Banks Should Take the Lead on Modernizing Regulation

In an opinion article published in the American Banker last month, Eugene Ludwig, Chair of the Ludwig Institute for Shared Economic Prosperity, advocates for a collaborative approach to modernizing bank regulations in response to potential rollbacks under the second Trump administration.

"Some regulations are redundant," Ludwig argues. "Some outdated. Others miss the mark entirely. By streamlining and refining current regulations, we can create a less-burdensome regulatory environment without compromising essential safeguards. A responsible approach to regulatory modernization can be durable."

Ludwig, who served as the Comptroller of the Currency from 1993 to 1998, emphasizes that the financial industry should proactively lead reform efforts by identifying outdated, redundant, or overly burdensome regulations. He suggests that trade associations enhance their regulatory modernization groups and appoint "regulatory modernization czars" to draft and present reform proposals. A unified industry front, he argues, can expedite the process and foster collaboration with regulators.

Ludwig also proposes consolidating regulatory authority to improve efficiency. For instance, he suggests that the Consumer Financial Protection Bureau (CFPB) should focus on nonbank supervision while traditional banking agencies oversee banks' consumer compliance. 

He criticizes the prevailing regulatory approach whereby examinations, informal guidance, and enforcement actions are used to impose new requirements on banks, creating compliance burdens and inconsistency. Ludwig calls for transparent, predictable supervision by formalizing regulations and decoupling supervisory expectations from enforcement actions.

"By formalizing supervisory expectations through clear and specific regulations, regulators can reduce uncertainty and provide a level playing field for financial institutions," Ludwig writes. "Additionally, decoupling the advancement of supervisory expectations from the examination and enforcement process can mitigate the risk of unintended consequences and promote a more collaborative regulatory environment."