FDIC Vice Chairman Opens St. Louis Meeting
On June 26th bankers from Missouri and Illinois met
in St. Louis to discuss the impact of regulations on the financial sector. John
M. Reich, Vice Chairman, Federal Deposit Insurance Corporation, opened the meeting.
Vice Chairman Reich recalled that when he was asked to
oversee the interagency effort to review bank regulations and reduce regulatory
burden, he accepted with genuine enthusiasm. For years, he explained, bankers
have told the federal agencies that regulatory burden is their number one
concern. Bankers have reported that too much regulation makes it hard for them
to compete and costs are high. Vice Chairman Reich said he could sympathize
with these problems, because, as a former banker, he had experienced them
firsthand.
The EGRPRA initiative, he emphasized, requires the federal
banking agencies to systematically review their regulations and design
improvements that address the entire regulatory framework. The agencies are not
interested in a fix here and there, he stressed. Rather, the focus is on
broad-based and thorough change to ensure that the agencies are regulating in
the most efficient and effective manner possible.
He explained that EGRPRA requires regulatory agencies to identify
unnecessary and antiquated laws and regulations and propose statutory and
regulatory changes. While past efforts to reduce regulatory burden were
largely driven by the agencies, EGRPRA requires the regulators to ask the
public to help. The Banker Outreach meetings, he advised, are designed to
obtain feedback from bankers to help identify outdated laws and regulations.
The agencies held their first meeting in Orlando earlier in the month, he
noted, and were very pleased with both the bankers’ enthusiasm and their
willingness to share ideas.
Vice Chairman Reich acknowledged that reducing regulatory
burden is a tall order. It will be difficult and challenging. But, by moving
through the process step-by-step and becoming fully engaged, the agencies could
reach the goal of more efficient regulation. He concurred that there may be
instances where only legislative action by Congress will solve the problem. In
those cases, the agencies will make recommendations to Congress. In other
instances the agencies may be able to streamline regulatory requirements.
Ultimately, however, the effort to strengthen the banking system will benefit
everyone. Vice Chairman Reich closed his comments by thanking the audience for
their willingness to participate in this important effort.
Missouri Commissioner of Finance Welcomes Participants
Vice Chairman Reich then introduced D. Eric McClure,
Commissioner of Finance for the Missouri Division of Finance. Commissioner
McClure and his organization are responsible for supervising approximately 313
state-chartered banks, all state-chartered savings and loans, and more than 2,000
consumer credit outlets, noted Vice Chairman Reich. Total assets in Missouri
state-chartered banks recently passed a major milestone of $50 billion. Commissioner
McClure was recently elected Vice Chairman of the national organization of the
Conference of State Bank Supervisors.
Commissioner McClure welcomed the audience to St. Louis. With
regard to the federal agencies efforts, he noted that the Missouri Division of
Finance also continually reviews its procedures -- internally, with bankers and
their associations, with the federal agencies, and with state legislators.
These reviews are designed to help reduce regulatory burdens and increase
efficiencies. For example, beginning with call reports closing September 30,
2003, depository banks and trust companies will no longer need to submit a
paper copy of their consolidated reports of condition and income with their
verification of the report and filing. Instead, the Division will access the
actual report electronically.
Such efforts have paid off. The Division announced a
significant reduction in the average assessment rate for banks in the coming
year, indicated Commissioner McClure. The Division also maintains an active
outreach program, having recently hosted over 300 bankers at meetings
throughout the state. The Commissioner closed his remarks by urging the
participants to share their suggestions during the EGRPRA process to help bring
about a more effective regulatory environment.
Goals of EGRPRA
Claude Rollin, Project Manager, outlined the goals of EGRPRA
and the purpose of the Banker Outreach meetings. The emphasis of the EGRPRA
initiative, he explained, is to identify outdated, unnecessary, or unduly
burdensome statutory or regulatory requirements imposed upon insured depository
institutions.
