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. St. Louis – June 2003.

Miscellaneous

• A participant suggested that the regulators identify some type of measurement for determining the success or failure of the EGRPRA project. It was also recommended that the regulators do their part in “cheerleading” before Congress for the proposals which are considered important to the industry. Seattle – June 2004.

• A participant suggested that the regulators hold more meetings with bankers to discuss regulatory and legislative issues important to the industry. Seattle – June 2004.

NOW Accounts

• The limitations serve no purpose and should be repealed, said bankers. Denver – July 2003.

Predatory Lending and Financial Education

• Many of the participants approved of the Colorado state law covering predatory lending. They thought a new Federal law was unnecessary, at least as far as Colorado was concerned. If a federal law is developed, they suggested, states should have the opportunity to “opt out”. They also believe predatory lending could be curbed if society placed more emphasis on financial literacy.   Denver – July 2003.

Privacy Notices (Gramm-Leach-Bliley Act)

• Participants stated that the required annual privacy notice disclosures are burdensome, are not utilized by consumers, and are considered a waste of money. Seattle – June 2004.

• Bankers estimated the cost for a small bank at $3,000 per year. For 5,000 small community banks the cumulative effect would be at least $15 million per year. It was recommended that banks should only be required to publish once annually in a paper of general circulation. Nashville – April 2004.

• Another participant offered the following assessment of Privacy Notices: “Privacy Notices should not be required annually. Why not give a Privacy Notice only at account opening time? Theat way, the Bank would only be responsible for providing the Initial Notice rather than coping with the expense of sending annual notices. Furthermore, the Privacy Notice requirements should be streamlined and simplified. Banks should not be required to provide Privacy Notices that are so wordy and complicated that consumers simply do not read them.” Nashville – April 2004.

• Customers seldom read notices, reported bankers. The notices create unnecessary concern. Instead of dunning customers with documentation, notices should be issued one-time only and subsequently reissued only if the bank changes its policy. The bankers also reported that notices are expensive and burdensome because they must be tailored to each state’s regulations, according to where the customer, not the institution, is located. Banks with large credit card portfolios are particularly disadvantaged. Denver – July 2003.

• 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 is 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.  St. Louis – June 2003.

• 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.  St. Louis – June 2003.

Real Estate Appraisal Requirements (FIRREA)

• Participants suggested that the appraisal regulations under Part 323 be revised to adjust the limitations, relative to acquiring appraisals, to higher levels to account for inflation and increased real estate costs which have occurred since FIRREA was originally adopted. One participant also questioned the need for appraisals when the transactions are between a bank and a governmental sponsored entity (GSE). Seattle – June 2004.

• Participants felt that appraisal standards do not need to be so stringent for residential transactions that are sold into the secondary market, particularly given the market discipline imposed by such transactions. Nashville – April 2004.

• Bankers wondered why regulation requires licensed and certified appraisers to be utilized when tax cards could save borrowers money. A suggestion made that the threshold for use of certified appraisers for real estate transactions should be increased from $250M to $500M. Nashville – April 2004.

• 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. St. Louis – June 2003.

• Requirements for licensed and certified appraisals should not be based upon hard-and-fast loan levels (e.g., $250M.) Assessed values should be permitted as acceptable valuation for some loans since assessed values typically are more conservative than full-market-value appraisals. The requirements are unduly restrictive. St. Louis – June 2003.

Regulations/Legislation, Plain English, Agency Cooperation

• A participant suggested that all consumer-oriented regulations be “tested” to determine if they truly benefit consumers, and also that congress should consider tax credits to help pay for the burden of compliance. Seattle – June 2004.

• A participant stated that it appears that the main emphasis for the consumer regulations is to satisfy advocacy groups, as opposed to providing useful information to consumers. Seattle – June 2004.

• Participants suggested that a number of the consumer regulations, such as the right-of-rescission and HMDA, were originally based on identified needs to protect consumers. However, due to competition in the marketplace, the regulations are no longer considered to have utility and should be rescinded.Seattle – June 2004.

