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Banking and Financial Matters Blog

A Secretary of the Treasury who understands Main Street and Wall Street?

Authored by Ruder Ware Attorneys
Posted on January 24, 2017
Filed under Banking and Financial Matters

Last week, Steven Mnuchin, President Donald Trump’s nominee to run the Treasury Department faced a nearly six-hour grilling by Senate Finance Committee Republicans and Democrats, alike.  The former Goldman Sachs executive was pressed on a variety of policy and personal issues including his past connections to a California bank seen by some as an unmerciful foreclosure mill and his ideas for reform to Dodd-Frank.

Despite his pedigree as a former leader of one of the largest banks in the world, Mnuchin took a sharp and pointed position in support of community and regional banks.  In response to a question from Senator Mike Crapo (R-ID), Mnuchin said “my biggest concern is…regulation is killing community banks…We are losing the ability for small- and medium-sized banks to make good loans to small- and medium-sized business in the community where they understand those credit risks better than anybody else.”

Mr. Mnuchin is right.  According to the Federal Reserve Bank of St. Louis, community and regional banks’ regulatory compliance costs make up a much higher percentage of their noninterest expenses compared to larger financial institutions.[1]  For example, banks with assets of $1 billion to $10 billion reported total compliance costs averaging 2.9% of their noninterest expenses, while banks with less than $100 million in assets reported compliance costs averaging 8.7% of their noninterest expenses.[2] 

Regulatory relief to community and regional banks is of great importance to Wisconsin because, while Wisconsin is well banked, over 93% of banks headquartered in Wisconsin have less than $1 billion in assets and over a quarter have less than $100 million in assets.[3]  Increasing regulatory compliance costs are a driving factor for much of the consolidation in the banking industry.  In many instances, due in part to high regulatory costs, it does not pay for community and regional banks to stay independent and they are forced to sell or merge with a bigger bank.  Last year alone, there were sixteen bank mergers or acquisitions in Wisconsin, that’s an increase from twelve in 2015 and nine in 2014.[4]  Wisconsin isn’t alone - over the past ten years, the number of FDIC-insured banks in the U.S. has shrunk by almost 30%.[5] 

If confirmed as Secretary of the Treasury, it appears Mr. Mnuchin will be a powerful advocate for Wisconsin community and regional banks working to reduce over burdensome regulations that unnecessarily drive up compliance costs.  And that’s good news for those who appreciate the personal touch of a community bank.

If you are interested, here is the complete video of the U.S. Senate Committee on Finance hearing to consider the anticipated nomination of Steven Mnuchin to be Secretary of the Treasury.


[1] https://www.stlouisfed.org/publications/regional-economist/july-2016/scale-matters-community-banks-and-compliance-costs
[2]
Id.
[3]
http://www.ibanknet.com/scripts/callreports/fiList.aspx?type=statebank&state=55&sort=assets
[4]
http://www.jsonline.com/story/money/business/2016/12/31/wave-bank-consolidation-continues/96000492/
[5]
Id.