Regulatory burden on banks has taken on a new, onerous
dimension under the Clinton administration, according to the
Oklahoma City leader of a national group dedicated to helping
banks work their way through the rules mine field.
The issue is the elimination of racial discrimination in
"This is the regulatory hot spot today," said William L.
Browning, managing partner of the Oklahoma City office of Arthur
Andersen Co. and director of the Big Six accounting firm's
Regulatory Compliance Consulting Group.
Since Clinton was inaugurated, Browning said, the federal
government has taken several steps to beef up its enforcement of
existing anti-discrimination laws. Strong statements to that
effect have been made by Clinton himself, by newly appointed
Comptroller of the Currency Eugene Ludwig, by Secretary of
Housing and Urban Development Henry Cisneros and by Attorney
General Janet Reno.
The leaders have promised to search out violations of the
Equal Credit Opportunity Act, Fair Housing Act and the Home
Mortgage Disclosure Act. They also have promised to come down
hard on offenders. They have been true to their word in the
settlements of cases that have been made public to date.
"These are not new laws; they are new interpretations," said
Gary Pitzer, who works with Browning on Arthur Andersen's
Compliance Consulting Group.
Those charged with looking for violations are not just the
regular examiners banks have become accustomed to dealing with.
This new concerted effort has enlisted new groups of compliance
checkers known as fair lending specialists, who could be part of
Housing and Urban Development or the Justice Department as easily
as they could be part of a banking regulatory agency.
Pitzer said most of the regular bank examiner crew lived
through the recent banking crisis with its high levels of bad
loans, and they approach credit files with that experience in
mind. Examiners from Housing and Urban Development who go into a
bank to check for violations of fair lending laws do not have
that historical balance.
"The special examiners from the housing side have their own
bias," Browning added. "The result may be reducing credit
standards, and maybe banks will have credit problems down the
In a fair lending exam, regulators "try to compare loans
approved for whites and loans approved for minorities. They ask,
`Did you apply the same standards?'
"It's a tough challenge. The banks we are working with take
this very seriously. They all want to comply. Nobody wants to
The problem boils down to the basic idea of extending credit _
lending to the person who will pay you back and not lending to
the one who won't, in short, discrimination.
Lenders generally base those decisions on the numbers to see
if a deal is workable. Beyond that they look for intangible
factors which indicate the character of the borrower. What they
can't afford is to have too many loans go bad _ a lesson still
fresh in the minds of 1980s' survivors.
Compounding the problem is that lending occurs in a production
environment where loan officers are pressured to move paper. Such
an environment can foster inconsistent results.
What the discrimination settlements that have been brought to
light have shown is that banks which monitor themselves and take
corrective action can expect more lenient treatment from the
feds. Those that choose to look the other way or ignore the
possibility of problems can expect results that are more harsh.
One of the settlements involved a bank in Connecticut that was
found to have many discrimination problems. Because the bank had
already identified the problem and begun to implement corrective
actions before the examiners arrived, its penalty was
comparatively lighter than that of a Mississippi bank which had
its discrimination problems brought to its attention by