Magazine article American Banker

In Focus: In Accounting Reform, Side Effects May Be the Real Risk

Magazine article American Banker

In Focus: In Accounting Reform, Side Effects May Be the Real Risk

Article excerpt

Efforts triggered by the sensational collapse of Enron Corp. to overhaul financial reporting and accounting laws are not keeping bank chief financial officers like SunTrust Banks Inc.'s John W. Spiegel up at night -- yet.

"From a bank CFO standpoint, this is fine-tuning," Mr. Spiegel said of the slew of auditing and corporate governance changes being pushed by Congress, the Bush administration, and the Securities and Exchange Commission. "We wake up in the middle of the night not worrying about fine-tuning of accounting, but worrying about things like loan losses, earning power, growth in earnings, and customer service.

"Maybe that's because we've been doing it the right way for a long time, as required by regulation."

Still, banking industry lawyers and lobbyists are wary of secondary effects such as a crackdown by examiners, higher compliance costs, or new deterrents to prospective bank board members.

"Financial institutions have a leg up on other corporations because they already are so closely scrutinized," said L. Richard Fischer, a partner in the law firm of Morrison & Foerster here. However, it's "a sure bet" that exams "are going to be much more intense than what they looked like historically."

Lawmakers are scheduled to return to work over the next two days and immediately take up legislation to tighten auditing regulation and standards, require faster and more thorough financial disclosures, and put more responsibility on the shoulders of executives.

Dozens of bills have been introduced. Most have two core provisions that would have little impact on publicly traded banking companies: establishment of a new accounting regulatory board and statutory separation of internal and external audits.

Bank regulators already discourage banks from using the same firm for internal and external audits. The fight for the industry could come if new laws do not exempt small publicly traded banks, which often lack access to separate audit and consulting firms.

Many proposals are vague, and some officials fear lawmakers could prescribe a one-size-fits-all solution that ignores banks' unique business practices and regulatory structure. However, confidence is widely expressed that this structure and banks experience dealing with complex financial instruments will leave them unscathed compared with other industries.

"Because we already focus so much on controls and our regulators focus so much on controls, we are very likely ahead of other industries," said Donna Fisher, the director of tax and accounting for the American Bankers Association. "This may be the one time we're grateful we have so many rules and regulations."

The jury is still out on whether momentum generated by the recent accounting and corporate-governance scandals will carry the bills to enactment this year or succumb to partisan differences.

The bill likeliest to be passed by the House is sponsored by Financial Services Committee leaders Michael G. Oxley, R-Ohio, and Richard Baker, R-La.

The committee is scheduled to hold its final hearing on the bill Tuesday, and to vote Thursday on it and a competing one sponsored by the panel's ranking Democrat, Rep. John J. LaFalce of New York. Republican leaders are said to be planning to bring the bills to a vote in the full House on April 18.

The process is less clear in the Senate, where Banking Committee Chairman Paul Sarbanes, D-Md., and Sen. Mike Enzi, R-Wyo., a member of the committee, have yet to introduce audit and corporate-governance bills they are said to be contemplating. …

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