Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, March 7, 1993 TAG: 9303050013
SECTION: BUSINESS PAGE: F1 EDITION: METRO
SOURCE: Mag Poff
DATELINE: LENGTH: Long
THE BURDEN OF BUREAUCRACY, EXCESSIVE RULES
The banking industry is hog-tied in excessive and expensive regulation.That's the verdict of a 281-page report to Congress by the Treasury Department, Federal Reserve Bank, Federal Deposit Insurance Corp., Comptroller of the Currency and Office of Thrift Supervision.
Those five agencies should know; they are the industry's regulators.
The agencies, in fact, recommended 60 things that Congress could do about it without changing a single law.
The government, for example, could exempt a change in location for an automated teller machine from the burdensome rules that apply to opening or closing branch banks.
The study calculated that U.S. banks spend up to $17.5 billion a year simply complying with government rules. That figure equals the profits earned by the entire banking industry in 1991.
That's why this year's legislative program of the American Bankers Association is aimed at persuading Congress to loosen up the strings a little. Or, if possible, a lot.
The American Banker, the industry's trade newspaper, reported on the ABA's kickoff last month of "Cut the Red Tape Week," with more than 40 proposals aimed at simplifying only one aspect of banking: lending to small businesses.
Then there's the Community Reinvestment Act, which generates mountains of paper, the Truth in Lending Act and - come June - the Truth in Savings Act. Even more burdensome is the Federal Deposit Insurance Corporation Improvement Act of 1991. And that's just a few of the swelling number of documents and forms banks must prepare.
Community banks, according to the American Banker, spend 48 million hours each year complying with 13 regulations. Most costly is the Community Reinvestment Act at $1 billion, or 8 cents of every dollar of net income before taxes.
The Independent Bankers Association of America, a trade group representing small banks, figures that compliance costs them 1.21 percent of their assets.
Local examples abound.
Douglas Waters, regional executive officer in Roanoke for NationsBank, said the federal law that bans interstate banking requires NationsBank to maintain 11 separate banks.
That's one for each of the 10 states in which it operates and the District of Columbia.
Each of the 11 banks is examined separately by federal regulators. Each must be audited independently. All have their own operations centers, infrastructure and hierarchy.
NationsBank, Waters said, calculates that all of this bureaucracy costs the bank $50 million a year. That's for a banking company that reported net income of $1.15 billion in 1992.
That's only one law. Compliance with other rules carries additional costs.
Tony Mattera, vice president for corporate communications at Crestar Bank in Richmond, said regulatory reform is "a high priority for everybody."
He said Brenda Skidmore, a former Roanoke banker, heads Crestar's efforts to comply with the Community Reinvestment Act and other laws.
Skidmore has her own staff, Mattera said, and each department at the bank has its own regulatory-compliance officer.
The cost is difficult to assess, he said, but Crestar estimates the annual price at $6 million to $8 million compared to 1992 net income of $79.8 million.
Without that costly burden, Mattera said, the bank would have more people and money available for "serving customers and making loans."
Earl McGuire, an executive vice president at First Union's Dominion Bank, spends all day - every day - working on nothing except compliance with federal regulations.
He is assisted by a staff he calls "well-paid people," who all are concerned about government rules and regulations. Until it disbanded in the merger with First Union Corp., Dominion's board of directors also had its own compliance committee that met monthly.
The Community Reinvestment Act, which requires banks to prove they lend in low-income and minority neighborhoods, is a simple law, McGuire said.
But under the regulations, he said, that law has "taken on a very complex life in bank examinations," making compliance difficult.
He also oversees compliance with bank examinations of loan documents, which has become even more complicated.
McGuire said bank regulatory examiners spend four to six weeks a year doing nothing except monitoring the bank's performance under the Community Reinvestment Act.
All of these requirements, he said, generate a "a tremendous amount of inefficiency, overhead and expense for the bank."
And it does nothing to help the bank deal with its customers, he said, especially small businesses that need loans.
Clark Owen, president of Salem Bank & Trust, said he has never added up the cost to his institution.
But one person out of its total staff of 75 does nothing except work on compliance documents. Everyone who works at Salem Bank & Trust, Owen said, is asked to contribute to that effort.
Walter Ayers, executive director of the Virginia Bankers Association, said, "We are up to our eyeballs in the total effort."
The association sent a delegation to Washington the last week in February to lobby Virginia's congressional delegation. He hopes that at least some Virginia representatives will vote for relief bills already introduced in the House and Senate.
Ayers conceded that few people outside of banks care whether bankers are buried in paperwork.
But he believes the public should be concerned because the cost of compliance "finds its way back into the marketplace."
And that means higher fees and loan-interest rates for consumers, according to Ayers.
The stakes are large, he said, because bank lending to small business has led the country out of all prior economic recessions.
This time, he said, banks are hamstrung from lending by 44 acts that Congress has imposed on banks in the last five years.
Following the 1990-1991 recession, Ayers said, bank lending has been negative. And that, he said, means excessive regulation on lending has stymied expansion of the economy.
Mag Poff is the Roanoke Times & World-News banking and finance writer.