EGRPRA requires federal government agencies to review
existing regulations every 10 years. In compliance with the law, the FDIC and
its fellow regulatory agencies have set out a plan to complete their review by
2006. The law requires the agencies to categorize the regulations, publish
them for comment, and report to Congress any significant issues raised by the
comments. The agencies are required to eliminate unnecessary regulations to
the extent that is appropriate. If the issues cannot be addressed through
regulation and, instead, require new legislation, the agencies will so advise
Congress.
Mr. Rollin said that the agencies had completed the initial
process of categorizing the regulations. On June 16, the agencies published
three categories of regulations for comment. At the end of the 90-day comment
period, the agencies will review, analyze and summarize the comments. The agencies
will then publish their findings in the Federal Register. Over the next three
years, the agencies will publish a category of regulations every six months.
With the publication of each category of regulations, Mr. Rollin noted, bankers
everywhere will have a prime opportunity to share their thoughts, concerns and
suggestions. The comments received will form a basis for the actions the
agencies take and the recommendations they send to Congress. Mr. Rollin urged
the audience to share their suggestions by submitting comments through the
EGRPRA website.
Turning to the day’s events, Mr. Rollin outlined several
topics for discussion during the breakout or Roundtable Discussions. For
example, participants could discuss whether customers
complain about certain restrictions; whether regulations meant to help
consumers are having the intended effect; or whether technological developments
have made some regulations unnecessary. He emphasized, however, that
the participants were free to raise any issues they wished to discuss.
Panel Discussion
Vice Chairman Reich then introduced John Brennan, Deputy to
the FDIC Chairman. Mr. Brennan was a banker for 40 years before joining the
FDIC. He worked in Chicago for ten years and then spent 30 years working in Missouri,
said Vice Chairman Reich. He joined Boatmen’s Bancshares in 1970 and helped
guide it from a single location with total assets of $350 million to become the
23rd largest bank holding company in the country, with total assets
of $48 billion. At various times he served on the Board of Directors of
individual subsidiary banks, including the lead bank, Boatmen's National Bank
of St. Louis. In 1997 when NationsBank acquired Boatmen's Bank, Mr. Brennan
served as Executive Vice President and Senior Credit Officer for NationsBank
West.
Mr. Brennan moderated a panel discussion featuring four of
the region’s bankers. The panelists were: (1) Larry D. Maschoff, Chairman,
The Bank of Illinois in Normal, Normal, Illinois; (2) William A. Donius,
President and Chief Executive Officer, Pulaski Bank, St. Louis, Missouri; (3) James
A. Saitz, Chairman and Chief Executive Officer, Missouri State Bank and Trust
Company, St. Louis, Missouri; and (4) Jeffry Clapp, Senior Vice President,
Commerce Bank, St. Louis, Missouri.
Mr. Maschoff conducted a survey of community bankers in
preparation for the Bankers Outreach Meeting and reported the results of his
survey to the audience. Mr. Donius urged the agencies to consider the burdens
imposed upon banks by the examination process, recalling that his institution
once created 172 documents electronically for examiners, with duplicate
hard-copies. Mr. Saitz outlined the costs of compliance to the industry and
noted that even the most senior executives must devote substantial time to compliance
issues because of the increasing complexity and potential liability of various
regulations. Mr. Clapp described how banking had evolved during his 25-year
tenure in the industry and suggested several improvements to the current regulatory
structure.
The Panelists in St. Louis and the individuals participating
in the Roundtable Discussions singled out a number of issues for review. Their
concerns and comments are detailed later in this document.
Governor Mark W. Olson Speaks at Banker Outreach Meeting
Mark W. Olson, Governor, Board of Governors of the Federal
Reserve System, discussed the challenges facing bank management in a
low-interest-rate setting. He noted that first-quarter call report data for
2003 indicated significant changes in banks' balance sheets and income
statements -- such as sustained growth in core deposits and increased mortgage
loan activity -- and explained that these changes reflect how the banking
industry has adapted in the current low-interest-rate environment.
