How Wall Street is encouraging regulators to overreach

Another bank executive has penned an searing indictment of Wall Street. But Robert Wilmers, chief executive officer of M&T Bank Corporation, isn’t parachuting out of the industry. Instead, he believes he’s trying to save it.

In a letter to shareholders ahead of their annual April meeting — first flagged by Joe Weisenthal—Wilmers warns the industry that its excesses could end up backfiring by prompting regulators to overreach, hurting Main Street banks like his own.
(Seth Wenig/Associated Press)

M&T is one of the nation’s largest bank holding companies— with more than $77 billion in assets —but it’s largely built upon a franchise of locally based community banks. Wilmers blames Wall Street’s gambling before the crisis and knee-jerk objection to new oversight afterwards for tarnishing the reputation of the entire banking industry, including banks like M&T that weren’t responsible for the original meltdown. And he believes that this “decimation of public trust” could have long-standing consequences, prompting government regulators to embrace “fear-driven rulemaking” out of their belief that banks are incapable of keeping themselves in line:

In this vacuum of credible leadership, not just in the banking industry but all around it, it is entirely understandable that regulators believe they must proceed with an abundance – perhaps over-abundance – of caution. Inevitably, they feel pressure to eliminate, in its entirety, risk that had been rising for far too long. This tension – based in their understanding that steps aimed at ensuring the safety and soundness of the financial system can stifle its vitality and dynamism – naturally weighs on rulemakers and slows the pace of promulgation.

As a result, Wilmers warns that Wall Street is effectively inviting regulators to overreach by giving them little reason to believe that banks will behave responsibly. “One must be concerned that a lack of leadership and trust, and an overreliance, instead, on the development of policies, procedures and protocols, has created a level of complexity that will decrease the efficiency of the U.S. financial system for years to come – and hamper the flow of trade and commerce for the foreseeable future,” he concludes.

It’s an argument that’s become more prominent as community bankers and other “Main Street” players in the financial industry worry that Dodd-Frank will needlessly punish them as a result of Wall Street’s impunity. Last week, a group of state banking associations launched the industry’s first super PAC, Friends of Traditional Banking, to fight regulation on behalf of Main Street financiers. M&T, for its part, objects its new designation as a “systemically important” institution—which subjects banks with more than $50 billion in assets to more regulations— even though it’s eschewed the risky investments that its Wall Street continues to embrace.

“The higher costs along with higher capital and liquidity requirements will inevitably diminish the availability and increase the cost of credit to business owners, entrepreneurs and innovators of our community,” Wilmers argues. Advocates of strong financial reform, for their part, believe that smaller banks shouldn’t skirt regulation either—and point out that they still stand to benefit from the new regulatory regime.