Regulation Burden Reduction Attempted

It is now official. The bank regulatory agencies have published notice of their intent to review all regulations with the goal of reducing regulatory burden and making regulations work more smoothly together.

This process is driven by the EGRPRA, (Economic Growth and Regulatory Paperwork Reduction Act of 1996). A well-intentioned Congress directed the agencies to review regulations to simplify them and reduce burden. To accomplish this, the agencies have banded together to conduct this review in unison, hoping to streamline each agency's regulations while also making the entire group of banking regulations more cohesive. Cynics would also say that, by working to make each agency's regulations more compatible with the others, the agencies are paving the way to merge into a single bank regulatory agency.

The agencies have grouped their regulations into twelve categories. The twelve categories are Applications and Reporting, Banking Operations, Capital, CRA, Consumer Protection, Directors, Officers and Employees, Money Laundering, Powers and Activities, Rules of Procedure, Safety and Soundness, and Securities.

Although only one category is actually titled Consumer Protection, more than half of these involve compliance. For example, CRA managers would be interested in changes to Consumer Protection, Applications and Reporting, Rules of Procedure, and Securities because activities in the CRA program are directly or indirectly affected by each of these areas.

The agencies are requesting comments by groups of three. They expect to publish similar requests for comment about every six months. Comment periods are expected to be 90 days. Nothing prevents you from looking ahead and developing ideas now.

The first group includes Applications and Reporting, Powers and Activities, and International Operations. Specific subjects of interest to compliance that are identified include call reports, Community Development Corporations and related regulations, Real Estate Lending, Sales of Credit Life Insurance, Preemption of State Due-On-Sale Laws, and Preemption of State Usury Laws. Regulations dealing with International Operations may have an effect on BSA and OFAC compliance programs.

The agencies are asking several specific questions with respect to each review. Perhaps the most important question is whether the regulation is effective in reaching its goal and fulfilling needs. Regulations that were once effective may have become obsolete or dysfunctional because of industry or technological changes.

Another concern is the impact of regulations on competition. This review is an opportunity to look at the regulation of financial institutions in the whole context of the new array of competition. If, for example, banks are not competitive with securities firms (one example would be the limitations on payment of interest on deposits and limitations on the number of transactions per savings account) this is an opportunity to realign the competitive positions through regulatory change.

The agencies will also be looking at burden regulations placed on small institutions. This means that small institutions must participate in the comment process in order to be heard.

A constant theme of the review will be overlap, redundancy, and excessive reporting. As you look at each of these regulations, consider how the same job of information reporting could be accomplished with less. Then share your ideas.

In looking at regulations and identifying ways to ease burden, keep several principles in mind. First, some suggestions may require statutory change. That is not something the agencies can accomplish without taking the idea to Congress. Much as they might like to, the agencies cannot change the laws but must request Congressional action.

Second, formulate your ideas and suggestions while keeping sight of the statutory goal. One tempting, easy way to get rid of regulatory burden would be to throw out the ideas behind the regulations, such as honesty, safety and soundness, and customer service. That will not happen.

Finally, think through ways that would really enable your institution to run more smoothly and efficiently. Also give attention to ways to provide consistent or better customer service. This is an opportunity to really make improvements. Don't look for slash and burn.

ACTION STEPS

Participate. Set yourself a schedule for reading up on the regulations under consideration now and think of ideas for improvement.
Plan ahead and look at regulations that have not yet come under the microscope. It's going to take a lot of careful thinking to simplify consumer protection regulations.
Involve bank staff. If nothing else, this should get them thinking about their jobs and how they could work more efficiently.
Give special attention to areas that involve compiling and reporting information.
Start thinking now about how CRA data collection could be simplified.