Loan Pricing

House Resolution 3072 is Poorly Conceived and Written

US House Resolution 3072 would increase the minimum size of banks that are subject to direct examination by and reporting to the Consumer Financial Protection Bureau (CFPB) from $10 billion in assets to $50 billion in assets. As of June, 2017, this would exempt about 80 banks from the examination and reporting rules and leave about 40. I am opposed to this legislation for three reasons:

  • A $10 billion bank is not a small bank without the compliance resources to handle examinations and this exempts banks that are big enough that when they do something problematic, the scale is large enough to cause regional problems. The $10 billion threshold represents 2.8% of all banks, while the proposed threshold represents 0.6% of US banks.
  • Arbitrary asset limits of either $10 billion or $50 billion do not adjust for inflation, and moving the threshold from $10 billion to $50 billion does nothing to fix this problem. Neither inflation nor the deposit flood that occurs during a panic should push a bank into a different regulatory realm. For the businesses serving banks, regulatory instability is a bigger problem than regulatory burden, and this type of threshold legislation leads to legislative churn and regulatory instability.
  • It does not address the different business models employed by banks over $50 billion. There are banks over $50 billion with business models that do not require much CFPB oversight and banks between $10 and $50 billion that should probably receive significant oversight.

Although I am opposed to this legislation, I am not strongly opposed for the simple reason that most of the mischief during the financial crisis occurred at the “too big to fail” banks, and this does not exempt those banks from CFPB examination.

These are Not Small Banks

The current $10 billion threshold is about the 98th percentile in assets ($10.7 billion), while the proposed $50 billion threshold is above the 99th percentile ($30 billion). These are not small banks with a small staff. Figure 1 shows employment by bank as a function of asset value. There are few banks of $10 billion with fewer than 1,000 employees, so these banks already have full-time compliance staff; this does not present the disproportional regulatory burden that it would for banks with less than 1,000 employees. Although this legislation would remove some oversight for some arguably large banks, it leaves in place oversight for the largest banks in a system that is badly skewed to very large banks. To understand the relative size of of banks in the US, Figure 2 shows the asset size distribution–even though it represents more than 5,800 banks the chart looks like an error due to the vast empty space in the right 90% of the histogram. Figure 3 shows only banks larger than $10 billion (about 120 of 5,800) and points out the dramatic skew in bank size.

Figure 1. Employment at Banks Greater than $10 Billion for June, 2017
plot of chunk us10BBankEmployeeDist
Figure 2. Distribution of US Banks by Assets
plot of chunk usBankAssetDist
Figure 3. Distribution of US Banks by Assets for Banks Greater than $10 Billion
plot of chunk us10BBankAssetDist

Arbitrary Dollar Thresholds are Bad Legislation in the First Place

When legislation is written with arbitrary dollar limits as this bill uses, it means that normal inflation will push banks (or taxpayers in the case of the Alternative Minimum Tax) over the threshold when nothing has changed in terms of bank operations. Inevitably, the legislature is slow to reset the threshold, and institutions and consumers struggle to deal with a regulation that was never intended to apply to them. This legislation perpetuates that problem. It guarantees business for lobbyists, but is not a good way to write laws.

For businesses serving the banking industry, regulatory instability is probably a bigger problem than regulatory burden. If regulation is stable, you can automate the solutions, and banks can buy an inexpensive solution. If regulation is unstable, it cannot be automated and the management burden at a bank prevents the bank from innovating any way; the focus is on how to stay in compliance in a changing compliance world. This type of regulatory threshold is ultimately unstable for a larger number of institutions than other approaches.

There are at least two better threshold-based approaches:

  • A percent of the total number of banks, such a bank being in the largest 2.5% for three consecutive years. This would present uncertainty for a small number of banks as the industry consolidates, but would not create inflation creep problems due to legislative inaction at some point in the future.
  • An asset threshold set as a percentile of asset values. The 98th percentile of assets would currently be approximately $10 billion, while the 99th percentile in assets would be approximately $30 billion. Under normal inflation and consolidation conditions, this would minimize the effects of inflation creep.

