Banking

Trade group leader: ‘Crushing’ regulations hurt NC banks

Peter Gwaltney, the new president of the North Carolina Bankers Association, says regulations are driving up banks’ operating costs. The smaller the bank, the harder it is to absorb those costs, he added.
Peter Gwaltney, the new president of the North Carolina Bankers Association, says regulations are driving up banks’ operating costs. The smaller the bank, the harder it is to absorb those costs, he added. jsimmons@charlotteobserver.com

North Carolina’s banks are doing well in an economy that has improved since the financial crisis, but they are also challenged to grow their profits as “crushing” regulations drive up their operating costs, according to the new president of the North Carolina Bankers Association.

In a wide-ranging interview with the Observer on Friday, Peter Gwaltney said federal regulations created in response to the financial crisis are increasing the need for U.S. banks to hire people to help them comply with the new rules. That’s raising banks’ costs at a time when their profitability is being stifled by low interest rates and other factors, he said.

As the U.S. and North Carolina economies get healthier, the state’s banks are “making good money,” Gwaltney said. “But they’re having to work harder to do that. They could be more profitable if it weren’t for this regulatory burden.”

North Carolina banks are in better shape overall than during the depths of the crisis, he said, pointing to higher capital and other improving metrics.

“Regulatory burden” is the biggest concern voiced by the North Carolina bank CEOs he’s met with since starting his new position in January, he said. Gwaltney, 51, replaces Thad Woodard, the trade group’s longtime president, who announced his retirement last year.

The association’s membership is made of all 102 banks that do business in North Carolina, including the 69 banks chartered in the state, Gwaltney said. The 118-year-old group lobbies lawmakers on behalf of its members.

Gwaltney said there are no “bold proposals” his association is pursuing in the latest session of North Carolina’s General Assembly that kicked off in January.

“Our primary focus this session is to keep bad things from happening. And we’ve had a very smooth session this year.”

Compliance jobs hot

As North Carolina banks seek to comply with increasingly complex regulations, jobs to make sure they are doing so are in high demand, Gwaltney said.

“The employees they hire are what we call inward-facing, not outward-facing,” he said. “They’re not serving customers. They’re serving to monitor compliance with the regulations.”

Banks have been laying off mortgage staff in recent years, in part because of less need for employees who work with struggling borrowers as fewer fall behind on their home loans.

Mergers expected to continue

Gwaltney expects the bank mergers that have gone on for decades nationwide, including in North Carolina, to continue.

“There’s no doubt that there will be more,” he said.

Charlotte has seen a drop in its number of community banks compared with 2007, before the recession, because of consolidation.

Rising costs to comply with regulations is a contributing factor, as smaller banks seek to gain scale to spread out such expenses over a larger company, Gwaltney said. The smaller the bank, the harder it is to absorb those costs, he said.

“The large banks tell us ... from Bank of America on down, they have the resources to deal with these challenges,” Gwaltney said. “The community banks have just fewer resources.”

Cybersecurity a focus

Banks, like other U.S. companies, have grown increasingly concerned about cybersecurity in the wake of recent high-profile hacking incidents against Target and other major corporations. Cybersecurity is a top priority for North Carolina’s banks as they seek to protect customer data, Gwaltney said.

More communications between the private and public sectors are needed to improve cybersecurity, he said.

“The missing link right now is being able to share information among themselves and with the government, and then the government with the industry.”

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Twitter: @DeonERoberts

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