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Rogue Bank Regulators Need To Stop Treating Bankers Like Pirates

One of the more memorable lines from the Pirates of the Caribbean franchise is when the evil Capt. Barbossa, confronted with the fact that he’s breaking the sacred Pirate Code, points out that, “The Code is more what you call guidelines, than actual rules.”


This was a clever line in an action-comedy, but it’s no joke when the same level of moral ambiguity is applied in the real world, as is currently the case with our banking industry.

In response to the financial crisis, Obama-era regulators initiated an “us vs. them” supervisory process where bank regulators had free reign to come down hard. This adversarial approach doesn’t work.

That is why the Federal Reserve and other agencies that oversee the banking industry need to clarify supervisors’ roles and bring an end to the Obama overreach that is doing more harm than good to the $17 trillion industry.

In other words, the agencies need to make it clear that rules are rules and guidelines are guidelines.

Subjective Bank Examinations

Industry representatives have long thought the examination process was too subjective, and even many regulators are now saying the same. Individual examiners wield too much power and have too much discretion, with some overly zealous examiners enforcing as hard-and-fast rules matters that should only be guidelines.

“An examiner in Atlanta may look differently at a bank than an examiner in San Francisco,” said FDIC Chair Jelena McWilliams, noting that advances in AI could further help level the playing field against the whims of a capricious supervisor. But for now, simple clarification will suffice.

Supervisors may flag items for attention that amount to their own personal organizational preferences, but lack a genuine threat to the banking public. Examiners cite guidance as the basis for Matters Requiring Attention (MRA) even though agency leaders insist disobeying guidance is not grounds for punitive action.

An MRA should only be given in the case of something serious, critics in the banking industry say, so there should be a definable standard for what qualifies. But that’s not what banks are getting; for many, it’s like they’re getting dragged into court for going one mile over the speed limit.

Vigilantes Or Regulators?

This needs to be clarified. Banks need supervisors, they don’t need vigilantes.

Luckily, banking regulators issued an Interagency Statement confirming that supervisory guidance indeed does not have the force of law behind it, and that such guidance does not give bank examiners a license for enforcement actions.

The announcement came in September from the Federal Reserve, Consumer Financial Protection Bureau (CFPB), Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA), and Office of the Comptroller of the Currency (OCC).

Rep. Blaine Luetkemeyer, R-Mo., called this “an integral first step towards restoring sanity and clarity in the regulatory regime,” but regulators need to formalize the Interagency Statement with a binding regulation, so that it applies to all supervisors across the country from here on.

One of the problems leading up to the financial crisis was a lack of supervision. The Obama administration overcompensated — which certainly may have been the right reaction at the time — and now the Trump administration is tapping on the brakes with kinder, gentler treatment. This includes Fed examiners even giving positive feedback, not just criticism!

Our bankers are not devils and black sheep and really bad eggs — they’re the engineers of our economy. They deserve a top-down clarification on how supervisors can treat them, both now and for the future.

Democrats Go Sharply Left

The 2,074 potential Democratic nominees for 2020 are all racing as far to the left as they possibly can, and bad ideas are multiplying among them these days like proverbial rabbits. Sen. Elizabeth Warren is trying to differentiate herself as the one who will be toughest on the banking industry, even though it’s driving her more sensible colleagues nuts.

The problem is, no matter how many times she gets caught lying about being an American Indian, her message is going to pollute the race and give ammunition to whomever eventually becomes their nominee.

The bad news for banks is that even if Warren’s candidacy fizzles out,” as American Banker wrote, “the financial regulatory issues that she trumpets will be front and center in the next fight for the White House.” God help us all if a Democrat wins in 2020, because imagine what these financial vigilantes will do if they have total discretion and a license to kill the banking industry.

Leftist minions with an agenda and the rule of law will chase as much money as they can to kinder, gentler banks around the world.

So let’s urge the Trump administration to take action on banking as soon as possible. Rules should be rules. Guidelines should be guidelines. We’re running the most complex, most important economy on planet Earth. It’s not a pirate ship.

  • Whitley is a long-time DC politico who has also lived in Dubai and Berlin. He has an MBA from Hult International Business School.

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