Impact of Reinforcement

As the father of three grown daughters, I understand the impact of reinforcement. As the youngest in my own family, my wife would probably say I need excessive reinforcement. I say she’s lucky! And, the latest Wells Fargo scandal has given regulators, particularly the CFPB, a boatload of reinforcement. Wells created over 2 million bogus accounts without customers’ knowledge. 5300 employees have been fired. Apparently rogue employees who conjured these schemes up themselves! Seems doubtful. The result so far - $185 million in fines and penalties, a trip to the US Senate Banking Committee woodshed, and the announcement of an investigation by the US House Financial Services Committee. I have a sense the final shoe has not dropped. I can only imagine there are a number of uncomfortable discussions being held behind closed doors at other mega-bank headquarters. My guess is the probes are just beginning. If it seems like I’m picking on Wells Fargo, I am. I don’t represent them.

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Unfortunately, the fallout of all this will affect you as regulators cast a very large net. CFPB reform that we’ve advocated for was already certain to be a challenge. Now that seems implausible for the foreseeable future. One must assume that further punishing regulations will follow. When the dust settles again, community bankers will have to fight like crazy to make up lost ground, usually in very small increments, proving time and again that we are not the “bad actors”. While independent community bankers recently have had some success differentiating the plight of relationship banking, we need to further distance ourselves from the Wells of the world. Maybe this recent scam can help that in the long run. Maybe additional tiered regulation and limited size exemptions are still possible. Short term, it’s going to be tough.

So enough with the negative thoughts for a moment. What you do as a relationship banker is good and necessary for our economy. Your association’s Immediate Past Chairman, Dave Ludwig, and I have had a number of conversations about how we alter our message to policymakers and the public. Rather than the default approach of complaining about how regulations and compliance are killing community banking, let’s discuss what it means to the national economy. Representing just 20 percent of the total US banking assets, community banks provide over 75 percent of agricultural loans and over 50 percent of small business loans in our country. Those are big numbers. Who fills that void absent community banks? The growth of our economy doesn’t happen without healthy community banks who are in the business of relationship banking!