U.S. Senate Committee on Banking, Housing, and Urban Affairs
"Consideration of Regulatory Relief Proposals"
March 01, 2006
An effective regulatory system
appropriately balances the costs and benefits of public laws and regulations.
All of us want to protect consumers and ensure the system’s safety and
soundness; however, excessive regulation increases the costs of producing
financial products, stifles productivity and innovation, and misallocates
resources. Responding to the steady stream of new regulations while complying
with exiting ones has become a challenge for all financial institutions. Rule
changes, particularly for smaller institutions with limited staff, can be
costly, and these changes are inevitably passed on to consumers. It is also
important for us to understand that the resources that are expended working to
meet government compliance and paperwork requirements are time and effort that
are not available to serve customers and communities.
In Idaho, one of the specific issues
that I have been told that results in high costs for community banks and credit
unions with little benefit to consumers is the mailing of annual privacy notices
when the institution does not share information with third parties or make
changes to its privacy policies. One community banker in Idaho told me his
community bank spends an estimated $15,000 per year mailing approximately 50,000
privacy notices. In 2004, his bank received one customer call in response to
his bank’s privacy notice mailing and received no customer responses in 2005.
Another community banker in Idaho said that customers do not read the
annual privacy notices; most end up in the garbage. This is one of the most
obvious provisions in need of reform.
Compliance costs for the financial
services industry cost billions of dollars each year. For smaller institutions,
one out of every four dollars in operating expenses goes to pay for the costs of
government regulation. While much of this is necessary to assure the safety and
soundness of our financial system, it is obvious that there are any unnecessary
and outdated provisions that should be eliminated to reduce the costly burdens
imposed on financial institutions. If this burden were reduced by even 10 to 20
percent and those funds were made available billions additional lending that
would have a direct and positive impact on economic growth and consumers. The
bottom line is that too much time and money is spent on outdated and unnecessary
compliance and paperwork, leaving less time and resources for actually providing
financial services. The House Financial Services Committee recognized this
problem and in December 2005, passed its own regulatory relief legislation by a
vote of 67 to 0.
In 2004, the Banking Committee held a
hearing on proposals regarding regulatory relief for banks, thrifts, and credit
unions. The hearing covered all points of view and was made up of three panels
of witnesses: Members of Congress, regulators, and trade associations and
consumer groups. Office of Thrift Supervision Director John Reich, as the
leader of the interagency Economic Growth and Regulatory Paperwork Reduction Act
(EGRPRA) task force, was asked to review the testimony presented at the hearing
and prepare a matrix which listed all the recommendations and positions
presented to the committee. The result brought forward 136 burden reduction
proposals. By the second hearing held in June 2005, the list of proposals had
grown to 187 items, many of which are in the House-passed bill, H.R. 3505. This
was a huge undertaking and I appreciative the hard work and cooperation of so
many involved, especially OTS Director Reich for his perseverance in leading
this effort.
To ensure transparency in the
process, the matrix of 187 items was circulated among the regulators, trade
associations, and consumer groups, and all the various viewpoints have been
recorded. We have heard witness testimony in two previous hearings, and
numerous meetings have also been held with all interested parties throughout
this process. Witnesses have thoroughly detailed the ever-increasing number of
requirements and outdated restrictions placed on our financial institutions.
Each requirement, restriction, report, and
examination imposed may individually have been justified when adopted, but as
time passes and markets and consumer demand changes, the necessity for imposing
some of these requirements and restrictions becomes outdated or subsides.
I think that all of us want to try and turn this
around, and I know that the witnesses that we are going to hear from today will
help us identify where we can trim the regulatory fat without adversely
impacting regulatory oversight.
I look forward to working with my
colleagues as we quickly proceed to a markup, and I would encourage them to
identify which proposals they support or oppose. Some Members have expressed
interest in proposals that have both defenders and detractors here today, which
I intend to explore with our witnesses.
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