A Business-model Approach Would be Best

Some banks just do not touch consumers, and examinations by the CFPB just do not make sense. Table 1 shows the banks that were above $10 billion at the end of June, 2017. There are clearly some banks in this list that have wholesale models where the word “consumer” just does not apply. Figuring out legislation that would take this approach is probably beyond the capability of any legislative body in the United States, so this is probably not a realistic approach, though it would be the best.

Table 1. List of Banks with Assets Greater than $10B
BankCityStateAssets ($1K)Deposits ($1K)EmployeesWeb Site
WELLS FARGO BANK, NATIONAL ASSOCIATION SIOUX FALLS SD 1,673,246,000 1,237,791,000 237,944 http://www.wellsfargo.com
JPMORGAN CHASE BANK, NATIONAL ASSOCIATION COLUMBUS OH 1,631,896,000 1,270,117,000 189,315 http://www.jpmorganchase.com
BANK OF AMERICA, NATIONAL ASSOCIATION CHARLOTTE NC 1,611,631,000 1,270,151,000 143,354 www.bankofamerica.com
CITIBANK, N.A SIOUX FALLS SD 851,012,000 474,780,000 175,473 www.citibank.com
U.S. BANK NATIONAL ASSOCIATION CINCINNATI OH 448,673,608 329,468,253 70,522 http://www.usbank.com
PNC BANK, NATIONAL ASSOCIATION WILMINGTON DE 357,293,517 257,675,713 51,679 www.pnc.com
CAPITAL ONE, NATIONAL ASSOCIATION MC LEAN VA 280,164,033 220,751,261 30,163 www.capitalone.com
TD BANK, N.A WILMINGTON DE 268,184,699 227,051,124 25,096 www.tdbank.com
BRANCH BANKING AND TRUST COMPANY WINSTON SALEM NC 215,064,000 163,093,000 35,503 www.BBT.com
SUNTRUST BANK ATLANTA GA 202,481,382 162,671,910 22,464 http://WWW.SUNTRUST.COM
HSBC BANK USA, NATIONAL ASSOCIATION MC LEAN VA 188,763,813 128,153,520 5,708 www.banking.us.hsbc.com
BANK OF NEW YORK MELLON, THE NEW YORK NY 175,879,000 126,191,000 41,578 www.bnymellon.com
CHARLES SCHWAB BANK RENO NV 175,657,000 162,367,000 612 www.schwabbank.com
STATE STREET BANK AND TRUST COMPANY BOSTON MA 156,181,432 79,114,517 31,940 http://www.statestreet.com
GOLDMAN SACHS BANK USA NEW YORK NY 151,219,000 105,886,000 992 www.gsbank.com
FIFTH THIRD BANK CINCINNATI OH 138,297,752 104,809,057 17,695 https://www.53.com
CHASE BANK USA, NATIONAL ASSOCIATION WILMINGTON DE 134,893,661 41,856,629 9,492 http://www.chase.com
KEYBANK NATIONAL ASSOCIATION CLEVELAND OH 133,501,414 105,344,214 19,017 www.key.com
ALLY BANK MIDVALE UT 126,005,000 86,256,000 6,880 http://www.ALLY.com
REGIONS BANK BIRMINGHAM AL 123,716,371 99,191,861 21,350 http://www.regions.com
MANUFACTURERS AND TRADERS TRUST COMPANY BUFFALO NY 120,357,682 94,979,081 16,039 http://www.mtb.com
CITIZENS BANK, NATIONAL ASSOCIATION PROVIDENCE RI 120,137,787 87,914,988 14,828 www.citizensbank.com
MUFG UNION BANK, NATIONAL ASSOCIATION SAN FRANCISCO CA 116,550,535 86,832,006 12,221 www.unionbank.com
MORGAN STANLEY BANK, N.A SALT LAKE CITY UT 116,382,000 100,032,000 344 NA
