American Banker, July 30, 2018: The crisis isn’t over
Ten years after the financial crisis, the regulatory pendulum has swung in banks’ direction.
The economy is humming, new laws rolling back taxes and bank rules have been enacted, and there’s a deregulatory shift underway across the Trump administration.
It can almost start to seem like business as usual again in Washington.
“The banks have their swagger back,” said Neel Kashkari, president of the Federal Reserve Bank of Minneapolis.
But scratch beneath the surface and the crisis remains surprisingly relevant in the national political debate today — and the memory of the damage it did poses a greater threat than many bankers would like to admit.
The crisis played an outsized role in creating a divided and polarized Washington D.C. It helped push both parties further to the extremes, overturned the compromise-and-consensus playbook on financial issues and left the banking system vulnerable to much wider swings of the policy pendulum. The populist forces unleashed by the crisis are still at large in both political parties, and banks remain a primary target.
Moreover, policymakers appear increasingly ill-equipped to tackle the big financial issues. Fannie Mae and Freddie Mac, the two biggest players in the housing market, have spent almost a decade in limbo at the hands of the government, while broader discussions about ways to fundamentally restructure the banking industry have largely been put on hold.
Some fear that the banking industry’s recent victories — the passage of regulatory reform legislation and proposed deregulatory efforts by Trump officials — could even come back to haunt it at a time when there are rumblings that the economy could be headed for another downturn.
“These changes are significant, and nobody is really looking at the cumulative effect and what else is coming down the road,” said Sheila Bair, who chaired the Federal Deposit Insurance Corp. during the crisis. “The timing on this is terrible — we haven’t even tested these reforms through a cycle.”
As the financial crisis reaches its tenth anniversary, should bankers really be celebrating?
As a result, they went underground. Instead of advocating directly, they started to use community institutions “as the point of the spear on their lobbying efforts,” said Jesse Van Tol, chief executive of the National Community Reinvestment Coalition, essentially using small-bank legislation as a vehicle for large-bank provisions.
