying? As noted by the Journal, “The National Retail Federation, which backs the provision, said the rules imposed by Visa and MasterCard bar them from picking and choosing which cards they accept based on issuer. Critics of the rule contend that there’s no way to police what each individual small-business owner does.”

What do you think about the small-bank exemption? Let us know in the comments section below.