U.S. banks grappled with a number of challenges last year, from inflation and rapidly rising interest rates to the collapse in crypto to the Russia-Ukraine conflict. Despite these headwinds, most institutions appear wellpositioned to whether the economic downturn many believe is coming. However, regulatory concerns persist — about systemic risks, consumer protections, cybersecurity, financial inclusion, and data governance, among other issues. Bank leaders should keep current on developments in Washington to help ensure their institutions meet compliance obligations and remain well-positioned for the future. Recently, on Banking with Interest, I discussed a number of regulatory issues with legendary bank lawyer and Sullivan & Cromwell Senior Chair H. Rodgin Cohen, including the too-big-to-manage debate, scrutiny of M&A and its impact on dealmaking, the Fed’s plans to boost capital requirements, the need for digital-asset regulations, and much more. What follows is our conversation, edited for length and clarity. Are some banks really too big to manage? It’s a fair question, but keep in mind that banking organizations, particularly the largest, are subject to a complex web of laws, regulations, and guidance — which are often ambiguous and almost always involve subjectivity in their interpretation and application. In addition, regulatory expectations and interpretations can change over time. Large banks also are under virtually continuous examination by their regulators and have more compliance personnel per dollar of revenue than any other type of business organization. With so many people examining for compliance, it’s inevitable more violations will be found. There are real advantages to large banks: they bring credit, the breadth of financial services, and the convenience a modern economy needs. I don’t mean to excuse obvious violations or failures of controls, but before one reaches the conclusion that banks are too big to manage, they should strongly consider these benefits. Issue 1 • 2023 15
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