CAPITAL ONE BANK (USA), NATIONAL ASSOCIATION GLEN ALLEN VA 107,203,368 66,210,077 22,446 www.capitalone.com
BMO HARRIS BANK NATIONAL ASSOCIATION CHICAGO IL 106,192,025 76,880,136 12,277 http://www.bmoharris.com
HUNTINGTON NATIONAL BANK, THE COLUMBUS OH 101,280,420 77,936,696 15,070 www.Huntington.com
DISCOVER BANK GREENWOOD DE 92,584,050 55,200,692 12,353 www.discover.com
NORTHERN TRUST COMPANY, THE CHICAGO IL 87,267,889 36,878,232 17,292 www.northerntrust.com
BANK OF THE WEST SAN FRANCISCO CA 86,911,273 64,078,723 10,094 www.bankofthewest.com
COMPASS BANK BIRMINGHAM AL 83,946,716 66,222,248 9,837 www.bbvacompass.com
FIRST REPUBLIC BANK SAN FRANCISCO CA 80,978,231 63,293,706 3,881 www.firstrepublic.com
USAA FEDERAL SAVINGS BANK SAN ANTONIO TX 80,557,577 72,000,203 7,295 www.usaa.com
SANTANDER BANK, NATIONAL ASSOCIATION WILMINGTON DE 79,360,980 57,291,082 9,448 www.santander.com
SYNCHRONY BANK DRAPER UT 73,668,489 56,205,604 9,897 WWW.SYNCHRONYFINANCIAL.COM
COMERICA BANK DALLAS TX 70,917,599 57,342,295 7,305 www.comerica.com
ZB, NATIONAL ASSOCIATION SALT LAKE CITY UT 65,276,867 52,785,401 10,007 http://www.zionsbank.com
MORGAN STANLEY PRIVATE BANK, NATIONAL ASSOCIATION PURCHASE NY 60,560,000 49,564,000 610 NA
UBS BANK USA SALT LAKE CITY UT 52,817,587 46,982,008 341 http://www.ubs.com/cefs/en/ubs-bank-usa/ubs-bank-usa.html
AMERICAN EXPRESS BANK, FSB SALT LAKE CITY UT 49,860,950 40,485,436 106 http://www.americanexpress.com
CITY NATIONAL BANK LOS ANGELES CA 46,210,687 40,770,707 4,305 http://www.cnb.com
SILICON VALLEY BANK SANTA CLARA CA 46,102,989 39,843,834 2,310 www.svb.com
E*TRADE BANK ARLINGTON VA 45,504,146 40,344,566 47 www.etrade.com
NEW YORK COMMUNITY BANK FLUSHING NY 44,762,686 26,330,850 2,022 https://www.mynycb.com
DEUTSCHE BANK TRUST COMPANY AMERICAS NEW YORK NY 44,195,000 32,634,000 585 http://www.db.com
PEOPLE'S UNITED BANK, NATIONAL ASSOCIATION BRIDGEPORT CT 42,705,802 32,064,694 5,233 www.peoples.com
CIT BANK, NATIONAL ASSOCIATION PASADENA CA 41,181,081 31,912,428 3,699 cit.com
SIGNATURE BANK NEW YORK NY 40,718,610 33,173,195 1,251 http://www.signatureny.com
AMERICAN EXPRESS CENTURION BANK SALT LAKE CITY UT 37,010,205 19,283,445 294 http://www.americanexpress.com
CITIZENS BANK OF PENNSYLVANIA PHILADELPHIA PA 35,666,791 30,178,882 2,885 www.citizensbank.com
FIRST-CITIZENS BANK & TRUST COMPANY RALEIGH NC 34,599,352 29,483,243 6,665 https://www.firstcitizens.com
EAST WEST BANK PASADENA CA 34,024,016 29,489,477 2,872 http://www.eastwestbank.com
TIAA, FSB JACKSONVILLE FL 32,773,078 23,115,407 3,300 www.everbank.com
BOKF, NATIONAL ASSOCIATION TULSA OK 32,318,943 22,549,197 4,680 www.bokfinancial.com
BANCO POPULAR DE PUERTO RICO SAN JUAN PR 31,585,000 26,777,000 6,539 http://www.popular.com
BARCLAYS BANK DELAWARE WILMINGTON DE 30,811,587 21,369,027 3,387 www.barclaysus.com/deposits
