For Bankers, '91 Law Was 'Red Tape Act.' (Federal Deposit Insurance Corp. Improvement Act) (the 1991 Banking Act: One Year Later, Part 1)

Article excerpt

No law in recent years has aroused the industry's ire quite like the 1991 banking act.

From new disclosure rules to tougher auditing and underwriting standards, the legislation is heaping red tape on institutions.

And as each provision is phased in, banks large and small are growing increasingly bitter about soaring compliance costs.

"It seems like we're about to be regulated to the point where we won't be able to conduct our business and be competitive," complains Jack Dickey, president of the First National Bank of Thomas in Oklahoma (assets: $34 million).

Indeed, the law's mandates are regarded as so onerous that the industry has dramatically adjusted its legislative agenda.

For years the top priority was pressing for broader authority to offer securities and insurance products. The new No. 1 goal: rolling back what bankers sourly refer to as the "regulatory burden."

That switch has been one of the most noticeable impacts of the Federal Deposit Insurance Corp. Improvement Act in the first year since its enactment. And there are plenty of others, which will be examined in this five-part series.

Among them: New capital rules have fueled a surge in debt and equity offerings and extended the credit crunch. Regulatory heat is being turned up on troubled banks. And stricter liability rules have made it harder to attract directors.

That's not to say bankers object to every element of the law, commonly referred.to by its acronym FDICIA (pronounced fuh-disha). The recapitalization of the industry's deposit insurance fund, to name one provision, is seen as a crucial step.

But the paperwork needed to comply with all the new rules is, in the eyes of the industry, overwhelming.

The law is likely to add $4 billion to the $11 billion already spent each year on compliance, according John LaWare, a member of the Federal Reserve Board. That total would have equaled 83% of the industry's profits last year.

It's "not so much that any one regulation is that bad by itself," says Edward L. Yingling, director of government relations for the American Bankers Association. "But when you add them all up, you have a huge regulatory burden."

And that leads to the gist of the industry's complaint: The law is overkill and will prove counterproductive.

"The regulations are getting so micro that in some cases, like the Community Reinvestment Act, it is less important whether you serve the community and more important whether the numbers in certain categories add up," says Thomas G. Labrecque, chief executive of Chase Manhattan Corp.

The backlash has grown to the point where some community bankers are grumbling about switching careers, says Mr. Yingling.

"There have been times sitting in a roundtable session, one banker will say he's giving serious thought to getting out of the business. And then you hear others pipe up and say, |Yeah, me too.'"

Activists Unsympathetic

How do such complaints play outside the industry? To mixed reviews.

Organizations that represent consumers are particularly unsympathetic. They maintain that the regulations are needed and that the cost of compliance is far outweighed by benefits to consumers and the Bank Insurance Fund.

Bankers whose institutions are well run shouldn't be complaining at all, says Deepak Bhargava, the lobbyist for the Association of Community Organizations for Reform Now, an advocacy. organization for low-income people.

"Safe and sound banks should endorse most of what's in FDICIA because it will lead to lower premiums overall," he says, arguing that the law's primary thrust is to crack down on the unsafe institutions that hurt the insurance fund.

And House Banking Committee Chairman Henry B. Gonzalez, who helped shepherd the legislation through Congress, doesn't buy the industry's arguments either. …