Banking regulations have swung too far toward the extreme since the Wall Street meltdown in 2008, which is preventing the economy from moving forward, says the head of a Washington bank.
"We need balance," J. Scott Wilfong, president and CEO of SunTrust Bank of Greater Washington, told editors and reporters at The Washington Times. "I'm not somebody who says you have no regulations. But we should have balanced regulations."
In an interview, Mr. Wilfong criticized changes in the federal regulatory environment since the crisis, saying the government has overreacted to the financial crisis with heavy regulations and said that has contributed to a negative reputation for the banking industry.
He also said the Washington market could be particularly vulnerable if the federal government goes over the looming "fiscal cliff" at the end of the year.
The "fiscal cliff" refers to a number of defense and non-defense cuts in government spending, along with the expiration of the George W. Bush tax cuts at the end of the year, if Congress and the White House don't reach a new budget deal.
The government has helped the Washington market weather most recessions, Mr. Wilfong said, because federal jobs aren't as dependent on the economy as private jobs.
But contrary to popular opinion, Washington may no longer be "recession-proof," Mr. Wilfong said.
"Up until now, we have been," he said.
That means Washington could suffer more from government cutbacks than other regions.
"I think we're more inclined to be impacted here," he said. "The rest of the country is not as reliant on the government for driving the economy."
But it's unlikely the economy will pull itself fully out of the recession and into a recovery with such heavy regulations, Mr. Wilfong said.
Regulation in and of itself is not a bad thing, he said, but overregulation can be.
"We all learned a lesson. Regulators learned a lesson. Banks learned a lesson. Wall Street learned a lesson," Mr. Wilfong said. "The lesson was that you can't be totally unregulated. You have to have some rules of the road."
After Wall Street collapsed at the height of the financial crisis in 2008, there was no shortage of regulations.
The government and consumers were upset and afraid that it might happen again, so they reacted swiftly with fierce regulations, Mr. Wilfong said.
"If you create a crisis, the natural response is to overregulate," he said.
Backed by Democratic majorities in his first two years in office, President Obama pushed through the Dodd-Frank financial regulatory measure, sought increases in the budgets of financial regulators and created a new Consumer Finance Protection Board to oversee many banking functions. Presumed GOP nominee Mitt Romney has called for the repeal of Dodd-Frank, while saying there are some parts of the law he would retain.
Mr. Wilfong said the regulatory burden now faced by commercial lenders has pushed the economy past the point of consumer protection to slow growth, he said.
In fact, the regulations put in place since the recession ended have been so excessive, Mr. Wilfong said, that businesses are afraid to spend and would rather save for a rainy day.
"When you have an economy that is centered on uncertainty, then [businesses] become very conservative, they don't invest in the future," Mr. Wilfong said.
"They just really have gone into the trenches and they aren't coming out," he said. "There's very little activity going on."
On the flip side, consumers now have plenty of protections. Mr. Wilfong said he agreed with regulations that require banks to educate consumers about financial products before they sign up.
But he said he fears that "totally financially illiterate" consumers are protected beyond reason. Even after banks educate them, some come back later and complain that they didn't understand what they were getting into.
"So where we're trying to get the pendulum to swing is that there's some obligation and some responsibility on the part of the borrower to have a role when they borrow money," Mr. Wilfong said. "It shouldn't be that the borrower has no role in the process, and that it's all the bank, so that at any point in time the borrower could play a card that says, 'I was being used.' That's where we warped into."
A fine balance
Mr. Wilfong would like to find a balance where consumers are protected while the economy grows.
"Balanced regulation is a combination of being able to do business without taking advantage of consumers," he said. "I think over time it will moderate to where there is oversight, but not to the point where you can't deliver product to the consumer."
For now, the banking industry is struggling to repair its reputation. Politicians are taking advantage, labeling them as "evil" and "villainizing" them for everything they have done since the financial crisis, Mr. Wilfong said.
"They got painted with this big brush of 'evil empire,' " he said. "They created this industry perception that banks were all in it for themselves and really didn't care about their clients.
"But the stuff that they were associating with banking," he added, "we don't do half the stuff that we were being villainized for."
It was great campaign material, he said.
"Some of that was driven by political agendas," Mr. Wilfong said. "We were easy to pick on. ... It became this mantra, 'We're going to protect you from the bankers.' "
But SunTrust's reputation took another hit this week when the bank agreed to pay $21 million to settle a Justice Department lawsuit that accused the company of discriminating against black and Hispanic borrowers by increasing loan prices.
Mr. Wilfong responded to the complaints by pointing out that 70 percent of the loans that drew the criticism were written by independent brokers. That means 30 percent of the loans were done by the bank.
"You're never pleased when you're accused of unfair lending," he said. "We spend all our time building our integrity, and that's really what you have as a bank."
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