Under Siege

Irecently had the opportunity to have lunch with an amazing Arkansas banker, and during our conversation, we discussed all the challenges we face on a daily basis. While our dialogue included the standard operational issues of staffing, liquidity and loan demand, it quickly turned to the massive regulatory burden banks are facing today. At the conclusion of our meal, I made the comment that I felt like our industry is under siege.

challenging the bureau’s expansion of rules affecting our industry.

Banking has always been one of the most highly regulated industries in the United States — and for good reason. Arguably, banks are the most important component of our country’s stream of commerce. As the primary source of credit and custodian of deposits for Americans, banks are the conduit that makes our economy possible. As a result, our government has a vested interest in ensuring that banks operate in a safe and sound manner to promote a strong economy. What’s more, the banking model has always been based on free market negotiation promoting innovation, financial inclusion, and multiple products and services from which our customers may choose.

Honestly, I can accept a regulatory framework that serves a purpose and is reasonably related to sound banking and the protection of our customers. As a symbiotic relationship, our industry cannot thrive without both. But we are experiencing regulation and legislation that materially affects the core banking business model from an income and expense perspective. Well-run banks should never have regulations imposed upon them for failures and misfortunes they had nothing to do with.

As bankers, we are focused on providing safe products and services to our customers while protecting them from bad actors using scams and fraud. Essentially, our focus on safety and soundness promotes the well-being of the industry and our customers alike. Additional regulations should always be considered using sound reasoning and data to protect the stability of our financial system. During a speech earlier this year, Federal Reserve Governor Michelle Bowman outlined the importance of having regulators “appropriately calibrate and prioritize supervisory and regulatory actions.”

The expense and operational challenges presented by so many new regulations is overwhelming to the banking business model, to say the least. Bowman recognized this as well and said, “The lessons learned from the supervisory failures during the bank stress last Spring clearly illustrate that bank examiners and bank management should be focused on core issues, like credit risk, interest rate risk, and liquidity risk.” Simply stated, more regulations are unnecessary.

The banking industry was materially impacted by the recent U.S. Supreme Court decision that found the Consumer Financial Protection Bureau was legally funded under the appropriations clause. Albeit a setback, the Supreme Court’s decision was limited to the CFPB’s funding, and the bureau will still have to operate within the confines of its regulatory authority. Based on the aggressive demeanor of the CFPB’s supervision and enforcement actions, we should expect to see continued litigation

Webster defines “siege” as “a persistent or serious attack.” When you consider all the recent regulatory actions affecting the banking industry, I think the term “siege” is fairly descriptive. Whether the regulation is related to overdrafts or insufficient charges on deposit accounts, transaction fees on debit and credit cards, or late fees, they all directly reduce a bank’s revenue. More importantly, they have been imposed without consideration of the impact on our customers, not because of any failure requiring additional regulation. Market competition and technology have allowed banks to develop products and services to serve the needs of our customers. But technology and innovation are expensive, and the continued pressure on bank revenue will most certainly have a chilling effect on innovation.

As bankers, we are the subject matter experts and must take an active role in protecting our industry. Our regulators and legislators might have forgotten this after the Payroll Protection Program, but banking is an essential service to all Americans. That said, the most important time that we can unify and make an impact is now — while we are under siege.

At the Arkansas Bankers Association, we will continue to advocate on every member bank’s behalf. We are already working to analyze several pieces of state legislation that we expect to be filed in the 2025 General Session. I encourage you to make your voices heard, and I personally invite you to reach out and join our advocacy efforts to protect our industry. Together we can make a difference and provide a positive impact for our customers today and for future generations.