FIRST NATIONAL BANK OF PENNSYLVANIA GREENVILLE PA 30,561,411 21,229,104 4,321 www.fnb-online.com
SYNOVUS BANK COLUMBUS GA 30,534,286 25,465,778 4,094 www.synovus.com
FROST BANK SAN ANTONIO TX 30,227,278 25,665,873 4,253 http://www.frostbank.com
ASSOCIATED BANK, NATIONAL ASSOCIATION GREEN BAY WI 29,703,427 21,867,226 4,365 www.associatedbank.com
FIRST TENNESSEE BANK NATIONAL ASSOCIATION MEMPHIS TN 29,176,534 22,621,047 4,112 http://www.firsttennessee.com
BANKUNITED, NATIONAL ASSOCIATION MIAMI LAKES FL 28,909,570 20,949,969 1,686 http://www.BankUnited.com
WHITNEY BANK GULFPORT MS 26,539,923 21,526,679 4,076 www.hancockwhitney.com
WEBSTER BANK, NATIONAL ASSOCIATION WATERBURY CT 26,167,932 20,554,212 3,256 http://www.websteronline.com
UMPQUA BANK ROSEBURG OR 25,220,026 19,566,602 4,342 https://www.umpquabank.com/
COMMERCE BANK KANSAS CITY MO 24,970,053 20,955,595 4,705 www.commercebank.com
INVESTORS BANK SHORT HILLS NJ 24,324,696 16,352,535 1,943 www.myinvestorsbank.com
VALLEY NATIONAL BANK PASSAIC NJ 23,413,583 17,303,067 2,902 valleynationalbank.com
BNY MELLON, NATIONAL ASSOCIATION PITTSBURGH PA 23,272,288 18,930,200 1,958 www.bnymellon.com
TEXAS CAPITAL BANK, NATIONAL ASSOCIATION DALLAS TX 23,109,493 17,506,254 1,501 www.texascapitalbank.com
PROSPERITY BANK EL CAMPO TX 22,286,297 17,101,925 3,037 http://www.prosperitybankusa.com
PRIVATEBANK AND TRUST COMPANY, THE CHICAGO IL 22,284,353 19,255,774 1,358 www.theprivatebank.com
PACIFIC WESTERN BANK BEVERLY HILLS CA 22,223,332 17,366,146 1,696 https://www.pacificwesternbank.com/
TD BANK USA, NATIONAL ASSOCIATION WILMINGTON DE 22,215,091 18,872,549 75 http://www.tdbank.com
TCF NATIONAL BANK SIOUX FALLS SD 21,756,559 17,655,784 5,889 http://www.tcfbank.com
IBERIABANK LAFAYETTE LA 21,713,975 17,738,360 2,941 http://www.iberiabank.com
BANK OF AMERICA CALIFORNIA, NATIONAL ASSOCIATION SAN FRANCISCO CA 21,567,000 17,719,000 0 NA
PINNACLE BANK NASHVILLE TN 20,765,252 15,800,346 2,263 http://www.pnfp.com
RAYMOND JAMES BANK, NATIONAL ASSOCIATION SAINT PETERSBURG FL 20,101,873 17,418,199 212 www.raymondjamesbank.com
UMB BANK, NATIONAL ASSOCIATION KANSAS CITY MO 20,081,185 16,240,966 2,787 www.umb.com
BANK OF THE OZARKS LITTLE ROCK AR 20,068,595 16,241,570 2,395 http://www.bankozarks.com
MB FINANCIAL BANK, NATIONAL ASSOCIATION CHICAGO IL 19,874,009 14,281,176 3,478 www.mbfinancial.com
FIRST NATIONAL BANK OF OMAHA OMAHA NE 19,518,079 16,159,398 4,667 www.firstnational.com
FIRST HAWAIIAN BANK HONOLULU HI 19,497,364 16,143,601 2,191 http://www.fhb.com
SALLIE MAE BANK SALT LAKE CITY UT 19,335,095 14,307,988 1,485 www.salliemaebank.com
WESTERN ALLIANCE BANK PHOENIX AZ 18,748,070 16,082,923 1,647 http://www.westernalliancebank.com
CHEMICAL BANK MIDLAND MI 18,730,163 13,227,524 3,364 http://www.chemicalbank.com
ARVEST BANK FAYETTEVILLE AR 17,298,302 14,984,820 5,820 www.arvest.com
