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Editorial: Rethink regulations for regional banks

Robert Wilmers, the chairman and CEO of M&T Bank, is known as a sensible man on subjects regarding his profession, including the role of government regulation. So it’s worth paying attention to his observations about Washington’s broadly drawn oversight of the nation’s banks.

His point, repeatedly made, is that regulations that make sense for megabanks are punitive for regional banks that have less influence on the economy and fewer resources to comply with the regulation. It’s a fair point.

It has been an expensive lesson for M&T, whose cost of complying with regulations skyrocketed to $440 million last year from $90 million in 2010. Those costs account for nearly 15 percent of the bank’s total operating expenses.

The regulations came about for a valid reason. Banks – mainly the big ones – made reckless financial decisions that lit the fuse to the Great Recession. Millions of people were thrown out of work while houses were suddenly worth less than what the owners paid for them. It was a calamity and Congress had a responsibility to respond. It did.

But legislation is a blunt instrument, difficult to direct with precision and always creating unintended consequences. Also to be responsible, then, Congress must be willing to account for those unwanted effects, especially when they harm large numbers of people or disrupt an important cog in regional economies. Wilmers makes a plausible case that banks such as his have paid that price.

The problem is not just the cost in dollars, but also in time, he noted in his annual letter to M&T shareholders. Together, those losses hurt the ability of banks such as his “to introduce new products and technologies, or pursue other projects that might be in the best interests of their shareholders, customers and communities,” he said. Annual “stress tests” and increased liquidity requirements have also hindered the ability of regional banks to grow, he said.

Wilmers isn’t calling for regional banks to be free from regulation, but advocates “a more tailored approach” that would benefit both the banks and the communities where they do business. It’s a sensible request.

The problem is that the current Congress shows more interest in obliterating regulations than in sculpting them. It has taken direct aim at the Dodd-Frank Act, passed in the turbulent wake of the Great Recession as a way to prevent such a calamity from reoccurring. Congress needs to understand what regulations are important to protecting the economy and those that are unnecessarily intrusive. Perhaps Wilmers can help to educate them.

If anyone needed evidence of Wilmers’ ethics as a business leader, it was provided in a regulatory report filed this month. In it, the bank noted that because its performance had fallen short of expectations, so did executive bonuses. Among those who saw their pay docked was Wilmers.
He’s earned the attention and respect of regulators.

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