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CFPB Chief Criticizes 'Too Big to Fail' Banks, Proposes Fee Cap

CFPB Chief Criticizes 'Too Big to Fail' Banks for Unfair Advantages, Calls for Merit-based Competition Amid Regulatory Challenges

By Barry Stearns

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5/3, 18:44 EDT
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Key Takeaway

  • CFPB Director Rohit Chopra criticizes banking concentration, advocating for a level playing field to eliminate 'too big to fail' advantages.
  • JPMorgan's acquisition of First Republic Bank highlights regulatory concerns over banking sector consolidation and the need for stricter scrutiny.
  • CFPB's proposed $8 cap on credit-card late fees faces strong opposition from the banking lobby, underscoring ongoing regulatory battles.

Banking Sector Calls for Fair Play

The US banking landscape is under scrutiny for its increasing concentration, raising concerns about the fairness and competitiveness of the financial market. US Consumer Financial Protection Bureau Director Rohit Chopra emphasized the need for a level playing field, highlighting the dangers of perceived unlimited deposit insurance and the expectation that the largest firms will always be bailed out. This sentiment was expressed during a Bloomberg Television interview, where Chopra advocated for competition based on merit, rather than size or perceived safety nets.

Regulatory Efforts to Curb Excesses

In response to the challenges facing the banking sector, regulatory bodies are taking steps to address issues ranging from executive compensation to credit card fees. The Federal Deposit Insurance Corp. (FDIC) is revisiting proposals to mandate clawbacks of pay from executives who engage in risky behavior, moving away from the discretion previously afforded to banks. This initiative, aimed at curbing excessive risk-taking, faces opposition from the banking industry and requires coordination among multiple regulatory agencies, including the Federal Reserve, which has yet to endorse the current proposal.

Coordination and Opposition Challenges

The path to implementing stricter regulatory measures is fraught with challenges, including opposition from within the banking industry and the need for consensus among various regulatory bodies. The FDIC's proposal to enforce executive pay clawbacks, for example, requires approval from the Federal Reserve, the Federal Housing Finance Agency, the Office of the Comptroller of the Currency, the Securities and Exchange Commission, and the National Credit Union Administration. This complex regulatory landscape highlights the difficulties in enacting reforms intended to enhance accountability and transparency within the banking sector.

Management Quotes

  • Rohit Chopra, US Consumer Financial Protection Bureau Director:

    "The US banking landscape needs to be more of a level playing field, as fewer financial choices means worse outcomes for Americans... Concentration in banking is worrying because there’s a perception that there’s free, unlimited deposit insurance and that the biggest firms will be bailed out no matter what... We’ve got to take out that unfair advantage and let people compete on the merits." "The credit-card lobby is fighting us hard, but we are fighting back. If the rule is shot down, we have to keep appealing and keep going."