Governor Olson cautioned that decisions made by bankers in today's unusual
interest-rate environment can have important long-term consequences. He
advised that, if the management challenges of this environment could be reduced
to a single issue, that issue would be the need to balance the opportunities of
the present with the prospects for the future. Through a surge in core
deposits, today's low interest rates have given banks an unusual opportunity to
regain deposits. Through judicious management, banks may be able to retain
some portion of these gains beyond this period of low interest rates.
Turning to EGRPRA, Governor Olson acknowledged that adapting to change is
part of the banking business. Supervision and regulation must also evolve and
adapt to new developments. Shifting regulatory approaches unavoidably leave
obsolete regulations in their wake, however. He pointed out that the Federal
Reserve endeavors to review all of its existing regulations every five years in
order to revise or rescind those that are unnecessary or out-of-date. Other
banking regulators use a similar approach.
The EGRPRA initiative, he advised, supplements these periodic reviews. It provides
a unique opportunity for financial institutions, the agencies, and other
interested parties to step back, look at groups of related regulations, identify
opportunities for streamlining regulatory requirements, and identify needed
statutory changes. He emphasized that some improvements to the regulations could
be made by the agencies but other changes will require congressional
legislative action.
The ultimate goal of the EGRPRA exercise, Governor Olson explained, is to
improve both the efficiency and the financial stability of our banking system.
He closed his comments by urging interested parties to submit their suggestions
during the EGRPRA initiative. To read the full text of Governor’s Olson’s
speech, follow this link:
http://www.federalreserve.gov/boarddocs/speeches/2003/20030626
Participant Comments
As noted above, the St. Louis audience identified a number
of regulations deserving scrutiny under EGRPRA. They also offered solutions to
the problems they identified.
Evolving Markets, Regulatory Burden, Competition
The participants agreed that much of the legislation and
many of the implementing regulations governing banks are not keeping pace with
changes in the industry or with customer behavior and preferences. Most
importantly, according to participants, economic thresholds for the
applicability of regulations have not kept pace with changes in the general
economy and changes in the industry. Small banks face a greater regulatory
burden because they have smaller staffs who must "wear many hats." These
institutions find it more difficult to maintain the expertise needed to comply
with the increasingly complex and overlapping regulations.
Overall, the panelists and participants believe the banking
industry is heavily regulated and urged the agencies to make significant and meaningful
change. One panelist described the costs of employing specialized personnel,
the costs of on-going compliance training, the costs of conducting internal and
external outside audits, and the costs of obtaining attorney opinions. He
suggested that the costs of compliance are passed along to customers and that a
reduction in regulations would ultimately benefit the customer.
In addition, the participants are concerned that financial
institutions are not competing on a level playing field in terms of regulatory
requirements. As an example they referred to non-banks, credit unions, and
mutual fund companies that are not subject to the same regulatory requirements
as banks. One panelist said his institutions offer full lines of service and
all lines are heavily regulated. The participants said Congress should either
impose the same regulations on these institutions or eliminate the regulations
for banks. Participants said many regulations force banks to go beyond their
role as banking institutions. If banks must act as the enforcers of broad
social goals, such as drug enforcement policy, then the government should
compensate banks for enforcing these laws or allow them to offset their costs,
they said.
1. Bank Secrecy Act and Currency Transaction Reports
(CTRs); Office of Foreign Assets Control (OFAC) Reports
Like their colleagues at the Orlando Banker Outreach Meeting,
the audience in St. Louis said the Bank Secrecy Act and related anti-money
laundering legislation are the most burdensome requirements. One panelist
referred to an article entitled Compliance Watch 2003: The Nationwide
Bank Compliance Officer Survey, printed in the June 2003 edition of the ABA
Banking Journal. This survey, he said, supported the audience’s belief
that these requirements are the most costly. The burden would be easier to
shoulder, the audience suggested, if preparing and filing CTRs achieved a
positive outcome. But they’ve never received positive feedback regarding a CTR,
said the participants, nor have they been contacted by law enforcement agencies
to follow-up on a CTR. Moreover, the bankers said BSA requirements are unfair to
banks; their competitors are not always subject to the same level of
restrictions or scrutiny.