• Participants stated that the RESPA, HMDA, and Truth-in-Lending regulations are too complex, and the provisions are often enforced inconsistently among the regulators. Seattle – June 2004.

• A participant suggested that the regulators should try to make their publications, such as Financial Institutions Letters, more concise and descriptive, so that readers can immediately determine if the guidance or recommendations applies to their bank. Seattle – June 2004.

• The participants suggested that when regulators issue guidance, requests for comment, or final rules they should include more summaries and more interpretive guidance in laymen terminology. For example, bankers like plain language booklets that document expectations and pointed to certain OCC booklets as examples of such guidance. In particular, the bankers mentioned Section 24 of the FDI Act as an area where bankers could use detailed guidance. Nashville – April 2004.

• Some community banks may be forced to consider selling to larger commercial banks because they cannot bear the cost of regulatory burden. The success of the community is interdependent with the success of the community bank. Nashville – April 2004.

• Community banks want to focus on customer service that will help energize local economies. This, in turn, serves to expand market share for community banks. Community banks cannot focus on customer service if they must contend with the costs of excessive regulatory burden. Nashville – April 2004.

• A participant expressed the opinion that Congress and the regulatory agencies should be required to prepare a cost/benefit analysis prior to proposing new regulations or modifying existing regulations. Such analysis should be included in the Federal Register Notice that accompanies the proposed regulation. Nashville – April 2004.

• Participants applauded the goal of reducing outdated regulations. They suggested, however, that congress is passing new laws even as the agencies are working through the EGRPRA review process. "Sunset" dates should be standard in all laws and regulations, they said. Laws and regulations should not be renewed without analysis of the provision's effectiveness. Some participants believe consumers blame banks for the restrictions and paperwork that encumber loans and deposits. Agencies should do a better job of educating consumers or should try to “market” regulations so consumers have a better under standing of what the law is intended to accomplish. Some participants suggest extending the “risk-focused” approach typically applied in the supervisory process to the legislative/regulatory setting. When drafting laws/regulations, consider how a requirement will impact the financial health of the bank.  Denver – July 2003.

• Simplify all agency communications, participants said. If regulations are written clearly in the first in stance, there would be no need for explanatory supervisory letters, opinion letters, commentaries, etc. Bullet points in regulations would be helpful. Definitions need to be consistent throughout regulations (e.g., “business day,” “dwelling”). Agencies need to do a better job of informing banks when regulations/guidelines are superceded/repealed. Denver – July 2003.

• Many laws and regulations require banks to gather data. Yet, the cost of gathering data is high. Participants suggested that all of the regulatory agencies (including the SEC) should work together to identify the data required by the various agencies and combine the results. In other words, they said, a "One Stop Data Collection" process would reduce the burden on banks to collect data for the government.  Denver – July 2003.

• Some regulations interfere with what should be purely business decisions, said participants. For example, decisions to open a branch office or to move capital in a well-run bank present little or no regulatory risk. Consequently, required reviews should be minimized or eliminated. CRA reviews in conjunction with branch relocations seem particularly unnecessary. Denver – July 2003.

• 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 under stand.  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.  St. Louis – June 2003.

Repurchase Agreements/Sweep Accounts

• A participant indicated that they felt large banks can more easily avoid the restrictions on business checking accounts by utilizing cash management programs such as sweep accounts. Restrictions on paying interest on business accounts results in a competitive disadvantage for smaller banks. Nashville – April 2004.

• 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. St. Louis – June 2003.

Sarbanes-Oxley Act

• Participants voiced that the cost and burden for compliance with Sarbanes-Oxley is extraordinarily high, with little direct value being derived. Seattle – June 2004.

• A banker at a $730 million institution estimated the additional annual cost to her institution to comply with Sarbanes-Oxley was $300,000. Nashville – April 2004.

• The bankers said the costs of compliance would be very high. They question whether there is a demonstrated need to extend these requirements to the banking sector, given that the banking sector is already heavily supervised. Denver – July 2003.

Securities Regulations

• A participant noted that a bank acting as transfer agent for its own stock must register with the SEC as a transfer agent. The participant feels that there should be an exemption to this registration requirement under these circumstances. Nashville – April 2004.