Wednesday, August 29, 2012

New Banking Regulations Unexpectedly Have Unexpected Results

Via Kare11’s John Croman on Twitter, The Des Moines Register takes a look at the “unexpected” impact of new banking regulations by examining the story of Richard Eggers, who was fired from his job at Wells Fargo last month- for something he did in 1963:

Richard Eggers doesn’t look like a mastermind of financial crime.

The former farm boy speaks deliberately, can’t remember the last time he got a speeding ticket, and favors suspenders, horn-rimmed glasses and plaid shirts. But the 68-year-old Vietnam veteran is still too risky for Wells Fargo Home Mortgage, which fired him on July 12 from his $29,795-a-year job as a customer service representative.

Egger’s crime? Putting a cardboard cutout of a dime in a washing machine in Carlisle on Feb. 2, 1963.

Why would a big evil corporation behave this way?  The government, naturally.

Big banks have been firing low-level employees like Eggers since the issuance of new federal banking employment guidelines in May 2011 and new mortgage employment guidelines in February.

The tougher standards are meant to weed out executives and mid-level bank employees guilty of transactional crimes, like identity fraud or mortgage fraud, but they are being applied across-the-board thanks to $1-million-a day fines for noncompliance.

I have a number of family members who work in banking, and I’ve learned from them more than I ever wanted to know about the crushing regulatory burden that banks are under. 

Congressman Keith Ellison, who is on the House Financial Services Committee, will tell you that all these regulations create jobs.  But I’m guessing Richard Eggers and the “thousands of other workers” fired under these new regulations are going to disagree with that.

When Dodd-Frank was passed in 2010, it was over 2,300 pages.  Now, two years later, that’s ballooned to over 7,300. It will take banks over 25 million hours per year to comply with the first 224 Rules in Dodd-Frank, and they are still writing more rules.

Every hour spent on a Keith-Ellison-approved compliance job translates into real dollars as a cost of doing business.  And every dollar spent on compliance is one that is not invested in growing a business.

Most of us (Ellison excepted) already knew that regulation is a drain on business.  Now, through Richard Eggers, we’re finding out the human cost as well.