FIRSTBANK LAKEWOOD CO 17,274,585 15,619,162 2,413 http://www.efirstbank.com
STATE FARM BANK, FSB BLOOMINGTON IL 17,203,912 11,507,096 2,390 www.statefarm.com/finances/banking
SCOTTRADE BANK TOWN AND COUNTRY MO 17,008,138 15,592,844 143 www.scottrade.com
BANK OF HAWAII HONOLULU HI 16,456,854 13,859,935 2,142 www.boh.com
FLAGSTAR BANK, FSB TROY MI 15,890,503 9,023,774 3,432 www.flagstar.com
STERLING NATIONAL BANK MONTEBELLO NY 15,344,598 10,567,551 997 www.snb.com
WASHINGTON FEDERAL, NATIONAL ASSOCIATION SEATTLE WA 15,084,501 10,667,533 1,815 www.washingtonfederal.com
OLD NATIONAL BANK EVANSVILLE IN 14,863,415 10,797,561 2,411 www.oldnational.com
BANCORPSOUTH BANK TUPELO MS 14,848,975 11,932,560 3,989 www.bancorpsouth.com
MIDFIRST BANK OKLAHOMA CITY OK 14,547,409 7,829,551 2,479 www.midfirst.com
ASTORIA BANK LONG ISLAND CITY NY 14,068,775 9,078,423 1,364 www.astoriabank.com
CATHAY BANK LOS ANGELES CA 13,933,869 11,235,245 1,127 www.cathaybank.com
STIFEL BANK AND TRUST SAINT LOUIS MO 13,926,601 12,057,553 176 http://www.stifelbank.com
TRUSTMARK NATIONAL BANK JACKSON MS 13,907,101 10,439,499 2,858 http://www.trustmark.com
BANK OF HOPE LOS ANGELES CA 13,852,962 10,968,853 1,378 http://www.bankofhope.com
FIRST MIDWEST BANK ITASCA IL 13,776,789 11,080,838 2,113 http://www.firstmidwest.com
RABOBANK, NATIONAL ASSOCIATION ROSEVILLE CA 13,660,000 10,381,000 1,532 www.rabobankamerica.com
THIRD FEDERAL SAVINGS & LOAN ASSOCIATION OF CLEVELAND CLEVELAND OH 13,488,146 8,264,611 1,030 http://www.thirdfederal.com
UNITED BANK FAIRFAX VA 13,309,359 9,168,084 1,310 www.bankwithunited.com
APPLE BANK FOR SAVINGS MANHASSET NY 12,850,974 11,662,658 847 www.theapplebank.com
BREMER BANK, NATIONAL ASSOCIATION SAINT PAUL MN 11,786,183 9,709,206 1,692 http://www.bremer.com
FIRSTBANK PUERTO RICO SAN JUAN PR 11,699,027 8,584,845 2,579 http://www.1firstbank.com
COMENITY BANK WILMINGTON DE 11,625,835 4,258,173 571 www.comenity.net
GREAT WESTERN BANK SIOUX FALLS SD 11,460,391 8,978,245 1,629 www.greatwesternbank.com
FULTON BANK, NATIONAL ASSOCIATION LANCASTER PA 11,262,145 8,431,272 1,287 www.fultonbank.com
SOUTH STATE BANK COLUMBIA SC 11,151,597 9,063,129 2,260 www.southstatebank.com
CUSTOMERS BANK PHOENIXVILLE PA 10,864,677 7,538,543 781 www.customersbank.com
CENTENNIAL BANK CONWAY AR 10,861,231 7,861,199 1,551 http://www.my100bank.com
UNITED COMMUNITY BANK BLAIRSVILLE GA 10,817,173 8,820,998 1,922 www.ucbi.com
COMMUNITY BANK, NATIONAL ASSOCIATION CANTON NY 10,643,289 8,703,618 2,087 www.communitybankna.com
EASTERN BANK BOSTON MA 10,574,493 8,848,771 1,786 www.easternbank.com
BANC OF CALIFORNIA, NATIONAL ASSOCIATION SANTA ANA CA 10,356,655 8,104,994 811 www.bancofcal.com
CAPITAL BANK CORPORATION RALEIGH NC 10,101,534 8,164,389 1,691 WWW.CAPITALBANK-US.COM

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