Regulatory Burden Reduction: Is There Really Such a Thing?

For quite a few years now, the talk has been all about reducing regulatory burden. We talk about burden reduction as though we can actually do something about it. The real question is: can we? If the answer to that question is yes - and we all hope desperately that the answer is yes - then the next crucial question becomes: how? How exactly does one go about reducing regulatory burden?

Obviously, in order to reduce burden, something has to be done with laws and regulations. The something that has to be done necessarily involves cutting back. With less laws there should be less burden. This is based on the assumption that there is a direct correlation between each law and a measurable level of burden.

On that theory, we have, on many occasions, gone in and attempted to tweak laws. Little changes have been made, but none have reduced regulatory burden in any significant way. The laws are still there and the concepts underlying the laws are fully in place, minus a few little details.

As long as all we do is scour laws and regulations for items that we can tweak, we will fail to have any significant impact on regulatory burden. When all we do is tweak existing rules, we continue to work with the same rulebook. To put a slightly different spin on a popular phrase, tweaking laws and regulations involves thinking inside the box. And inside the box we stay.

To reduce regulatory burden, we need to do something drastic. We need to rethink the entire concept of each group of laws and regulations. That involves much more than adjusting the list of insiders or changing a specific Truth in Lending disclosure. We have to redesign the entire box.

Under the leadership of FDIC Vice Chairman John Reich, the EGRPRA review process has produced some tangible recommendations. But most of these suggestions involve making adjustments to the existing boxes, accepting the current framework. The list, however, is impressive and effectively gives reality to the need for burden reduction.

The acting Comptroller of the Currency has suggested looking to the Food and Drug Administration's Nutritional Facts label requirements. These disclosures actually work and are used by consumers. She has also suggested considering something other than a one-size-fits-all approach to regulation. This has some interesting possibilities and some interesting complications.

A varied approach based on size may make sense for certain regulations, such as those affecting insiders or even certain lending decisions. But protecting consumers differently based on the size of the institution the consumer is dealing with simply doesn't make sense. Consumer protection should be uniform while regulations dealing with management and safety and soundness may be appropriate topics for regulation by size.

What this tells us is that the best approaches to regulatory burden reduction may vary based on the interaction of several factors, such as the purpose of the law, the capability of the institution, and realistic options.

If we are serious about reducing regulatory burden, it is time to peel off all the band-aids that have been placed on the industry, layer by layer. We need to step back and consider what each of these cures was intended to do. Then we need to take a hard look at our business and how we go about doing business. Only then can we redesign, through and through, the legal framework that sets our business and consumer protection standards.

Copyright © 2005 Compliance Action. Originally appeared in Compliance Action, Vol. 10, No. 8, 7/05