In short, they said, since the cost of preparing CTRs
outweighs any observable benefit, eliminate CTRs. Alternatively, expand the
exemptions: raise the threshold dollar-amount and reduce the number of times a
CTR must be filed. Exemptions should also be added for some categories of customers.
For instance, the participants said some convenience stores are just slightly
under the number-of-times exemptions so they frequently have to complete the
paperwork for these businesses. A panelist indicated that banks with a large
base of commercial customers are also hard-hit. The mailing address should be
included on the forms, they suggested; one institution sent the forms to the
wrong place for a period of time and yet the recipient agency never notified
them.
Suspicious Activity Reports or SARs may be a suitable
substitute for CTRs but even there the definition of "suspicious transaction" is
too vague. They also asked why banks must re-file every 90 days regarding customers
that are continuing to engage in the same, previously-reported activity.
The participants referred to OFAC filing requirements; OFAC
administers and enforces economic and trade sanctions against targeted foreign
countries, terrorists, international narcotics traffickers, and those engaged
in activities related to the proliferation of weapons of mass destruction. The
audience suggested OFAC rules are too burdensome for certain asset-size
institutions. The rules treat small institutions the same as money center
banks, said the bankers.
The participants also discussed the FinCen listing banks
receive every two weeks. Banks use the list to cross-check their files. They
said this requirement is extremely burdensome. There are many similar names, which
requires further investigation, and the software is expensive. One institution
indicated that it spent $1200 per year for the software alone, with additional
costs for yearly updates and data processing time. The participants asked
whether the costs of these pubic policies shouldn’t be borne by all of society
instead of just the banks and their customers, and asked if the government
could grant some form of cost relief for the bank’s investigative efforts.
2. USA Patriot Act and "Know Your Customer"
Requirements
The bankers voiced concerns regarding the USA Patriot Act
and the so-called "Know Your Customer" (KYC) requirements. Part of the problem,
they said, is uncertainty about the regulators’ expectations. For example,
banks don’t know if they should purchase systems to scan driver licenses, or if
they must take the additional step of validating a customer’s claimed address
by referring to second and third resources. They also ask how the new ID requirements
will affect out-of-state customers or customers opening accounts over the
internet. Regulatory agencies should provide specific guidelines, they advised.
They also believe the systems and procedures necessary to comply with these
requirements are burdensome, costly, and unnecessary for small banks. Community
bankers already know their customers identities, they said.
3. Regulation D and Limitations on Transfers and
Withdrawals from Money Market Deposit Accounts
Participants viewed this regulation as highly
anti-competitive. Non-banks and credit unions are not subject to the same
limitations. The regulation serves no apparent purpose and is out of date,
they said. They also noted that the restrictions limit the number of checks
that clear in a month rather than the number of checks written per month. They
recommend repealing this regulation or, at the very least, increasing the
number of checks allowed and basing the restrictions on the number of checks
written rather than cleared.
4. Home Mortgage Disclosure Act (HMDA) and Regulation C
The participants report that these requirements are costly
and burdensome, especially for small banks. They suggest examiners seem more
interested in the accuracy of the data input than the intended purpose of the regulation.
One panelist said his bank was criticized for missing a period in an
abbreviation. Consequently, a large amount of personnel time must be devoted to
completing and validating the data each month. Reporting should be tied to
bank size, they said. For example, the threshold could be changed to $100
million or $500 million. Overall, they asked the agencies to review the
requirements in their entirety to determine if the law continues to serve its
original purpose. Given today’s intense competition, especially for mortgage
loans, banks work hard to attract and keep customers. The participants also
expressed concern regarding the additional requirements due in 2004. Those
changes will cost thousands, they said, and will force many banks to change
programs and build new systems to collect the data.
