By BOB BRODA, special to Local Tech Wire
Editor’s note: Bob Broda is founder and Managing Partner of Visage Solutions, LLC. providing a variety of services in the areas of Risk and Compliance management including risk assessments, Sarbanes-Oxley (“SOX”), FFIEC (Federal Financial Institutions Examination Council), SAS70s, ISO and other compliance and operations effectiveness initiatives.
RESEARCH TRIANGLE PARK, N.C. – Well it’s here! The new has just been signed into law to guard against the sins of the past.
No longer will the excesses of Wall Street and the Financial Services industry negatively affect Main Street.
Well that’s at least what the authors want to tell you.
The truth of the matter is the current document of well over 2000 pages really doesn’t tell you what is coming in the upcoming months and years. Speculation rules! The only thing for sure is things are changing and although changes were needed, this bill may most likely make things worse before it makes them better, if it ever does. All we know for sure is things will be different!
Besides the creation of seventeen new agencies that will increase the size of the federal government, it will pose a set of rules and regulations on financial institutions that will fundamentally change the financial services industry as we know it. Not necessarily a bad thing, depending on the change.
The “Too Big to Fail” provision will limit the size of the financial institutions. The past practice of buying and merging banks into Mega Banks will come to an end. We will probably never again see banks the size of Bank of America, CitiGroup, etc.. It will be interesting to see if there is a push to break apart the bigger banks.
If it happens, it will most likely be the bank’s decision and not “mandated”, although the hurdles a large complex organization must overcome will facilitate that decision.
The good news is that if any financial institution gets in trouble, the investors of that institution will suffer the consequences. They should not be coming to the American taxpayer looking for a bail out. I think everyone will agree that that’s the way it should be.
Don’t get the idea, that there will be more banks or financial institutions. On the contrary, there most likely be far fewer. It really depends on the new Financial Consumer Protection Bureau, Financial Stability Oversight Council, Office of Financial Research, Office of Financial Literacy, etc. and the rules and regulations they impose on the financial industry.
But it doesn’t take a rocket scientist to figure out that it will be more costly for a financial institution to comply with the rules, regulations and audits these new agencies will demand. After all, they really will need substantial additional information to have any potential for looking for future “bad business practices.”
Other businesses besides banks will be affected by these regulations and audits. These regulatory bodies will likely be less forgiving than in the past. The unwritten mode of operation waiting for the auditors to find violations before addressing the problems that some institutions operate under will also most likely come to an end.
To cover these increased regulatory expenses, there will most likely be some consolidation of smaller organizations to be able to afford for this additional oversight (on a transactional basis). Extra costs to the banks will mean that they will have to cut costs else-where and increase fees to the end consumer.
The current practice of ex bank executives starting new community banks may also be slowed since it will now require additional costs and funding to start a bank. Limiting the number of financial institutions to audit and regulate may not necessarily be a goal of these new regulations, but having less will most certainly make it less costly and have more control.
An unintended consequence of this new regulation will most likely be the effect of small business.
Although the authors have gone out of their way to make sure that small businesses are not overly effected by this new regulation. Banks will be forced to implement new sophisticated risk management techniques that will limit the amount of money they can loan along with decreasing their overall risk portfolio.
The simple truth is that small businesses are very risky propositions. More small businesses fail than succeed, far more are just surviving. Small businesses that have been able to survive during this recession should be applauded for their hard work and determination. Unfortunately, they will most likely not be able to get the new loan to help them succeed now that the economy is turning around.
Even worse, the current loans they have may be recalled since they now fall outside of the risk parameters being set. Since our homes have been devalued, small business owners may not have the extra securities needed for the loans to be continued. So although everyone wants small businesses to succeed, this new regulation will most likely make it more difficult.
About the author: Bob Broda is founder and Managing Partner of , LLC. providing a variety of services in the areas of Risk and Compliance management including risk assessments, Sarbanes-Oxley (“SOX”), FFIEC (Federal Financial Institutions Examination Council), SAS70s, ISO and other compliance and operations effectiveness initiatives.
Broda has spoken at several local and national events on the subjects of Sarbanes-Oxley, Risk Management, Internal Controls, Information Security and Business Continuity. He has consulted on many of the compliance projects in various functional roles including managing, documenting, testing and Quality Assurance work.
Broda earned a B.S. in Information Systems from Kings College and an Executive MBA from Southern Methodist University. He founded Visage Solutions in 2003.
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