Mortgage Industry News

by: Deb Aydelotte

The industry has now marked the 1 year anniversary of CFPB bank examinations, and we are well into several months of non-bank exams.  Here are some of our observations and commentary.

Coordination with Prudential Regulators

An MOU (memorandum of understanding) was published in May regarding supervisory coordination. However, the industry is just beginning to see what this means from a practical standpoint.  For one small independent mortgage banker involved in a targeted CFPB exam in May, the coordination with the state prudential regulator was attempted but failed to provide the blended approach and results the MOU describes.

The more recent experience of a large bank wasn’t much different in that the two regulatory teams definitely did not cooperate and showed a good amount of animosity toward each other.  As reported to us, the groups requested separate office space and unfortunately made the atmosphere for the bank managers very uncomfortable.

Hopefully, these are anomalies, and more time under their belts will help smooth out the coordination process.

CFPB Large Bank Supervision – FDIC 2012 Statistics

The CFPB does not publish a list of completed reviews, nor or a list of upcoming exams.  Beyond informal conversations, rumors and the occasional news item, this part of the process is not transparent.  In speaking with the CFPB, they are unable to provide even general information on how many exams have been completed or are scheduled for the remainder of 2012.

Based on the most recent FDIC statistics, there are 107 banks with assets >/= $10 billion, plus 47 affiliates.  As a percentage of all sizes of insured entities (7307 as per FDIC), this represents 2.1% of the bank population.  However, from an industry asset perspective, these 154 entities represent 79%  total asset share.

The make-up of the largest asset size group (>$10 billion) has changed over the years.  However, it’s interesting to note the following points:

• In 1984, the banks in the largest asset group held 28% of the industry assets; as mentioned the 2012 share level is at 79%.
• The bank segment that has diminished the most over the past 20+ years is banks with assets <$100 million.  Since 1984 their numbers have decreased from 14,034 institutions to 2,367 in 2012.  This long term trend disproves the assertion that Dodd-Frank is the cause of smaller institutions leaving the market.  That affect is yet to be supported by these statistics.

See accompanying charts.

Financial Regulatory Reform in Great Britain – A brief comparison

As the U.S. banking industry has seen the advent of the CFPB courtesy of Dodd-Frank, so too has the UK undergone changes in banking supervision and regulatory oversight.  Under the Bank of England (the central bank of the UK), a new structure and system of financial regulation has been implemented, creating three new bodies:

1. The Financial Policy Committee (FPC) sits within the Bank of England (BoE) and is responsible for a macro-prudential regulatory level, overseeing the stability of the financial system as a whole.
2. The Prudential Regulation Authority (PRA), which is an independent subsidiary of the BoE, will manage the micro-level regulation, promoting the stability of the UK financial system while also conducting entity supervision, risk assessment and ensuring banks have the appropriate levels of capital and liquidity.  The PRA’s primary responsibility is to prevent firm failure and overall risk to the financial system.
3. The Financial Conduct Authority (FCA), which will formally launch in January of 2013, will have supervisory authority over approximately 27,000 depository and lending firms.  The FCA will be responsible for the conduct of business and market regulation (consumer credit).

Some notable differences between the US and UK regulatory structures include the amount of consumer outreach and education.  This is a fundamental component of the CFPB approach, but is nearly absent within the UK’s regulatory directives.  In fact one assessment states the FCA “will not concern itself with educating consumers.”

Rather, the UK has emphasized promoting efficiency and competition in the financial sectors to provide more choice and, thereby, fair treatment of consumers.  To that end, much more authority is given to the FCA to define, impose requirements on or even ban financial products.  This proposed product intervention authority has raised concerns from many financial services firms, as they feel there are already sufficient powers in place for this purpose.

This is a very brief overview of what the BoE is implementing and certainly more changes are forthcoming.  However, as we monitor the developments in both countries, it will be interesting to note the effectiveness of each structure and reactions of the market to absorb the new regulations.