Like the human knee-jerk reflex, federal bank regulators have been charged with reacting spontaneously to sudden changes in their environments without planning in advance.
Congress still fires an occasional salvo at the agencies for failing to anticipate banking calamities.
Prompted by those attacks, U.S. financial authorities have tried desperately over the last three or four years to shed their reactionary image.
The Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, and, to a lesser extent, the Federal Reserve Board have devised separate systems to help them keep pace with the quick-changing banking world.
Their ultimate hope is to avoid embarrassing surprises on the banking front. They want to brace themselves and the industry for future developments, such as the possible legalization of interstate banking, or perhaps, worsening economic conditions.
to prepare for tomorrow, the banking agencies are taking a lesson from corporate America and engaging in their own strategic planning programs.
Strategic planners began taking Big Business by storm in the mid-1970s -- offering the first systematic method for setting long-term corporate goals. The objectives are based on assumptions about upcoming economic, competitive, and legal developments. At many firms, goals are eventually translated into specific staff assignments, known as operating plans.
So, in a sense, strategic plans can make an organization tick. And that's precisely the kind of direction the federal regulatory agencies were seeking in the late 1970s and early '80s.
But because the programs are still so relatively new to the agencies, their usefulness remains questionable. And the emergence of strategic planning in government, as opposed to its more traditional private sector site, has produced some high-level skeptics. Some view planning as simply a waste of time.
What the agencies have produced over the last four years are three distinct kinds of strategic plans, using entirely different planning approaches. For instance:
* The Comptroller's office is the only one of the three banking agencies that releases its plans to the public. In 1981, the OCC became the first bank regulatory agency to produce a formal strategic plan. The latest update, released in January, 1984, comes packaged in a neat, three-page, color brochure.
comptroller C.T. Conover, a long-time advocate of planning, has elevated the status of his agency's planners -- giving them their own strategic planning division. The new division produced the latest plan, which is the result of months of internal discussions and working drafts. This summer, OCC's planning units used the blueprint as a basis for their operating plans.
* At the FDIC, where long-range planning is a top priority, the strategic and operating plans for each division are confidential documents. Bound in a looseleaf, the plans are updated every quarter. And by January 15, agency staffers expect to have completed their 1985 plan.
The planning process reaches the highest levels at the FDIC, including Chairman William M. Isaac, who is also described as a strong proponent of strategic planning.
* Last October, the top officers of the Federal Reserve Board's division of bank supervision and regulation secluded themselves at a West Virginia resort in order to avoid interruptiions. There they brainstormed about the agency's internal problems and the future of banking. The result was an internal working paper containing specific taks aimed at completing their agreed upon goals.
The process, which began within the last few years, produces no formal strategic plan. But, says John E. Ryan, the Fed's director of bank supervision and regulation, "It seems to suit our needs." No Crystal Ball, But...
Agency planners don't portend to possess a bona fide crystal ball in their strategic plans. But, nevertheless, their assumptions provide some telling clues about the likely shape of the banking industry five years hence.
For example, the Comptroller's office predicts that "international lending problems will persist."
OCC planners also anticipate increased risks of obsolescence and security as technological advances continue to offer new products to financial institutions.
Furthermore, the plan assumes that "access to funding markets by problem banks will be inhibited by recently increased disclosure requirements and regulatory constraints on brokered funds."
Banks, according to the OCC, will find it more difficult to maintain adequate capital levels because of "lower earnings and adverse stock market valuation."
Planners at the FDIC and the Comptrollerhs office both assume that the concentration of banking assets in large banks will increase, as a result of heavy merger and acquisition activity. The Comptroller's plan also expects small, community banks to "remain viable by maintaining a strong consumer franchise."
In addition, every financial agency is standing by for a major overhaul of Washington's complex regulatory web. And that is reflected in the plans of several federal authorities.
Vice President George Bush is heading a high-level task group on regulation of financial services, which has set out to simplify the complicated system used by the government to supervise banks, thrifts, and securities firms. President Reagan probably won't give serious thought to the group's recommendations until after next month's general election, assuming he is re-elected.
Under the Bush proposal, the FDIC would shed most of its traditional supervisory authority over some 8,700 state banks that are not members of the Federal Reserve System. Instead, the FDIC would focus on its deposit insurance duties and specialize in the treatment of problem banks.
William Houston and Robert Walsh, examination specialists who coordinate planning for the FDIC's division of banking supervision, say they intend to use their strategic plan as a vehicle for achieving that transition. Measuring a Plan's Success
Even though it is highly difficult to measure the success of a regulatory agency's strategic planning process, all three banking agencies say they're satisfied with their respective approaches.
In a recent interview, Mr. Houston and Mr. Walsh claimed that strategic planning has helped make their agency become "more influential," particularly on Capitol Hill. "By planning, we are able to dictate where we are going," Mr. Walsh said.
For example, he explained how the FDIC's proposal to reform the deposit insurance system was an offshoot of the agency's strategic plan. He said the plan called for a study entitled "Deposit Insurance in a Changing Environment," which in turn led to a legislative proposal that would establish a risk-based insurance system. The measure is now pending in Congress.
At the Comptroller's office, Director of Strategic Planning Judith A. Walter said the planning process is becoming increasingly accepted among management and staff. She also cited genuine examples of how broadly-stated goals were translated into concrete improvements.
For instance, she said the agency's strategic plan had prompted the creation of a unit responsible for monitoring risk on the international lending front. The plan, she said, has also resulted in regular efforts by the Comptroller's Office to review the creditworthiness of major U.S. industries. 'A Waste of Time'
Skeptics, who have questioned the merits of strategic planning ever since it became trendy in the mid-1970s, believe the costs far outweigh the benefits.
Federal Reserve Gov. J. Charles Partee said "In a technical sense, strategic planning with fully developed scenarios is probably a waste of time."
A self-described skeptic in field, Gov. Partee argues that Congress, state legislators, the courts, and the economy make it impossible to produce elaborate scenarious and assumptions about an industry' future.
"Today is just an entirely different world from 10 years ago," he said in a recent conversation. "Who would have planned a decade ago for a total deregulation of interest rates? It didn't seem likely."
Mr. Partee said he became disenchanted with elaborate long-range planning in the 1970s, during his tenure as the Fed's managing director of research and economic policy.
He acknowledged that planning does have some practical uses in trying to anticipate broad economic trends.
Mr. Partee pointed out that no strategic plan was able to anticipate the abrupt drop in oil prices thatf has devastated so many energy-related businesses and their lenders since 1982.
Even some of the government's own planners are still wondering whether strategic planning can be applied appropriately to regulatory agencies that have no bottom lines by which to measure success.
For that reason, most agree it is far easier to measure the effectiveness of strategic planning in the private sector, where profit serves as a clear gauge.
And what makes elaborate planning even more difficult in government is the prospect of a new leader every four years. Would a new administration, or even a new agency head, insist on scrapping plans that required years to construct?
While no one can answer the question with any degree of certainty, Mr. Houston of the FDIC speculated that a new chairman might revise an agency's priorities. "But I don't think a new chairman would do a wholesale scrapping of the plan and say 'start all over again."…