iStock illustration

Out of all regulatory concerns faced by the banking industry, bank executives are worried most about the impacts of a small business lending data collection rule proposed by the Consumer Financial Protection Bureau.

And 16 percent said in a new survey that they may actually lower small business lending due to anticipated higher costs from the rule.

In its latest Bank Executive Business Outlook Survey, bank deposit network IntraFi surveyed bank CEOs, presidents, CFOs, and COOs in 501 banks across the country from Jan 2 to 16, 2023.

The survey showed that out of the regulatory concerns over the next 12 months, bank leaders are most concerned about the CFPB small business rule (41 percent), followed by the limit in overdraft fees (21 percent), lower debit interchange fees (20 percent), the final version of new Community Reinvestment Act rules (5 percent) and the Basel III Endgame rule (1 percent).

The CFPB is seeking to expand the collection of data from small business borrowers and make it available to the public, similar to the Home Mortgage Disclosure Act rules for residential lending. Executives say the potential costs from complying with the rule could have an impact on actual small business lending.

IntraFi’s survey showed that the majority or 81 percent of the bank executives in the US said that they will not be reducing lending to small businesses once the rule is enforced on Oct. 1, while 16 percent said they will cut back on small business lending.

Of the 16 percent anticipating reduced lending, nearly half of them said they will reduce lending by 11 to 20 percent, while 1 in 5 said the would be cutting lending by up to 10 percent and a similar share said they would cut lending between 21 percent and 30 percent.

Even though deposit competition has already increased substantially in the last 12 months, 44 percent of bank executives said the deposit competition will continue to “moderately” intensify in the next 12 months.

For the rest of the IntraFi survey, the top concern for bank executives in their own institutions in the next 12 months was margin compression (42 percent) as higher cost of funds continued to outpace yields in assets such as loans and securities, followed by deposit competition (34 percent).

Considering all banks in the industry, respondents were worried most about credit quality (34 percent) as a small but increasing number of commercial borrowers are becoming unable to pay their obligations due to the uncertain economic environment and high interest rates that are pulling down their earnings and requiring borrowers to pay higher interest rates when buying or refinancing real estate.

Asked about the potential three interest rate cuts of the Federal Reserve this year, 80 percent of the executives said demand for mortgages would increase moderately.