5. Community Reinvestment Act (CRA) Regulations
Participants said there is no logic to comparing a $250
million bank with a $1 billion dollar bank; it is unrealistic to place a $600 million
institution in the same category as a $6 billion dollar institution. Banks
under and over $1 billion operate in two different markets and have different
market focuses, they advise. Banks over $1 billion find it easier to comply
with large bank CRA requirements because they have the necessary systems,
people, and infrastructure. Even preparing for CRA examinations is more costly
for small banks, particularly if they are subject to large bank examination
procedures -- they find it necessary to hire outside auditors to help prepare
the data. At a minimum, Congress should raise the threshold for large banks
from $250 million to $1 billion, they say.
Some participants proposed greater flexibility with respect
to the investment component of CRA. Participants stated that, currently, it is
very difficult for large institutions to comply effectively with the investment
component of CRA. Others said they perceived a downward pressure on examiners
so that banks previously receiving an "Outstanding" rating now find they
receive "Satisfactory" ratings even though little has changed since the
previous examination. One panelist referred to the $1 billion in home loans
made in his bank, and the large portion of loans made to low-income to
moderate-income groups, and advised that it was still difficult to obtain an
"Outstanding" rating. Generally, many believe CRA has gone beyond its original
intent of requiring banks to make loans in communities where they take
deposits. For example, banks now get CRA points for holding mortgage-backed
securities which, the participants believe, do not relate to the intent of CRA.
6. Expedited Funds Availability or Regulation CC
Regulation CC is no longer relevant given new technologies,
said many participants. It is too complex. Moreover, banks are not operating on
a level playing field when it comes to Regulation CC, say the participants: brokers
are not regulated and can have an advantage. In addition, bankers are finding a
large number of fraudulent cashier’s checks and certified checks; the
requirement for immediate availability is therefore a problem. The
availability requirement should be extended so banks can call the issuing
institution for verification.
7. Truth in Lending or Regulation Z and RESPA
Customers consistently express frustration at the number and
complexity of documents required at closing, report the participants. The
paperwork must be reduced. Some of the documents could be combined or
streamlined to reduce the number of forms. One panelist referred to the volume
of closing documents and HMDA data-gathering requirements, and reported that
his bank used a check-list with 157 check-boxes in an effort to minimize
incorrect data.
With regard to the annual percentage rate (APR) disclosures,
the current methods of calculating APR do not necessarily reflect "other fees".
Consequently, the real cost is not disclosed, said participants. As an example
of the complexity of calculating APR, one banker recalled an incident when two
examiners fell into a heated debated concerning a calculation during a
banker-training session.
More importantly, APR disclosures are not being applied
uniformly across the financial sector, they believe. Non-bank mortgage lenders
and brokers do not have the same requirements as to APR disclosures and other
closing costs, and so can advertise a very low APR, but have over $9,000 in
closing costs on typical home mortgages, they reported. Banks are at a
disadvantage because they have to comply with many more regulations and have internal,
built-in checks and balances to assure compliance with the law. All costs
should be included in the APR or the closing statements need to be more
definitive as to how they should be completed. Some participants suggested
certain categories of more-sophisticated customers could be exempted. For
example, loans secured by mortgages could be exempt.
8. Truth-in-Lending and the Right of Rescission
One participant suggested that borrowing money is usually
not the issue. Rather, if the customer experiences problems, it is with the
contractor or the goods being purchased, not the loan. Like their colleagues
at the meeting in Orlando, the participants knew of few, if any, instances when
a customer exercised the right of rescission. One panelist said his
institution made over 8,000 loans every year and yet only one customer ever
exercised rescission. Another panelist said that after over 34 years in
banking, he had yet to see a customer exercise the right of rescission.
