Statement by John P. LaWare, Member, Board of Governors of the Federal Reserve System, and Chairman, Federal Financial Institutions Examination Council, before the Subcommittee on Commerce, Consumer, and Monetary Affairs of the Committee on Government Operations, U.S. House of Representatives, March 17, 1993

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I am happy to be here to discuss the topic of regulatory burden and particularly the efforts of the Federal Reserve and the other regulatory agencies to reduce burden administratively.

The issue of the appropriate level of regulation of banking organizations, although not new, recently has been a focus of concern. Banking institutions serve a vital role in determining the growth of the economy. Consequently, in an increasingly global and competitive financial market, the United States can ill afford to handicap its banking institutions--and therefore the individuals and businesses they serve--with stifling and constantly changing rules and regulations. The ever-increasing number and detail of regulatory requirements and restrictions have increased the costs and reduced the availability of service from banking institutions. Further, aggregate burden frustrates the purpose of stability and safety regulations by driving traditional banking functions toward alternative, less-regulated providers.

In an effort to counter the trend toward costly overregulation, the banking agencies have worked both individually and as a group to identify administratively imposed burden and, insofar as possible, to reduce it. These efforts are represented in initiatives such as the agencies' Regulatory Uniformity Project, the Federal Financial Institutions Examination Council's (FFIEC) Study on Regulatory Burden, and, most recently, in last week's announcement by the President of an interagency program designed to reduce the cost and burden of lending, particularly to small and medium-sized businesses.


On March 10, the President announced that all of the banking regulatory agencies will, over the next few months, take actions in five areas to promote greater availability of credit to creditworthy borrowers. The actions to be taken in each of the areas are as follows:

1. Eliminate impediments to lending to small and medium-sized businesses by permitting banks to make and carry a basket of loans to such borrowers with minimal documentation requirements. In addition, guidance will be issued to make it clear that banks and thrift institutions, in making loans to such borrowers, particularly those loans to be placed in the basket, are encouraged to give important consideration to character and general reputation in assessing a borrower's creditworthiness.

2. Reduce appraisal burden and improve the climate for real estate by altering existing rules so that institutions taking real estate as "additional" collateral for a business loan that is not to acquire or refinance real estate will not be required to have such property appraised by a certified or licensed appraiser. In addition, the agencies will be reexamining their existing rules to make sure that thresholds below which formal appraisals are not needed are at reasonable levels.

3. Enhance and streamline arrangements by which bankers can obtain a fair and speedy review of complaints about examiner decisions, while providing assurance that neither banker nor examiner will be subject to retribution as a result of an appeal.

4. Improve all examination processes and procedures by eliminating unneeded duplication of examinations and increasing coordination of examination activities, particularly centralizing and streamlining examinations of multibank organizations. The agencies have also agreed to heighten emphasis in examinations on risks to the institution and on issues involving fair lending, as well as to reduce regulatory uncertainty by eliminating ambiguous language in regulations and interpretations--and delays in publishing regulations and interpretations.

5. Review all regulations and interpretations to find ways to minimize paperwork and other regulatory burden.

We certainly expect that these changes will affect the willingness of the banking industry to lend to creditworthy borrowers, and we are working together to implement them fully. …