"The biggest risk to banking today has become regulatory risk."
That's a comment from Wayne Abernathy, executive vice president of the American Bankers Association in Washington, D.C., on the group's ABA Dodd-Frank Tracker blog.
Indeed, Abernathy may be right about the increased risk as a "tsunami of new rules and restrictions," to use his description, has forced banks to devote more resources to regulatory matters, including ensuring compliance, finding loopholes and lobbying to undo or undermine the rules.
It's easy to argue the banks have received only and exactly what they've deserved. After years of Wild West-style operations, more oversight seems like a leap in the right direction.
That said, however, perhaps the banks have some cause to complain. According to the ABA, regulators have issued more than 1,000 pages of proposals and 360 pages of final rules in the six months since Dodd-Frank was signed into law, and that stack, which the ABA says measures 5.5 inches and weighs 14 pounds, is surely just the beginning. The association expects "upwards of 5,000" pages, all told.
Just for comparison's sake, "The Lord of the Rings" by J.R.R. Tolkien runs about 1,200 pages. Tackle Stephen King's "Under the Dome," and you're in for 1,088 pages. "Moby Dick" by Herman Melville seems downright short at only 640 pages -- or fewer if you skip the fish lists.
But that's all fiction. Just try to picture all those books and a few other tomes combined and transformed into banking regulations and you'll have some idea of what these folks are facing: A lot of text without much of a story. It's enough to put anyone to sleep in a hurry.
"This will be a significant challenge for a bank of any size, but for the typical bank with only 34 employees, it's overwhelming," Abernathy added.
One foreseeable outcome might be more consolidation in the banking sector. If the typical bank can't handle the job, perhaps larger compliance departments formed by mergers of multiple banks will be necessary to keep up. That means bigger banks and possibly more that are supposedly too big to fail.
So what's your opinion: Are banks getting the regulations they deserve or being regulated out of existence?