Bankers not confident that bank reform will prevent future crisis
Majority of bankers feel their banks will be most impacted by the creation of a consumer protection agency; bankers also concerned about change in regulator due to elimination of the OTS
CHICAGO, Oct. 25, 2010 – The vast majority of bank executives are not confident that financial reform will be effective in detecting the broad risks to the financial system and preventing or reducing the threat of future taxpayer-funded bailout, according to Grant Thornton LLP’s 17th Bank Executive Survey, conducted in conjunction with Bank Director magazine. Nearly half (47%) of bankers believe the reform is not at all effective and an additional 52% feel it is somewhat effective. Only two percent say the reform is effective and no one says that it is “very effective.”
“Many of the rules under the Dodd-Frank Act have yet to be defined by regulators, which may account for the uncertainty and trepidation bankers feel about this legislation,” says Nichole Jordan, partner and sector leader of Grant Thornton’s Banking and Securities practice. “Although some financial institutions are beginning their compliance efforts now, the success of financial reform is something to be measured over the long term.”
When asked about the recent Dodd-Frank legislation, most bankers said that the provision that would impact their bank the most was the creation of consumer protection agency (73%). Bankers also were concerned that interchange fees paid by merchants and retailers to banks that issue debit cards would be set by the Federal Reserve in an amount that is “reasonable and proportional” (71%). Only a small proportion of the bankers were concerned about the Volcker rule (3%) and regulation of derivatives (4%).
Of the 64% of bank executives who anticipate a change in their bank’s regulator in the coming months (mainly due to the elimination of the Office of Thrift Supervision), 75% are either very concerned (34%) or concerned (41%) about its impact on their institution’s operating environment and structure.
| How effective do you expect the overall financial reform will be in detecting the broad risks to the financial system and preventing or reducing the threat of a future taxpayer-funded bailout?* | |
| Very effective | 0% |
| Effective | 2% |
| Somewhat effective | 52% |
| Not effective at all effective | 47% |
| The recently enacted Dodd-Frank legislation hopes to “create a sound economic foundation to grow jobs, protect consumers, rein in Wall Street, end too big to fail [and] prevent another financial crisis.” How will the following provisions impact your financial institutions? (1 = major impact, 5 = no impact) | ||
| Major impact or impact (1 or 2) | Little to no impact (4 or 5) | |
| Creation of Consumer Protection Agency as a branch of the Federal Reserve to write and enforce rules over mortgages, credit cards and other types of financial products. | 73% | 11% |
| Volcker rule to limit proprietary trading at big financial firms and restrict bank sponsorship of hedge fund and private equity funds. | 3% | 90% |
| Regulations of derivatives requiring trading to take place in open marketplaces and segregation of derivative trading wings with some exceptions. | 4% | 86% |
| Risk retention requirements for lenders to retain part of the risk in the loans that they issue and subsequently sell through securitization. | 27% | 54% |
| Interchange fees paid by merchants and retailers to banks that issue debit cards would be set by the Federal Reserve in an amount that is “reasonable and proportional.” | 71% | 13% |
| How concerned are you about the anticipated change in your institution’s primary regulator and its impact on your institution’s operating environment and structure?* (There was a “not applicable” option; the data below looks at the results with the N/A option removed.) | |
| Very concerned | 34% |
| Concerned | 41% |
| Not concerned | 26% |
* Percentages may not total 100 due to rounding.
To see the full findings from this installment of the 17th Bank Executive Survey, please download a copy of Bank Executive Survey: The return of pessimism report at www.GrantThornton.com/banksurvey.
Many of the specific rules of the Dodd-Frank Wall Street Reform and Consumer Protection Act have yet to be shaped by regulators, and firms must stay informed. To help companies navigate this uncharted territory, Grant Thornton LLP has created the Financial Regulatory Reform Resource Center. For more information about the legislation and emerging issues from the legislation, visit www.GrantThornton.com/financialreform.
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About the Survey
Grant Thornton LLP and Bank Director magazine conducted this national survey of bank CEOs and CFOs from July 27 to Aug. 20, 2010, with 231 respondents. Sixty-two percent of the respondents were from small banks (those with less than $500 million in estimated assets at the end of 2009), while the remaining 37 percent were from large banks (those with more than $500 million in estimated assets at the end of 2009). Regarding ownership structure, 33 percent report that they are public institutions, 50 percent are private and 18 percent are mutual. To see past survey results, please go to www.GrantThornton.com/banksurvey.
About Grant Thornton LLP
The people in the independent firms of Grant Thornton International Ltd provide personalized attention and the highest quality service to public and private clients in more than 100 countries. Grant Thornton LLP is the U.S. member firm of Grant Thornton International Ltd, one of the six global audit, tax and advisory organizations. Grant Thornton International Ltd and its member firms are not a worldwide partnership, as each member firm is a separate and distinct legal entity.
In the U.S., visit Grant Thornton LLP at www.GrantThornton.com.
