For years, Robert G. Wilmers, the late M&T Bank chairman and CEO, criticized federal regulators for taking a "one-size-fits-all" approach to banks.
Wilmers thought regulators wrongly lumped together risk-taking Wall Street banks with more-conservative institutions like M&T. As a result, banks of all kinds were forced to devote more time, money and personnel to meeting stricter requirements, instead of focusing on growth.
The tide seems to be turning in favor of Wilmers' viewpoint. Regulatory changes approved this month will ease the burden for smaller- and medium-sized banks, while keeping stricter rules intact for the largest institutions.
The new rules were born out of the financial crisis that spawned the Great Recession. To prevent a repeat, Congress slapped new tougher rules on a broad swath of banks. Any institution with at least $50 billion in assets faced stepped-up requirements, including more reporting requirements and "stress tests" gauging whether they had the financial power to survive a sharp downturn in the economy.
Bankers like Wilmers complained that the new rules were too broad and too costly. Wilmers once described how in 2016, M&T faced 27 different examinations from six regulatory agencies, and that examinations were underway for 50 weeks of the year.
"That certainly impacts cost, and shareholder profit, the ability to lend and issue credit, things like this," said Brian Wolfe, assistant professor of finance at the University at Buffalo's School of Management.
Now, those tougher regulations will only apply to the nation's biggest banks – those with at least $250 billion in assets – lightening the load on institutions like M&T Bank and KeyBank.
How will the banks respond? Wolfe said it will be up to the banks whether to pass those savings on to shareholders, or to apply those funds toward making other kinds of loans.
The law signed last week, Wolfe said, "has something for everyone, whether you're a small bank, a large bank, a medium-sized bank," Wolfe said. "There were really carrots spread throughout. I would expect if you're the banking industry, this is something that you've been hoping for for a while."
Matt Pitts, a Key spokesman, called the changes "an important milestone."
"The bill begins to align regulation based on a bank's risk profile," Pitts said. "As a result, the clients and communities served by traditional and regional banks like KeyBank will ultimately be the beneficiaries of this legislation." Pitts said it was too soon to say how the changes would affect its operations.
Wilmers long championed a "tiered" approach to the oversight of banks. Under the new rules, regulators will now have more leeway in deciding when stress tests are required for banks with assets between $100 billion and $250 billion, a category that includes Key and M&T.
M&T chief financial officer Darren King, speaking at an investors' conference this week, said he expected the changes for a bank of M&T's size will take time to be phased in. King also expects M&T will still be subjected to stress testing, "likely on some at least annual basis, there's not a lot of expense save there."
The Federal Reserve this week unveiled proposed changes to the Volcker Rule, which is a piece of the Dodd-Frank regulations. The rule, named for former Fed chairman Paul Volcker, limited the kind of risky trading blamed for fueling the 2008 financial crisis.
The changes introduced wouldn't repeal the rule, but critics, including Gov. Andrew M. Cuomo, denounced the revisions as the wrong way to go.
Cuomo argued the federal government "is putting big banks before the middle class and abdicating its responsibility to safeguard Americans from financial disaster."
"Gutting the Volcker Rule will pave the way for banks to engage in the same risky behavior that led to the financial crisis of 2007-08 and wreaked havoc on families nationwide who are still recovering today," Cuomo said.
Smaller banks, meanwhile, welcomed the regulatory changes approved last week. Northwest Bank is approaching $10 billion in assets. Under the old rules, the Pennsylvania-based bank would have faced stress tests once it crossed that threshold. The tests would cost the bank about $2 million a year, said William Wagner, the chairman and CEO.
But the reforms moved threshold for those tests up to the $50 billion mark, which will save the bank money as well extra hours its senior personnel would have had to devote to the tests, Wagner said. "It's a lot of time that we will have available to focus on other things, so that was very welcome relief for banks our size."
Wagner applauded the reforms as a bipartisan answer to stringent requirements implemented after the 2008 crisis. "It's great that the people in Washington are recognizing that maybe it went a little bit too far and are trying to rightsize it at this point."
But Wagner said he feels there are still ample safeguards in place to avoid a rerun of the 2008 crisis.
"Not only is there still a tremendous amount of regulation in place, and not only do the regulators have a great deal of authority, but banks are now carrying about 50 percent more capital than they were in 2008," he said. "That in itself is a tremendous safeguard, and I think the people in Washington recognized that. You're not talking about the same industry now as we had in 2008."
David J. Nasca, Evans Bank's president and CEO, said the proposed changes to the Volcker Rule "will not really impact us."
"As a community bank, we are not making risky investments," Nasca said. "We are taking deposits from the community and investing them back into it."