A broken regulatory system

By Colin Barrett, President/CEO, Tennessee Bankers Association

The drumbeat of financial regulations making its way from Washington to Tennessee continues to get louder. Pick your favorite numbers and letters: 1071, 1033, CRA, NSF, etc. Each underscores the Biden administration’s belief that banks do not have customers’ best interests at heart.

This construct in Washington is hard for me to stomach. Everyone reading this column knows that banks are only successful if their customers are successful. They are your friends and neighbors and the small businesses that are the lifeblood of your communities.

As you fend off the make-believe ghosts that are being hunted by the FDIC, Fed and OCC, real threats continue to emerge in the financial services industry that put your customers at risk. Much of the boogeyman hunting is resulting in financial services moving from regulated to unregulated entities. The next financial crisis will not come from incorrectly marking someone’s gender or race on a government form, but from the unchecked growth of unregulated financial providers.

Yet, even the regulated space does not perform equally. The inability of the FDIC to comprehend the changing dynamics of the financial services industry has more banks exploring charter options. Not in an effort to find an easier regulator, but to find a reasonable and responsive one. Over at the OCC, Comptroller Michael Hsu wants banks to reimburse victims who fall for scams, continuing the Washington trend of reducing personal responsibility and creating more fraud.

While the threats against the industry are numerous, with new ones continuing to emerge, one of the most frustrating examples lies in the recently launched “Community Bank by Navy Federal Credit Union” that now operate on U.S. military bases.

My frustration, and yours, with the credit union industry is nothing new. They are taxpayer subsidized banks. They are the only nonprofits not required to disclose executive compensation. And they are hiring bankers as they look to make inroads in commercial lending—an area they, and the NCUA, know little to nothing about.

But credit unions’ growth threatens much more than the banking industry. A report by the Federal Reserve Bank of Atlanta noted that the NCUA has no enforcement authority over third-party service providers. This poses a risk to not only credit unions but also their customers.

In a recent win against the credit union industry, Amy Heaslet and Stacey Langford, bolstered by your outreach and support, passed state legislation to eliminate the ability of credit unions to buy Tennessee banks. This will protect the future of the banking industry by ensuring credit unions cannot acquire banks to gain more traction in their expansion efforts.

Frustration around the credit union industry is not new. And maybe we have something to learn from them. Those “Community Banks” by Navy Federal Credit Union are unique compared to actual community banks. They are not insured by their federal regulator but, instead, by a private insurance company. Perhaps there’s a similar path banks could follow.

As banks, fighting distant, unresponsive and politicized regulators is essential to our success. However, there has to be a more productive path forward because the current regulatory structure benefits no one and might just become obsolete. The TBA team is looking at opportunities within our state to address these challenges. Stay tuned.

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