Magazine article American Banker

Regulation, Compliance, and Influence

Magazine article American Banker

Regulation, Compliance, and Influence

Article excerpt

Bankers are under more pressure from regulators, and they don't like it.

Executive Forum, American Banker's quarterly online survey of financial services executives across the country, found some grimly accepting the tighter scrutiny -- and others fuming.

One executive from a small national bank wrote that regulators' focus on certain areas, such as anti-laundering regulations, "is a bit overdone," before adding, "but we understand the climate the examiners are working in."

Others were less forgiving.

"Examiners have been given an air of invincibility and dominance as at no other time in my 25-year banking career," wrote one banker. "Enron, global terrorism, corporate scandals," he wrote, have led to "over-regulation."

Four hundred thirty-six chairmen, chief executives, managing directors, and others were polled on the current state of regulation in their industry. The results of the survey, which was facilitated by Insight Express, can be found in this special pullout section.

Respondents from industry giants and small-town banks alike said examinations have become tougher and compliance more expensive. Nearly three-quarters said their compliance costs had increased "significantly" in the past several years. And though most reported a positive relationship with their primary regulator, many also expressed concerns about the relationship becoming more adversarial.

"This is the busiest time for the bank compliance officer ever," said Matt Schriner, the managing director for risk management at Sheshunoff Management Services. Across the industry, he said, compliance officers are "implementing more regulations and being challenged with more new products."

In addition, he said, "the expectations of the regulators have changed from wanting a merely transactional compliance officer to wanting a situational compliance officer who understands the risks of the bank."

"There really has been a significant change," Mr. Schriner said, "and the reality for banks is that it is more expensive to comply."

Compliance Costs

L. William Seidman, a former Federal Deposit Insurance Corp. chairman, said rising compliance costs are a serious problem for the industry.

"Increasing regulatory costs, particularly for small institutions, are really jeopardizing their businesses," said Mr. Seidman, now a consultant and a CNBC commentator.

But the pain is not limited to community banks.

Bankers were practically unanimous in reporting that their compliance costs have risen in the past three to five years. The increase was only "slight" for 25.8% but was "significant" for 73.2%, they reported.

On average, bankers reported that compliance costs amount to 7.3% of annual revenue -- 7.6% for national banks, 7.5% for state banks, and 7.1% for federal thrifts.

Community bankers' frequent claim that they bear a disproportionate complaint compliance burden seemed to be borne out by the survey responses. Among banks surveyed, 89.5% with assets of $10 billion or more but only 76.8% of smaller ones said compliance cost 10% of revenue or less.

Regulators' new emphasis on the fight against money laundering is a big reason for the heavier burden.

"The regulators made it clear -- all of them -- that they are tightening up on the Bank Secrecy Act," said Robert B. Serino, formerly a deputy general counsel at the Office of the Comptroller of the Currency.

Mr. Serino, now of counsel to the law firm Buckley Kolar LLP and a senior adviser at Watkins Consulting Inc. in Washington, said that the tougher attitude has percolated down to the level of the field regulator. "The examiners in the field say to themselves, 'We're not going to be one of those guys subject to criticism by the press, so we are going to call everything we see.' "

"In bank regulation," said former FDIC Director William M. …

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