The waiting period seems to be a major annoyance for customers,
they reported. And, to make it worse, customers think the bank is imposing the
waiting period and fail to understand that the time-out is intended for the
customer’s benefit. The participants suggested adoption of a waiver
mechanism. Alternatively, home refinance loans should not be subject to rescission
because they are essentially the same as home purchase loans, which are not
subject to rescission.
9. Extensions of Credit to Insiders and Regulation O
The participants believe these regulations discourage
potential directors from joining banks. One participant indicated his bank’s
executives are forced to bank with other banks. In any event, they said, regulators
routinely scrutinize all director transactions. They would therefore catch any
problems. So why should directors and executive officers be subject to different
rules than all other customers, they asked. The limits are too low for
directors, they said. If the regulation can’t be repealed, a tiered approach based
on bank size would be more effective, they recommended.
10. Flood Insurance and the Flood Disaster Protection Act
Bankers must enforce a policy that they are unprepared to
justify and that antagonizes many customers, participants claimed. "We don’t
want to be the insurance police," said one banker. "Customers don’t want to
pay for flood insurance. They are especially upset when they discover some of
their neighbors don’t have insurance."
In addition, insurance requirements should not apply to
certain types of loans, including loans where the collateral is taken in an
abundance of caution or the structure on the land has no value. More
specifically, said one participant, if a borrower offers as collateral improved
real estate that is in a flood zone plus real estate that is not in a flood
zone, the borrower must obtain flood insurance for the entire amount of the
loan. Similarly, if the property has a shack on it, the borrower must obtain
flood insurance for the entire amount of the loan, even if the shack was
assigned no value in the appraisal. Thus, to lower the cost of the insurance,
banks must grant multiple loans secured by different collateral. One
participant from the FDIC reported that, recently, the FDIC Chairman raised
concerns about the FDIC’s implementation of the Act after visiting St. Louis.
The FDIC Legal Division worked with the other agencies and internally to address
the Chairman’s concerns, with the result that application across the FDIC is now
more consistent.
11. Privacy Notices (Gramm-Leach-Bliley Act)
Participants believe the annual privacy-notice requirement
is ineffective. First, it does not address the public’s top concern: identity
theft. Some participants suggest the credit rating companies hold the key to
preventing, or at least reducing, identity theft; rating agencies should inform
individuals when their rating are accessed and the customer could then intervene
immediately if the customer did not initiate the request. Second, many banks
do not share information. Nonetheless, they are required to send privacy
notices. Obviously, said the bankers, this leads to customer confusion. When
everyone sends out notices, it clouds the issue for the customer and the
customers throw the notices away. If customers receive notices only from banks
that share information, then the customer will be more inclined to read and act
on the information. Third, the costs of compliance are higher for small
institutions and, since few customers appear to read the notices, the expense
is not a good use of bank resources.
Compliance for banks that do not share information should
be limited to a short statement to that effect printed on the customer’s bank
statement. Some participants believe banks that want to share information
should send notices and obtain customer approval ("opt-in"). Others felt banks
should be required to provide notice only when a customer opens an account.
Most felt that the notice requirement should apply per customer, rather than
per account; this would reduce the number of notices that customers receive and
reduce costs.
13. Other Issues and Comments:
Deposit Insurance Coverage: The deposit
insurance cap has not kept pace with economic trends, including inflation, said
the participants. Moreover, it is difficult to explain insurance coverage to
customers.
Truth in Savings Act or Regulation DD: Participants
agreed that this regulation has been effective in meeting legislative and
supervisory goals. For the most part it allows customers to comparison shop
for the best rates. However, some participants said unregulated companies
quoted misleading rates.
Equal Credit Opportunity Act or Regulation B: One
panelist raised the issue of indirect lending. In some situations, he
suggested, banks cannot verify the compliance of their business partners. For
example, his bank worked with a car dealership but had difficulty obtaining the
information necessary to verify compliance. As a result, the bank decided to
forego an otherwise profitable business relationship and stopped buying paper
from car dealers.
