February 1, 2012

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Banking And Finance

Utah Business Staff

February 1, 2012

      

Regarding Dodd-Frank, regulatory agencies are writing hundreds of thousands of pages of rules and administrative guidelines, and some of them are in their 10th go-round with discussions back and forth. Are we ever going to see Dodd-Frank really implemented? If so, will that affect the smaller regional banks here in Utah, or is that simply a big bank issue?

 

RUDE: It will definitely trickle down to the smaller banks, even if they are rules and regulations that are focused on the $10-billion-and-above banks. That has a way of becoming a best practice and trickling down. We try to not make it a mandatory thing, but if it’s a good, positive risk deterrent, you will see it trickle down.

            There’s so many things that still need to be done with Dodd-Frank and other regulations; it’s somewhat of a damper on the economy and on the banks because they don’t want to get into something and then find out it’s been reversed or changed in the meantime as these rules are promulgated by the agencies. So we’re in a waiting mode to some degree also.

            The derivatives bill—the details on that are still not finalized. The states are forced into a position where they have to pass something or the state charter banks will not have parity with the national banks as far as derivatives go. So you see that coming up in the legislative session. It’s something we’re working on at the state level.

            But overall we’re seeing some slow but positive growth in the state-chartered community banks and other institutions in Utah. At year end 2010, 48 percent of the community banks had negative earnings. Through September 2011, that’s down to 25 percent. So we’ve seen some massive strides in bank earnings locally here.

      

A few weeks ago, I heard President Obama say it was the “unregulated banking industry” that got us into this economic situation. If this industry is unregulated, I’m not sure what he means by “regulated.” Do you see anything coming out of the election that might lead to major growth in regulations or change?

 

RUDE: The Dodd-Frank Act was specifically designed to capture that unregulated section of banking. To some degree, everyone’s regulated, whether it’s a mortgage banker, an investment banker or a broker dealer on Wall Street. They’re all regulated to some degree, it’s just how extensive the regulations are.

            So when you say “banking” to me, I think of an insured depository institution that has numerous regulations that they’re following. We’re living with them on a daily basis, and they have a very high standard to meet.

            The mortgage and investment bankers and the Wall Street firms were not held to that same level of scrutiny, and Dodd-Frank is designed to gather some of those folks in and make it a more level playing field for regulation.

      

HEADLEE: That’s the point that drives me crazy. That statement right there just catches it all. They are not banks. There is no such thing as an unregulated bank. So he is not talking about our industry; he’s talking about unregulated financial services companies. But the language is just all messed up, and it confuses the public. And it’s maddening.

 

DeFRIES: There’s no doubt that many consumers were taken advantage of by various individuals, so some of the regulations that are coming out actually make a lot of sense. The problem is that, at least for us, we’re not really consumer-centric anymore. It’s all business-centric. And the entrepreneurs are just very frustrated. They look to us and say, “How come you’re treating me different than you were before?”

      

What changes have you made in your small business lending, and do you anticipate any more in the coming year?

 

DeFRIES: Our credit standards have been much more difficult this year than they were last year, but there’s still plenty of opportunities out there to lend. Very much more competition for those very limited numbers, but they’re out there. Regulations have forced us to be a more critical eye.

      

So is the tightening driven by the regulatory environment or by the economic environment?

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