A top official with the FDIC offered up a blueprint on Monday that would allow the largest banks to divvy up their financial activities in return for relief from some regulations under Dodd-Frank.
FDIC Vice-Chairman Thomas Hoenig presented his plans to attendees at the Institute of International Bankers Annual Washington Conference.
If enacted, the new framework would enable banks to separate spheres of traditional activity from more nontraditional ones in return for relief from the regulatory space.
The plan would ideally eliminate a competitive disadvantage for smaller financial-services institutions unable to keep up with compliance reporting.
Hoenig said that Dodd-Frank—while well-intended—had inundated banks with costly and complicated regulations, “especially smaller banks.”
By making these long-overdue changes, he said, the FDIC and other regulators could also resolve insolvency concerns before they happen.
“With these conditions in place, too-big-to-fail would be well on its way to being addressed, and a true opportunity for regulatory relief for these largest banks would be provided,” the FDIC official added.
Critics have long held that Dodd-Frank imposes a one-size-fits-all approach to regulation that burdens smaller banks with onerous compliance requirements.
One Harvard study found in 2015 that community banks had seen their shares of assets decline by more than 12 percent since Dodd-Frank’s enactment. The study’s authors claimed that “an increasingly complex and uncoordinated regulatory system has created an uneven regulatory playing field that is accelerating consolidation for the wrong reasons.”
Hoenig—reportedly under consideration for a top regulatory job in the Trump administration—announced his proposal as Dodd-Frank’s defenders brace for an overhaul of the financial-reform law.
Speaking with us for a related story, former Rep. Jim Moran (D-Va.) warned that too much change too quickly could reverse the economic gains seen since the Great Recession.
“The financial stocks have never been higher . . . and [banks] have adjusted to dealing with Dodd-Frank regulations,” the former congressman said.
He added that changes “could backfire” on those who seek to make them, especially if lax regulation leads to regulators easing off too much on banks that should be regulated.