Bankers describe tariff, regulatory uncertainty

Economic uncertainty has risen for customers and businesses after President Donald Trump issued sweeping tariffs last week, banking executives said April 8 during the American Bankers Association Washington Summit. .The discussion came six days after Trump issued a 10 percent tariff on all imported goods, which took effect April 5. Further tariffs on dozens of other countries are set to begin April 9. Trump has raised baseline tariffs on Chinese imports to an effective 54 percent, and imposed 25 percent tariffs on most goods imported from Canada and Mexico. “This macro issue will trickle down,” said ABA Chair-Elect Kenneth Kelly. Chair and CEO of First Independence Bank in Detroit, Kelly said some customers are impacted by the tariffs, especially as his city is on the Canadian border. Consumers and businesses should remain calm to help weather the uncertainty, Kelly added. Customers are considering whether to move forward or pull back on their spending plans, added Cathy Owen, chair, president and CEO of State Holding Co., the holding company for Little Rock, Ark.-based Eagle Bank & Trust Co. Though uncertainty naturally creates hesitancy, banks remain healthy amid consistent business as business remains consistent, said American Bankers Association Chair John Asbury, CEO of Richmond, Va.-based Atlantic Union Bankshares Corp.Despite the tariffs, Owen remains optimistic the Federal Reserve will ensure a soft landing. Asbury said the current interest rate environment remains relatively low as many customers have adjusted to the current environment. RegulationsDuring a separate panel discussion, speakers described the easing regulatory environment under the Trump administration. During the final weeks of the administration of former President Joe Biden, the Consumer Financial Protection Bureau finalized a rule limiting overdrafts for banks with more than $10 billion in assets. The rule grants banks with more than $10 billion in assets three overdraft options: Charging $5; implementing a fee that covers no more than losses or costs; or disclosing the terms of a profit-generating overdraft loan similarly to other loans. Late last month, the Senate voted 52-48 to overturn the rule, with the House of Representatives approving a companion bill earlier in March by a 30-19 vote.Congressional invalidation of the rule will prevent a future CFPB director from instituting a similar requirement, said ABA Executive Vice President Kirsten Sutton. The banking industry has criticized the rule, arguing it is an example of government overreach that will limit the availability of credit. In early February, Sens. Bernie Sanders (I-Vt.) and Josh Hawley (R-Mo.) proposed a bill that would cap credit card interest rates at 10 percent. The bill faces uncertain odds of passing. Capping credit card interest rates reduces the availability of credit, according to the ABA. Nearly all subprime credit card borrowers were at risk of losing their card if interest rates were capped at 15 percent, said EVP of Advocacy and Innovation Jess Sharp. Even bills that are likely to fail are crucial to introduce as they demonstrate where members of Congress stand on important issues, Sutton said. She cited Section 1071, which would require financial institutions to collect and submit data on credit applications by women-owned, minority-owned and small businesses. One bill, authored by Roger Williams (R-Texas), would repeal Section 1071 entirely. Biden vetoed the bill in late 2023, but Williams reintroduced the legislation in February. The CFPB said this week that it no longer opposes pausing compliance with Section 1071, and plans to initiate new rulemaking to change the rule. Sutton called for more cosponsors on ACRE legislation. The bill, sponsored by six Senators and more than 20 House members, proposes exempting taxes for interest on loans secured by rural or agricultural real estate.Sutton also discussed the SAFE Banking Act, which would provide protections for federally-regulated banks that serve marijuana businesses authorized under state law. Sutton said the legislation, which has failed to pass on several occasions, is in doubt as some Republicans refuse to offer any support for a plan that moves toward legalizing cannabis at the federal level. The ABA supports the legislation, saying it allows banks to service legal customers. Trump expressed support for the SAFE Banking Act just before the election, but has not taken a stance since he was inaugurated. Regarding credit unions, Sutton alleged that they have strayed from their founding mission and should face an oversight hearing. She suggested that taxing CUs could help the federal government pay for tax cuts. While a regulatory framework for stablecoins is needed, it cannot disintermediate the traditional banking system, said Brooke Ybarra, ABA senior vice president of innovation and strategy. Customers should not be incentivized to move value to stablecoins from bank accounts, she added. Ybarra called for a ban on stablecoin issuers engaging in commercial activities. She said the stablecoin market, which is currently valued at $200 billion, could grow exponentially and take business away from banks if the largest corporations are eventually allowed to manage stablecoins.