Banks as underdog? After reg relief, that ship has sailed

Since the waning days of the financial crisis, banks have increasingly posited themselves as the underdog against the likes of federal regulators, the Consumer Financial Protection Bureau, Sen. Elizabeth Warren, D-Mass., and many others.

The pitch was that the industry was being crushed by regulations and compliance costs, facing an indifferent Congress as they were unable to lend and their numbers steadily dwindled.

But multiple news stories on Tuesday blow away that narrative.

First, the Federal Deposit Insurance Corp. announced that banks had earned an astounding $56 billion in the first quarter, more than 27% higher than the same point last year. That didn’t just break the earnings record — it shattered it.

The FDIC was quick to note that the recently enacted tax law, which slashed the corporate rate to 21%, was a big help in reaching those earnings. But even if that were taken out of the equation, banks still would have earned $49.4 billion — and that, too, would have been a record.

And though the big banks earned much of that record-setting amount, small banks — which have repeatedly clamored for regulatory relief since the Dodd-Frank Act passed in 2010 — also had a great quarter. For small banks, earnings were up nearly 18% overall, according to FDIC data. Even excluding the tax cut windfall, earnings would have been up 9% among smaller institutions.

Roughly 73% of community banks turned a profit in the first quarter.

Those figures come just ahead of the enactment of a major regulatory relief package, a bill that is designed to help regional and community banks. Several regional banks currently labeled as systemically important, and thus subject to higher capital and liquidity requirements, will be free of that designation when the bill is enacted. Smaller institutions below that $50 billion threshold, meanwhile, will see other benefits, making it easier to comply with CFPB mortgage regulations and file call reports.

The regulatory relief bill marks the end of a tortuous but long-held goal for banks, a significant achievement.

And there’s still more deregulation to come: The final elements of the Trump administration’s deregulatory team are only just now being put in place.

That means that, going forward, there is likely to be more action in a range of areas, including the Volcker Rule, the Community Reinvestment Act, small-dollar lending, mortgage regulations, even anti-money-laundering requirements — all of it in banks’ direction.

None of this is to say that banks don’t continue to face challenges, notably consolidation. It seems undeniable that there will continue to be fewer banks in the country, far less than the current 5,600-institution base.

But in Washington, banks are running the table on their priorities. They already have tax cuts and now reg relief — not to mention a Federal Reserve dedicated to raising interest rates, another factor that will help boost banks’ bottom line. And there’s more assistance on the way.

Banks aren’t losing the policy war — in fact, they’re on their way to winning it.

Bankshot is American Banker’s column for real-time analysis of today's news.