On September 23, 2013, the Berkeley Center for Law, Business and the Economy (BCLBE) hosted a lunchtime talk on banking law given by Wells Fargo & Company’s Chief Regulatory Counsel, John D. Wright. Wright’s talk was part of Banking Law Fundamentals, BCLBE’s comprehensive, 2-1/2 day introduction to banking law for attorneys, consultants, regulators, and bank professionals, hosted at UC Berkeley’s International House from September 23-25.
Wright presented an overview of post-Dodd Frank financial institutions’ “new normal,” characterized by a “highly operationalized, risk-averse, bureaucratized culture.” According to Wright, “the golden age for lawyers and consultants has finally dawned.”
Wright, who has worked with financial institutions for 25 years, described the major events that led to the current state of affairs. As an associate practicing securities and banking law at Brobeck, Phleger & Harrison in San Francisco, he often analyzed Wells Fargo’s commercial loan files. At that time, law firms were the primary directors of banks’ legal work.
Wright joined Crocker Bank in early 1980, at the beginning of the next 20 years’ deregulatory winds, which culminated in the Gramm-Leach-Bliley Act of 1999. The resulting consolidation among financial institutions greatly expanded the role of banking lawyers and sparked the growth of large in-house legal departments.
Turn of the millennium events such as “Y2K” and 9/11 further expanded the banking lawyer’s role into operations risk management. With this expansion came the breakdown of the former rigid separation between banks’ lawyers, compliance officers, and risk managers. Wright described the role of the chief regulatory counsel today as heavily focused on enterprise risk management, and consequently, as similar to a consultant’s role. At the same time, law firms representing financial institutions have moved away from strategic advice-giving, and toward the more specialized areas of litigation, regulatory enforcement, and transactional work.
By far the most significant recent change has been the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Act has caused consolidated legal departments filled with risk managers to become highly operational, risk-averse, and bureaucratic. Banks are demanding a more clear-cut, rules-based regime to decrease regulatory uncertainty. Meanwhile, there remains a tendency toward zero risk tolerance in the consumer financial space. Consequently, in-house departments at banks have continued to grow, with new practices in regulatory change management, as well as new specialized roles, notably that of the CFPB (Consumer Financial Protection Bureau) Executive.
Wright concluded by warning of the dangers of rampant risk aversion among financial institutions. He is concerned that the current trend could stifle innovation and investment. In the meantime, in-house banking lawyers and consultants are enjoying their heyday.