5 key factors impacting the banking industry

You may be hearing a lot of misconceptions about the reforms coming to the Consumer Financial Protection Bureau (CFPB) and what they may mean for the future of banking.

“It makes sense that people are confused about what the changes all mean for them and the soundness of the banking industry as a whole,” said Stacy Kymes, chief executive officer of BOK Financial®.

In 2011, the CFPB was created to monitor credit card companies, mortgage providers, debt collectors and other financial service companies, in response to the 2008 Financial Crisis. However, it has recently come under scrutiny for some of its practices and procedures. As a result, the CFPB is “pencils down” at this time, but there are also several lawsuits filed on behalf of the agency, arguing that the decision made by the new administration unlawfully dismantles consumer protections and undermines the agency’s mandate.

In the meantime, the CFPB’s current state does not set up the banking industry for another crisis or make banking less safe for consumers, said Mindy Mahaney, chief risk officer for BOK Financial. Rather, the Office of the Comptroller of the Currency (OCC), Federal Reserve, and Federal Deposit Insurance Corporation (FDIC) all still play an important part in safety and soundness—and confidence in banking institutions.

The CFPB may become more aligned with other regulators
Even with the ongoing lawsuits filed on behalf of the agency, the CFPB likely is going to face some serious reform, experts agreed.

“I welcome reforms of the CFPB that would better align their function with the other agencies to provide a moderated approach that would make them less of a target for change every time there is a new occupant of the White House,” said Kymes.

The goal is for the CFPB to adhere to a routine of rule proposals, comment periods, responses to comments by the industry and reasonable implementation timelines, like other regulatory agencies, Mahaney said. “But the reform isn’t a cause for concern on banking safety or soundness,” she noted.

CFPB not the only issue on the table for the financial industry
While media coverage and consumers may be focused on CFPB, Kymes said there are five other key things, for better or worse, that he’s keeping an eye on this year:

1. Return to loan growth. “Certainty over tax policy alleviates a potential headwind to growth,” said Kymes. “Politics aside, the general understanding is that tax policy will stay more or less the same (i.e. most expect the Tax Cuts and Jobs Act will be extended).”
2. Having a positively sloping yield curve will be a huge win for banks. “The long end of the curve moving up while the short end stays the same or comes down should be positive,” he said.
3. Inflation will be bumpy and sticky. Kymes thinks labor costs will be the most important thing to watch. The Federal Reserve will not be as aggressive in cutting rates as many experts and analysts previously thought.
4. Regulatory headwinds will abate. “It’s hard to see true ‘deregulation,’ but not adding to the regulatory pile will be a positive for the industry,” Kymes said. “Personally, I’m hopeful for a more pragmatic approach to bank regulation. We should be regulated and understand the mistakes of others can cost us through FDIC special assessments, but there was too much regulatory overreach in recent years.”
5. Likely more market volatility. Energy and trade policy may create more noise and subsequent market volatility. In some cases, Kymes said, volatility is helpful, as it creates a market for active money management.

And, as the future of the CFPB unfolds, one thing remains the same: consumers—and banks themselves—benefit from well-done regulatory oversight of the financial services industry, Kymes said.

“We need a strong supervisory function because, when banks fail it is all the other banks (including us) that are charged special assessments to replenish the insurance fund,” he said. For example, the bank failures from the spring of 2023 cost BOK Financial over $50 million in special assessments. “Banks and consumers both pay the price from lack of oversight.”