Regulatory Burden, Fintech among Key Concerns for Fed Advisory Council

Members of the Federal Reserve’s Community Depository Institutions Advisory Council — which includes several ABA member bank CEOs — raised concerns over the difficult regulatory landscape facing community banks in a recent meeting, according to minutes released by the Fed. Among other things, the council pointed out that the increased regulatory burden is affecting banks’ ability to serve their customers, and has led many to exit entire lines of business due to increasing compliance costs or heightened risk exposure.

The council cited several examples of the regulatory challenges banks face, including the complex Basel III capital rules, the recent TILA-RESPA integrated disclosure requirements and Qualified Mortgage rules, and also noted several areas that are likely to face greater regulatory scrutiny in the future, such as small business lending and mortgage servicing.

While the council acknowledged that many institutions have adapted to the new rules and regulations, members cautioned that shadow banks and the largely unregulated fintech sector could pose a serious competitive threat in the future. In addition, the council pointed out that consumers also face a greater risk when using financial services offered by nonbank providers. “Financial institutions are subject to extensive consumer protection regulations, capital requirements and stringent rules regarding consumer privacy and data security,” the council said. “Nonfinancial institutions offering payment services do not provide the same level of consumer protection or systemic strength.”

The CDIAC advises the Fed on the economy, lending conditions and other issues. Members are selected from representatives of commercial banks, thrift institutions and credit unions serving on local advisory councils at the 12 Federal Reserve Banks. One member from each of those councils serves on the CDIAC, which meets twice a year with the Fed board in Washington.