US banking: Back to fast and loose

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The first quarter of Donald Trump’s presidency has already been a boon for banks, according to the Banking Compliance Index (BCI).

The BCI measures the incremental cost burden on financial institutions to keep up with regulatory changes; according to the index the first quarter of 2017 was the lowest score in its history. In that time there were 47 regulatory changes, including proposed and final rules that affect financial institutions. That’s down from 115 regulatory changes in the previous quarter and 69 in the first quarter 2016.

The hours taken to comply with the regulation were 222 over the first quarter at an extra cost of $10,360 versus 428 hours and $29,000 the same period last year. And rather than an average of two employees required to handle compliance, now banks need less than one on average to comply with Federal regulations.

But at what cost to the US consumer, because the Trump administration is also dramatically reducing enforcement actions? The index recorded a historic low of 57 enforcement actions taken against financial institutions in the first quarter of 2017, compared with an average of around 157 enforcement actions each quarter during the Obama administration.

Stepping back in time

It is like stepping back in time before the financial crisis. We already know that banking is challenged by ethics with regulation – let alone without it. Wells Fargo is still paying for its retail bank scandal; the Libor troubles are still rolling on, China has an investment problem of its own right now and the Irish banks are in the middle of a mortgage-tracking affair that could run to half a billion euros.

It’s not just that breaches in ethics make headlines, there is data to show that bankers are all too often inclined to not do the right thing. The Banking Standards Board in the UK published their annual survey in March; one in eight bankers in it said it was difficult to progress in their careers without “flexing ethical standards.” One in eight!

The Federal Reserve Bank of New York is reportedly now considering a similar survey to gauge the culture on Wall Street. One would imagine if it had improved, it will soon unwind. One US banker recently confessed that his firm had been celebrating how regulation was “back on the side of the banks”, not because it wanted to screw over clients but because it meant they could play “a little more fast and loose.” It’s a fine line between the two, that’s why we need regulation.