Blanket Bond: A participant with $1 billion
in assets asked why the FDIC requires him to have a blanket bond. The bank
currently has a small, $5 million dollar policy with a $1 million deductible.
He questioned whether such a policy benefits his institution.
Repurchase Agreements/Sweep Accounts: Daily reporting requirements to
customers are no longer logical, said participants. If there has been no
change in the investments backing the accounts, agencies should not require
banks to provide customers with daily statements on their sweep accounts. Alternatively,
banks should be allowed to provide daily statements and related information
online to avoid unnecessary costs.
Call Reports and Core Deposits: The report is too
long, complex and burdensome. The participants asked if the data is really
used. They did not use it except for the peer data in the Uniform Bank
Performance Report. Regulators need to be more flexible in defining core
deposits; liquidity can be volatile and subject to changing market conditions.
Some said that the core vs. non-core deposit definitions are no longer relevant.
One panelist said banks actually turn away deposits of $100,000 or more; that
examiners have criticized his bank if a customer has over $100,000 even though
the customer has a checking account and is a stable customer.
Real Estate Appraisals Requirements (FIRREA): One
panelist indicated that it cost $30 to do an appraisal via the internet (using
databases) and $250 to hire an appraiser to visit the property. Yet, in his
experience, the internet information was just as reliable. One participant
suggested that perhaps the threshold could be raised.
Regulations: New regulations should contain sunset
provisions so they can be periodically reviewed for continued applicability. Regulations
should not be changed mid-stream. When regulatory requirements are changed,
banks may have to reinvest in software, training materials, and personnel
resources. There are too many federal regulators looking over bank activities,
some participants said. One banker suggested the agencies run proposed
regulations aimed at consumers through a consumer panel to make sure the text
is easy to understand. Another banker commented that the Office of Thrift
Supervision does a good job of using "plain English" in its regulations. Other
participants said there seemed to be inconsistent messages coming from the
government: EGRPRA emphasizes reduction of regulatory burden while more recent
laws impose even greater burdens on the banking community.
Examinations and Exam Personnel: Bankers asked
agencies to better coordinate examinations, particularly at banks that are
regulated by multiple agencies, such as the State, Federal Reserve, and FDIC.
The examination burden is especially difficult for management and directors of
affiliated banks because, said one participant, examiners seem to be in one or
more of the banks all of the time and conducting different types of exams:
compliance, risk management, technology, and CRA. These examinations are time
consuming for management: they must pay attention to the examiners, respond to
questions, and prepare pre-examination packages. They are also costly because of
the number of forms and reports that must be generated. They liked the idea of
State and Federal regulators working together, as noted by one participant, who
advised that the State of Missouri and the Federal Reserve Bank of St. Louis are
collaborating more on the examination process.
They also said agencies should share information provided by
banks in their pre-examination packages; the agencies often request the same
information.
One banker was concerned about the examination burden on new
banks. He urged the agencies to allow new banks to operate for a longer period
of time before scheduling examinations. He spent five to six weeks with
examiners during the first ten months after his bank opened. He felt he should
have been allowed to focus on how to grow the bank. One banker relayed an
experience where the examiner was provided information two to three weeks ahead
of the exam but did not have an opportunity to review the data. He stated it
would be better if examiners have sufficient time to review material. Overall,
said some participants, exams in the last couple of years have been smooth and did
not impose much of a burden on senior bank staff.
Market Approach Analysis: Although all banks must
comply with certain regulations, standards should take into account a bank’s market,
said many bankers. For example, standards regarding the Bank Secrecy Act, USA Patriot
Act, and CRA should be different for banks that operate in a small rural
community where the bank knows most of its customers versus banks that operate
in large metropolitan areas. Likewise, examiners should use a market approach
when evaluating management interlocks: there is little risk of small banks
becoming monopolies when they operate in markets that are dominated by
multi-billion institutions.
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