ABA Letter to President Biden re Impact of Regulations

Dear Mr. President:

On behalf of the two million women and men working in communities across the country as part of the U.S. banking system, I write to share ABA’s growing concern about the cumulative impact of uncoordinated regulatory initiatives that have the potential to significantly disrupt retail and commercial banking in ways that will negatively impact the economy and the customers banks serve. Some of those effects will be felt in the near-term as credit or even basic banking services are repriced in response to new rules, and others will be felt over time through bank consolidation, accelerated by this extraordinary confluence of new and existing regulations. Neither outcome is consistent with your Administration’s objectives, and only by acting now to assess the full impact of these complex regulatory interactions can we ensure that economic growth and access to credit will not be compromised. 

The list of major regulatory changes is daunting and includes new capital regulations, proposed at a time when regulators acknowledge that banks are already well-capitalized, will raise the costs of mortgages, small business credit, energy infrastructure, retirement plans, and even basic risk management through hedging. A 1,500-page rewrite of the Community Reinvestment Act (CRA) regulations, while well-intentioned, will force even community banks to throw out a 50-year CRA playbook and start over, pushing even more mortgage lending outside the well-regulated banking sector to fintech companies and credit unions that do not face the same oversight. Payments rules, one finalized on transaction routing and another proposed to tighten business-to-business price caps, will undermine payment security and make checking accounts more expensive for those who need them most. Small business lending data reporting regulations will impose daunting paperwork obligations on banks, require intrusive data collection from bank customers, and erode the relationship banking model that has served America’s entrepreneurs for generations. Planned changes to the Federal Home Loan Bank (FHLBs) could add to the mounting disincentives for bank mortgage lending and reduce liquidity options for banks in times of stress. And a proposal to rewrite the rules for bank custody businesses will begin to push yet another exceedingly safe core banking function outside the regulated banking perimeter and make it more difficult for consumers to safeguard their financial assets.

Implementation of each of these regulations on their own creates significant challenges for banks that impact their customers. Together, these new regulations and a persistent high interest rate environment mean banks of all sizes, including the smallest community banks, will face higher costs for deposits, higher costs to offer basic banking services like free checking accounts, higher costs to make loans (even relative to non-banks), and higher costs to run basic payment programs and invest in critical cybersecurity and other fraud mitigation systems. Collectively, these increased costs to banks translate into increased costs for customers – or scarcity, and no single regulator, much less the group as a whole, is measuring how these costs will add up and flow through the economy. I urge you to direct the Secretary of the Treasury in her capacity as the Chair of the Financial Stability Oversight Council (FSOC) to complete a comprehensive inter-agency economic impact analysis of the various rule changes that are taking place in siloes across your Administration before any new regulations can take effect. The FSOC’s independent analysis can then inform a more thoughtful and coordinated rulemaking process.

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