Question and Answer Session with PYA on the Impact of the Dodd-Frank Act on Community Banks
1) Will you provide a brief overview of the Dodd-Frank Act?
The Dodd-Frank Act is significant piece of legislation that\’s going to have a major impact from the banking industry as a whole. The act itself is really a framework that establishes several new bureaus, countless new studies to be performed and has multiple effective dates that extend well into the future.
2) Will Dodd-Frank Act only impact larger banks?
That is probably one of the largest misconceptions today about the Dodd-Frank Act is that it will only impact larger financial institutions. In fact, there are parts of the Dodd-Frank Act that will impact larger institutions, over 10 Billion in total assets, but there are several aspects of the Dodd-Frank Act that will have some pretty significant impacts on community banks and small financial institutions. Probably the most significant impact is going to be the creation of the Consumer Financial Protection Bureau, which has been given rule-writing authority. The Consumer Financial Protection Bureau will actually directly regulate some of the larger institutions, but the smaller institutions will be required to implement the rules written by the Consumer Financial Protection Bureau. However, those rules will be enforced by their current provincial regulators.
3) How significant is the Dodd-Frank Act when compared with other legislation?
The Dodd-Frank Act was a very significant piece of legislation. A matter of fact, it\’s over 2,300 pages in length to give some prospective on that. The Sarbanes Oxley Act is only 66 pages so that gives you some idea how significant this legislation is. Also it is important to keep in mind that the Dodd-Frank Act is a really framework for additional rules to be written so that the Consumer Financial Protection Bureau that I mentioned has been given a rule-writing authority. So, they ll be writing additional rules that will come out in the future over the period of years and so it will end up being even more significant than the original 2,300 pages that were written.
4) With the elimination of the Office of Thrift Supervision, how will saving and loans and other thrifts be affected?
Saving and loans and other thrifts will be significantly impacted by the elimination of the Office of Thrift Supervision or the OTS. The power of the OTS had previously has been shifted to the OCC /the Office of the Comptroller of the Currency and that change had already occurred. So those institutions, the thrifts, saving and loans, which could also include community banks that may have previously been savings, loans and thrifts have been converted to a stock bank. However, they may still be regulated by OTS. They may also have looked for a change to move over OCC in the near future.
5) What is the biggest challenge for community banks in implementing the Dodd-Frank Act?
The biggest challenge for community banks and other smaller financial institutions in implementing the Dodd-Frank Act is going to be where expectations are for compliance going forward. There is no doubt that it s going to require a robust compliance program to be in place. The challenge is that most community banks may have one or two people in place that are currently responsible for handling the entire compliance area for their institution. So, it is really all hands on deck going forward to maintain the robust compliant program. I believe that a risk-based compliance program is going to be a must for community banks. That process is going to require an effort to consider which of the regulatory areas present the most risk to each specific institution and really focusing on compliance, monitoring its compliance and testing for that compliance over time on the specific areas with the highest risk level and that is really the approach most community banks are going to be forced to take.