New Jersey bankers expect an increased burden of expensive government regulations that could set off a wave of bank mergers as the cost of compliance eats into their profits. But they also are looking forward to a gradually improving economy that yields more opportunities for their banks to grow.
Donald Mindiak is chief executive of BCB Community Bank, in Bayonne, which since it was founded a decade ago has faced steady increases in compliance costs. Mindiak said the $1.2 billion-asset bank has 200 employees, nine of whom primarily work on risk management and regulatory compliance, which are "cost centers that generate no revenue. I understand the need for regulatory compliance; we get all that. But I spend a significant amount of my time more concerned with regulatory compliance than with creating franchise and shareholder value."
The Dodd-Frank financial institutions regulatory act is still being implemented, so its full impact on banks is unknown. And regulators have postponed implementing the new Basel III bank capital rules, which were supposed to phase in beginning Jan. 1.
But when it comes to regulation, the writing is on the wall, bankers said.
"Regulatory compliance is never going to be any less than it is right now," Mindiak said. "So apparently, we are going to continue to need to dedicate resources to these areas."
Chris Martin, CEO of the $7 billion Provident Bank, in Jersey City, said about 45 percent of the regulations to implement Dodd-Frank have been promulgated thus far. And he is hopeful that "the time delay has allowed (Congress) to start reconsidering some of the rules, and maybe repeal those that really don't add any value."
It's expected new rules dealing with mortgage lending will be issued early next year by the Consumer Financial Protection Bureau that Dodd-Frank created. Martin said the CFPB "wants to simplify the process of telling people how to evaluate their ability to repay a mortgage." The 2008 financial crisis was blamed in large part on risky mortgage lending. "You can't give loans to people when they can't pay the money back, which is what happened in the past and certainly isn't happening today," Martin said. "For people who really can't qualify for mortgages, you can't do anything except try to help them learn how to save money to buy a house."
Regardless of the regulatory climate, Mindiak said he is positioning BCB to keep growing. To that end, the bank is raising additional capital "to have a larger capital base and continue to grow the bank organically."
Martin said Provident originated $1 billion in new loans in the first three quarters of the year. After adjusting for loans that were paid off, the bank had net loan growth of $300 million.
He said the new loan originations "primarily come from the relationships we develop with other bank's customers. When a loan comes up for renewal, we are getting the chance to bid on that business."
Martin said the volume of new originations suggests Provident "is having very good results in a very tough market," with many existing customers holding off on borrowing money to expand their businesses, pending some resolution of the prevailing economic uncertainties, like future taxation levels and health insurance costs.
But "New Jersey has always been resilient, and we will be resilient enough to grow through this," Martin said.
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