The swift and dramatic events have fundamentally changed the landscape for banks.
Now, big banks may get bigger, smaller banks may strain to keep up and more regional lenders may shut. Meanwhile, U.S. regulators will look to increase scrutiny on midsize firms bearing the brunt of the stress.
In 2008, regulators had to contend with billions of dollars in toxic mortgages and complex derivatives sitting on bank books. This time, the problem is less complex as the holdings are U.S. Treasuries, writes Lipsky.While Congress and regulators whittled away at safeguards for regional banks over the years, there are tougher standards for the biggest global banks, thanks to a sweeping set of new restrictions from Washington in the 2010 Dodd-Frank financial reform law.
Now bankers and regulators are grappling with an unexpected set of challenges. Deposits, long seen as a reliable source of bank cash, have now come into question. “Now the regulators know that these banks offer a greater risk to our overall economy than they thought they did. And I’m sure they will go back and increase regulation to the extent they can,” said Amy Lynch, founder and president of FrontLine Compliance.
“They definitely must, it’s not even should, they must reconsider and change their strategies and the rules that were adopted,” said Saule Omarova, a law professor who President Joe Biden once nominated to lead the Office of the Comptroller of the Currency.
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