Are banking regulations getting unbearable for bankers?
When the Federal Reserve Board recently released an update on its FAQs list for what is known as the Volcker rule, a question started to form in the minds of many bankers and economists: Are banking regulations getting unbearable for bankers? For some, the obvious answer is “Yes.”
Evidence to support this belief is found in a recent report released this March by the Federal Reserve Bank of Richmond. The report states that over 800 independent banks closed their doors between 2007 and 2013. While the fallout from the crisis of 2007-2008 did cause some of the loss, the report shows that most of the blame is due to the lack of creation of new banks.
Since 1990, the rate of creation of new banks has fallen from more than 100 a year to an average of less than 3 a year. The American Bankers Association advises in a 2015 report that overly cumbersome regulations have led to the consolidation and closure of many community banks. The ABA is currently advocating that Congress update regulations so that they are more transparent, and make compliance easier and less complex, while also protecting the financial system. Still, the fact remains that current regulations make the process of credit analysis and loan pricing difficult for bankers at institutions of all sizes.
The burden created by these newer regulations mean that now, more than ever, there is much less room for error for bankers when creating their pricing models for commercial loans. While many banks are turning to the increased use of fees as well as other banking products to generate more revenue, the fact remains that loans are nearly 61% of the assets at our nation’s regional banks. Any error in a banker’s loan pricing model could spell potential disaster since commercial loans make up such a large portion of the holdings at regional banks.
This is why bankers need a loan pricing model that consistently provides profitable results, reproduces those results on a regular basis, and in an increasingly challenging regulatory environment. Contact Us today to learn more about how our PULPS Loan Pricing System can help you gain a competitive advantage by maximizing the potential profit for your bank while satisfying regulators demands for greater profitability in loan pricing.
Alan Lee
www.HurdleGroup.com
www.TheSchoolOfBanking.com