Tightening the Screws

The Wall Street Journal reported today that regulators are increasing the scrutiny over U.S. financial institutions as Congress debates the future of the regulatory system.  This certainly comes as no surprise given the state of the economy, but many of the banks are not comfortable with the new pressure.  Here is what the WSJ had to say.

Federal regulators have escalated the number of wounded banks they have essentially put on probation, with some of the targeted banks complaining that the action is too harsh. The Federal Reserve and the Office of the Comptroller of the Currency, two of the primary U.S. banking regulators, have issued more of the so-called memorandums of understanding so far this year than they did for all of 2008, according to data obtained from the agencies under Freedom of Information Act requests. The sharp increase comes as Congress considers changes proposed by the Obama administration that would overhaul the way the U.S. government oversees banks. Many bankers and analysts believe those changes would result in an even more assertive regulatory apparatus. Regulators have been criticized for going too easy on banks and securities firms.

Regulations and their associated risk will continue to rise into the foreseeable future.  How banks respond and proactively adjust to the risk will determine who thrives, who just survives, and who fails.