New game-changing regulations on mortgages and remittances from the Consumer Financial Protection Bureau, aswell as new regs from the NCUA and other regulators, havenot-for-profit credit unions wondering how they'll find theresources to comply.

Turns out, their for-profit banking counterparts aren't findingit any easier to shoulder the compliance burden.

Anna Timone, general counsel and chief compliance officer forNew York-based investment firm DIAM USA, said despite accusationsthat Wall Street has escaped regulatory reform, investment banksare feeling the pressure.

“It's a shock for our industry,” Timone said. “Regulators usedto have a soft, friendly approach. Now, they're yelling at you forthings that were easily forgiven in the past.”

The attorney said her industry also faces general uncertaintyregarding current and future regulations.

“The massive amount of new rules being proposed almost weeklybrings a lot of instability on many levels,” Timonesaid. 

For investment bankers, new rules that prohibit the use ofcredit cards to fund accounts for foreign exchange trading hasforced them to make operational changes.

“We are almost a cashless society now, so why?” Timone said.“You can put a Starbucks coffee on a credit card, that's theconsumer's choice. The idea behind the rule is to fight compulsivepurchases, but it doesn't make sense.”

With investment bankers also struggling with new requirementsfor asset managers to register with the Commodity Futures TradingCommission and the Securities and Exchange Commission, dualregistration seems redundant, Timone said. 

She also identified as problematic the Volcker Rule, which wouldprohibit proprietary trading, as a regulatory issue, as well as newfiduciary duties for investment advisers, Basel capitalrequirements and other proposals coming from Europe.

Like credit unions, Timone said bankers wonder if theirregulators are trying to prevent another crisis, or put them out ofbusiness.

“The entire financial industry is going through regulatoryrestructures, investigations, litigations and audits that create alot of uncertainty for business in the industry,” Timone said. “Ofcourse, it affects a company's confidence in hiring and they cutcosts, business development suffers, and clients are very cautionsand waiting for more stability. And then you add in poor markets, alack of new opportunities, new taxes being proposed and a lot ofpolitical uncertainty.”

SEC lawsuits have also affected investment bankers. Timonecalled the half billion dollars' worth of settlements collected sofar a shakedown by federal authorities.

“What's sad is a lot of companies are willing to settle rightaway with the first SEC complaint, rather than defendingthemselves,” Timone said. “And you don't even know if the complaintis based upon merit.”

Jill Castilla, executive vice president and chief credit officerof the $270 million Citizens Bank of Edmond in Edmond, Okla., saidregulations have also affected her business. Citizens has hiredadditional compliance staff, utilized compliance vendors andincreased compliance responsibilities for existing managers andstaff, she noted. 

“We're a small organization, so compliance is required for allof us,” Castilla said. “We use a tiered approach where basiccompliance functions can be addressed by manager, even front linestaff, and then we have a second tier of dedicated compliancespecialists. For issues that require further expertise, we utilizea consultant.”

The community banker said of all the new regulations she faces,Basel III capital requirements are the most problematic. As acommunity lender, the bank makes a lot of loans outside the boxthat would be subjected to increased risk weighting under BaselIII. Speculative commercial lending would be subjected toparticularly heavy risk weighting.  Even the typicalbusiness loans that banks put on the books would be more difficultto fund under Basel III, Castilla said.

And, unlike other regulations that are applied to business goingforward, Basel III would be applied to the bank's existing loanportfolio. Still, merely raising additional capital isn't theanswer, she said.

“No one is going to assign more capital,” Castilla said.“Instead, we would stop doing loans that would increase risk. Inour scenario, we don't have deep pockets to go to when we needadditional capital. Capital is organically grown thru earnings, sowe grow capital organically through earnings, not by taking moneyfrom a wealthy stockholder. The reduction in flexible loanstructures could be damaging from an economic aspect and to smallbusiness, especially in smaller communities.”

Castilla said investors aren't clamoring to invest in banksright now because margins are so narrow and there are significantrestrictions placed on distributions on earnings. An investor couldgo years without seeing returns, she pointed out. 

Some have said investors usually want a majority stake in theinstitution, which means raising capital or merging with anotherbank to achieve economy of scale, which dilutes current ownershipand can significantly alter the culture and investment objectivesof an institution. 

“Community banks have niches, we know our customers well. When abig bank buys a community bank or merges with one, they can losethat community understanding,” Castilla said. “It's probably thesame challenge a local credit union would experience in a merger oracquisition.”