Banks Fear Regulators Unserious About Reg Relief

WASHINGTON — Bankers weary of the onslaught of new rules following the financial crisis are taking another crack at suggesting regulatory relief ideas under a statutory process required every ten years.

But many still have unpleasant memories about the first set of relief measures enacted nearly a decade ago, when they say regulators' interest in providing help was perfunctory at best.

Under the 1996 Economic Growth and Regulatory Paperwork Reduction Act, the banking agencies are required to make a decennial review to identify unneeded, outdated or overly burdensome banking rules that, where appropriate, can be eliminated.

Yet in the first round of industry comments collected as part of the multi-year process, banking trade groups noted that regulators spurned the vast majority of their ideas in the last review, which ended in 2006.

"Since few substantive regulations were repealed, eliminated or substantially amended by the banking agencies, many community bankers have concluded that EGRPRA is no more than a 'check the box' regulatory process," Christopher Cole, senior regulatory counsel for the Independent Community Bankers of America, wrote in a Sept. 2 letter to the Federal Deposit Insurance Corp., Federal Reserve Board and Office of the Comptroller of the Currency.

In June, the three bank regulators said they would seek comment in four phases — grouping them by various topics — on which rules should be tweaked or removed. In the first batch of comments, which were due Sept. 2, an array of industry and consumers groups suggested steps for tailoring rules for smaller banks, implementing call report changes, achieving consistency with international regulators and clarifying regulatory policy around add-on products, among other ideas. (A total of 44 comment letters were submitted.)

But groups such as the ICBA, American Bankers Association and others stressed their general desire for regulators to be more ambitious in the second EGRPRA review rather than just make a few targeted changes.

"In the first decennial … review, ABA provided a lengthy list of highly detailed recommendations for regulatory relief. Very few were acted upon by the federal banking agencies," Shaun Kern, counsel in the ABA's Center for Securities, Trusts & Investments wrote in a Sept. 2 letter. "We fear that in the focus on the many specifics policymakers may have lost sight of the big picture principles involved, and how — even 10 years ago — bank services to customers were being smothered under a mountain of red tape and bureaucratic prescription."

The American Association of Bank Directors said its members viewed the 2006 process as "unsatisfactory and flawed."

"Numerous regulations and regulatory 'guidance' that were unnecessary or unduly burdensome were ignored and have remained on the books ever since," wrote David Baris and Richard Whiting, respectively, AABD's president and executive director. "Many regulatory burdens have been added since 2006. AABD urges the agencies this time to take steps to avoid the mistakes made in the 2006 process."

If banks were anxious for relief a decade ago, they are even more so now. The Dodd-Frank Act has required a slew of new rules. Community banks have complained that many are supposed to be directed at the largest banks that they say are responsible for causing the crisis, and predict that many smaller banks will soon have to sell as a result of the added compliance burden.

In their comments to regulators, industry representatives called for the scope of the review to be expanded to reflect the massive acceleration of rule issuances since the crisis. A letter from two groups representing large financial institutions said even though the EGRPRA review has been interpreted to apply only to the Fed, FDIC and OCC, it should incorporate other agencies that sit on the Federal Financial Institutions Examination Council, such as the Consumer Financial Protection Bureau.

"We recognize that the CFPB is a relatively new agency. However, most of the regulations within the jurisdiction of the CFPB have been in effect for years, and the CFPB has merely republished them without any review or update," wrote Richard Foster, a vice president for the Financial Services Roundtable, and Kenneth Bentsen Jr., chief executive of the Securities Industry and Financial Markets Association. "To exclude this large body of federal regulations from the scope of this review deprives the members of FSR, SIFMA, and other stakeholders an opportunity to address key regulations, such as the regulations implementing the Truth-in-Lending Act and the Electronic Funds Transfer Act.

It is still too early to predict the outcome of the latest EGRPRA review. In their June request for comments, the agencies asked for input on three topics: applications and reporting; powers and activities; and international operations. Over the next two years, regulators will issue three additional requests dealing with new topics.

But in another of sign of regulators' recent sensitivity to the post-crisis regulatory burden of community banks, the agencies' June release suggested the second decennial review may focus particularly on small bank concerns. Meanwhile, responding to criticism about the 2006 review at a congressional hearing this past week, regulators also said they are taking the EGRPRA process seriously and will plan outreach sessions with bankers to further the dialogue.

"We do not want another tepid EGRPRA process," Sen. Michael Crapo, R-Idaho, told representatives of the three agencies at a hearing Tuesday before the Senate Banking Committee. Now the panel's top Republican, Crapo had led lawmakers' own effort to explore possible legislative changes as part of the 2006 review.

All three witnesses told Crapo their agencies were committed to the process. Though most changes would likely have to be done jointly, the FDIC's representative said industry comments preliminarily suggest certain changes that her agency may be able to implement on its own.

"To the extent that we have the ability to do that, we're committed to act early, and I think we can get back to you a little further down the road after we've had an opportunity to digest the first round of comments," said Doreen Eberley, the FDIC's director of risk management supervision.

Even though they warned against a process that is too targeted, banking groups and others still contributed a whole host of specific ideas for where regulators could lighten the load. Suggestions included raising asset thresholds above which smaller institutions can be exempt from certain requirements — with commenters saying those thresholds are outdated — and a different call reporting system for community banks.

The ICBA's Cole said regulators should consider allowing healthy, well-capitalized community banks to use a "short-form" call report in the first and third quarters.

"Preparers of community bank call reports believe that preparing a short-form call report with limited schedules in certain quarters would reduce the overall time required to meet call reporting obligations and reduce regulatory burden substantially," he said.

Numerous groups also suggested regulators ease the process for bankers to charter de novo institutions.

The Community Bankers Association of Illinois said the FDIC should roll back a 2009 policy extending the period to seven years by which a de novo institution must meet certain thresholds, including a minimum 8% leverage ratio.

"Requiring this excessively high level of capital makes investments in newly chartered institutions unattractive particularly so when attracting outside capital is difficult even for existing community banks," wrote CBAI vice president David G. Schroeder in a Sept. 2 letter.

Other suggested changes were more discrete. For example, the Florida International Bankers Association, with members including community banks, said the FDIC now has the discretion to extend the on-site examination cycle to 18 months — from the standard 12 months — if a bank has less than $500 million in assets and meets other criteria.

"FIBA believes the threshold for extended 18 month cycles should be increased to at least $1 billion to be consistent with current thinking on the definition of 'community banks'," wrote David Schwartz, the group's chief executive, in an Aug. 29 letter.

Some directed a specific request to the OCC that it amend its policy surrounding debt cancellation contracts and debt suspension agreements in light of recent CFPB enforcement actions against institutions for the marketing of add-on products.

"Any amendments to the OCC regulations should distill the principles and procedures contained within the consent orders in a fashion that will be useful and instructive to national and federal saving banks and provide a degree of certainty and definitiveness to those compliance requirements that industry must meet in order to make available and offer debt protection products to their customers," wrote Scott Cipinko, chief executive of the Consumer Credit Industry Association, in a Sept. 2 letter.