State updates laws for Dodd-Frank
With a July 21 deadline looming for many components of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Connecticut General Assembly approved a number of minor changes to state law as the Department of Banking readies to regulate banks in a new era.
In addition to adding the new federal Bureau of Consumer Financial Protection to the list of agencies with jurisdiction in Connecticut, the Connecticut law authorizes the state attorney general to bring a civil action to enforce the provisions of the Dodd-Frank Act.
A separate bill, meanwhile, would streamline the application process for any investors seeking to acquire multiple failed banks. It also gives authorizing banks the ability to merge with their non-banking affiliates as can be done in other states.
The deadline arrives even as Connecticut banks backed off hiring in the first quarter, with payroll dropping slightly after banks added more than 250 employees statewide to close out 2010. While multiple surveys suggested businesses see commercial credit tightening in the first quarter, bank lending officers polled by the Federal Reserve Bank of New York said if anything, they were seeing loan terms easing entering the second quarter, confounding the economic outlook.
At the same time, banks and other financial institutions are steeling for expected stiffer oversight, both from federal agencies such as the Office of the Comptroller of the Currency, as well as state attorneys general. Peter Hurst Jr., CEO of The Community”™s Bank in Bridgeport, said his company has spent the past few years easing out of the residential lending market in favor of commercial loans, citing the higher cost of compliance with recent and pending regulations.
Under existing laws in the first quarter, the Connecticut Department of Banking imposed more than $650,000 in fines while ordering companies or individuals to pay another $18 million as restitution or other monetary relief. Entering April, the department had some 120 investigations under way, down from just more than 140 a year earlier, but still far above the number of probes at the height of the last economic cycle.
State regulators are readying for an expansion of their supervisory oversight under Dodd-Frank in New York even as that state creates a new Department of Financial Regulation from its existing state banking, insurance and consumer protection agencies.
“While Dodd-Frank will change the way that all financial services companies operate, the changes are particularly dramatic for mortgage lenders,” said John Walsh, acting comptroller of the currency, speaking last month to a gathering of the Financial Services Roundtable. “There are 15 to 20 new mortgage lending requirements in the regulatory pipeline, and their impact on the mortgage and servicing businesses will be more tsunami than simple wave. I suspect that ”¦ there are many who haven”™t stopped to take account of all the new requirements facing your business.
“There are lots of good ideas in Dodd-Frank, but the challenge is that there are so many new requirements coming at once; no matter the individual merits of any one of them,” Walsh said. “I have used the image of drug interactions: You take one pill that”™s good for your head, another that helps your heart; but taken together they flatten you.”
Still, Walsh predicted banks will find the “new normal” that keeps them in fiscal balance ”“ though in the same breath said that will likely come with consequences for those buying or selling houses.