VB:How is the regulatory environ- ment aff ecting the bank’s profi tability and your ability to make loans?
Still: It’s certainly a drain on profi t- ability.
Beale: I don’t know that it’s aff ecting our ability to make loans. Even after the downturn, I never felt that any regula- tion was prohibiting us from making a loan. T ere may have been decisions around how the economy was and those sorts of things that kept us from making a loan. With the Dodd-Frank Act, a lot
of artifi cial barriers or thresholds were created [resulting in] artifi cial decision- making by CEOs. I guess there’s two of us in this room that one day will cross $10 billion [in assets] if we just keep doing business the way we’re doing it. We’re probably three years away, and that $10 billion threshold is forcing artifi cial decision making. Obviously, we are investing more
in compliance, specifi cally focused on fair credit because of the impact and the focus of the Consumer Financial Pro- tection Bureau, and that’s in hundreds of thousands of dollars of people and software. We are spending money on building
out enterprise risk management systems, which have become the new buzzword for regulators to try to have this over- arching approach, and that runs into the millions. All of that impacts profi tability, and there aren’t that many banks that are making the same return on equity or the return on assets that we were making pre-downturn, and I think it will be a while before we can get back there.
Cherry: It has signifi cantly increased costs, helping to drive the consolidation in the banking industry, but it is only one of a number of factors doing that. But I would disagree a little bit on
the ability to lend. It is much more diffi - cult for banks to diff erentiate themselves from one another when they all have the exact same requirements for information that they have to comply with. Mortgage lending, residential
mortgages, would be a great example of that. T ere’s no question there have been
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increased barriers to the ability to make mortgage loans and the diffi culty of distinguishing yourself when you have a stack of documents that big that have to be signed by your customers and length of time before you can go through in the process. T at clearly has discouraged customers from borrowing. So whether it’s kept us from being able to do it or whether it’s discouraged the customer from wanting to go through the process or not, the end result is probably the same. It is a signifi cant dampening eff ect
on our economy. If you look today at small business
formation for example, it is dramati- cally reduced from what it has been. I’m convinced that’s because of all of the criteria and hoops that have to be jumped through because of regulation and compliance issues that make it more diffi cult. I think our whole economy is suff ering signifi cantly by virtue of the current pendulum having swung way too far from a compliance and regulatory standpoint.
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