'What Killed the Banks, Daddy?' (Federal Compliance Is Hurting the Banking Industry) (Column)

By Nadler, Paul S. | American Banker, July 13, 1992 | Go to article overview

'What Killed the Banks, Daddy?' (Federal Compliance Is Hurting the Banking Industry) (Column)


Nadler, Paul S., American Banker


If Congress does not back off its demand for paperwork on lending compliance, we may have to go to the Smithsonian to see a bank in the years ahead. Meeting such government demands draining banks of time and money in enormous quantities.

All bankers have seen the findings of an American Bankers Association survey that show compliance eats up 59% of bank profits. And even as impartial an observer as John LaWare of the Fed has asked Congress to avoid mandating "minutely detailed regulation."

Conversations I had during my spring circuit of banker's conventions put flesh and blood on the bones of this problem.

At a conference held by M&I Data Services Inc., for example, one chief executive reported that his safety-and-soundness examination now comes every three to four years, while his compliance exam is every year. More important, the former lasts about nine days, while the last compliance exam lasted seven weeks.

Another speaker reported that his bank, with $350 million in assets, needs four compliance people today.

Think Paper, Not People

What is worse, this micro-management of the industry by regulators - on orders from lawmakers - forces bankers to think not of how they can serve their communities but about regulatory reaction to the paperwork.

Many bankers have turned down opportunities to take over institutions that need rescuing-obviously a plus for the communities involved - because they did not want the burden of having to meet CRA requirements in a new area.

At the North Dakota Bankers Association's convention, Tim Marrinan of Barefoot Associates, Bloomington, Minn., told of a bank in Mississippi closed by the regulators on CRA grounds alone.

He also reported that at one bank, two directors resigned on the spot when the regulator gave his CRA report because they felt they were helpless to solve the problem.

Mr. Marrinan, formerly director of compliance for First Bank System, Minneapolis, said compliance was the major issue today for banks that want to survive.

True Believers

To this observer, the sad part was that Mr. Marrinan felt the regulators were not merely grandstanding. Instead, he said, they honestly believe that banks are discriminating and must be put under a firm regulatory thumb.

This is the legacy of the savings and loan mess - a Congress that is hostile to all deposit-type financial institutions. The lawmakers believe that any public display of understanding of the bank's and thrift's problems would merely alienate voters. …

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