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Via email
September 15, 2003
Robert E. Feldman
Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Attn: Comments/OES
Re: Economic Growth and Regulatory Paperwork Reduction Act of 1996
Request for Comment (Docket No. 2003-20)
Dear Mr. Feldman:
The Conference of State Bank Supervisors (“CSBS”)1
welcomes the
opportunity to respond to the Federal Financial Institution Examination
Council’s (“FFIEC’s”) request for comment2
(“request”) on its review of
the financial institution regulations to reduce burden imposed on
insured depository institutions, as required by section 2222 of the
Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA).
We believe it is important to support the goals of materially reducing
regulatory burden currently imposed on the financial institution
industry. In this regard, we applaud the FFIEC’s efforts to reduce and
simplify regulations that industry comments indicate are outdated,
ineffective, or simply no longer meet the requirements initially enacted
by Congress.
The FDIC’s Vice Chairman John Reich and his Office have taken the
leadership role in this regulatory endeavor. In this role, the Project
Manager for the Vice Chairman and the EGRPRA comment and review process,
Claude Rollin, has coordinated with CSBS to provide a personal request
for comment to several state bank commissioners as well as our Bankers
Advisory Board (BAB)3
. In that request, Mr. Rollin made it clear that
the Vice Chairman’s Office is very interested in the industry’s comments
on reducing regulatory burden. Accordingly, CSBS held a conference call
with its BAB to obtain the bulk of the comments contained in this
letter. In the future, CSBS may share additional comments with the FFIEC
from state bank commissioners, including those who serve on the FFIEC
“State Liaison Committee.” We ask that the FFIEC consider all comments
to reflect CSBS’ view on this extremely important issue.
Background
EGRPRA, passed by Congress in 1996, requires the FFIEC and each
appropriate Federal banking agency represented on the FFIEC to conduct a
review of all regulations prescribed by the FFIEC or by any such
appropriate Federal banking agency to identify outdated or otherwise
unnecessary regulatory requirements imposed on insured depository
institutions. This review must take place at least once every ten years.
In conducting the review the FFIEC is required to categorize the
regulations and at regular intervals, provide notice and solicit public
comment on a particular category or categories of regulations,
requesting commentators to identify areas of the regulations that are
outdated, unnecessary, or unduly burdensome. The FFIEC will publish the
categories for which they are seeking comments twice a year. For this
first publication, comments are requested for the following three
categories of regulations: Applications and Reporting, Powers and
Activities, and International Operations. Accordingly, the FFIEC must
complete this review, eliminate unnecessary regulations to the extent
that such action is appropriate, and provide an update to Congress no
later than 2006.
To encourage full participation in the EGRPRA review, the Vice
Chairman’s Office has conducted several banker outreach sessions in
Orlando, Florida, St. Louis, Missouri, and Denver, Colorado. A state
bank commissioner, a CSBS representative, and representatives from all
of the other Federal regulatory agencies have participated in all of the
outreach sessions.
Industry comments from these outreach sessions have continued to
develop a consistent list of regulations that should be reviewed and
altered to reduce regulatory burden. The issues most frequently
identified by financial institutions as burdensome or outdated include
the USA PATRIOT Act, Bank Secrecy Act, Regulation D and the limitations
on withdrawals from money market deposit accounts, Home Mortgage
Disclosure Act, Expedited Funds Availability Act, Community Reinvestment
Act, Truth in Lending Act (with special emphasis on the right of
rescission), Privacy notices, and limitations on extending credit to
insiders.
CSBS’ Bankers Advisory Board Comments
During our conference call with the CSBS Bankers Advisory Board, a
member highlighted the importance of the EGRPRA regulatory burden
reduction process. This BAB member is the president of a $150-million
community bank that employs four to five full time equivalent employees
that focus exclusively on compliance. He also noted that non-banking
entities do not have such compliance requirements and remarked that this
places his small bank at a competitive disadvantage. CSBS looks forward
to working with the Federal banking agencies to reduce regulatory burden
where possible.
The BAB conference call coordinated through CSBS uncovered items
similar to those identified by industry representatives at the EGRPRA
outreach meetings. BAB members provided details that might be of
assistance when the FFIEC reviews the amount of burden imposed by these
regulations. A summary of their comments and suggestions follows:
Currency Transaction Reports (CTR) and Suspicious Activity Reports
(SAR)
• Although it was noted that industry representatives have estimated
the cost of each CTR to be $25, that price is likely higher for smaller
banks.
• One member of the BAB computed the cost of filing CTRs for his
bank, assuming the average $25 per CTR is accurate. His bank generates
240 CTRs a day (approximately 65,000 a year). An average cost of $25 per
CTR equates to an annual cost of $1.6 million. Separately, the same bank
files about 50 SARs per year.
• The members of the BAB expressed widespread frustration because it
appears that law-enforcement authorities do nothing with CTRs and SARs.
One member reported that the FBI has failed to follow up on a SAR
submitted two years ago involving a $2.4-million check kiting scheme.
Another member of the BAB stated that the FBI has yet to act on a
$140,000 note forgery. Law enforcement officials have indicated to both
bankers that homeland security matters hinder and prevent investigations
such as these. Our members question, if the CTRs are not going to be
investigated, why the banks should shoulder such high costs to file
them.
• CSBS noted to the BAB members that FinCEN is investigating
electronic submissions of CTRs. The bankers, however, noted that their
biggest cost involves the research and file-checking that are required
to generate CTRs and SARs.
• Furthermore, one of the BAB members noted that banks are required
to report on CTRs and SARs, at least in summary form, to their Boards of
Directors -- another cost item.
USA PATRIOT Act and “Know Your Customer”
• Members of the BAB, especially those in smaller communities, felt
the “Know Your Customer” requirements add little value in investigating
terrorism.
• When asked about documenting (possibly photocopying) customer
identification information to be kept with signature cards, the members
felt it would merely be "just another gotcha item” on examiners'
checklists. BAB members also expressed concern that maintaining pictures
of customers could result in claims of racial bias or profiling.
Limitation of Withdrawals from Money Manager Deposit Accounts
• The members of the BAB felt this limitation is completely outdated.
It is anti-competitive to smaller banks that do not have sweep accounts
or have to compete with non-bank entities that do not have similar
restrictions.
Home Mortgage Disclosure Act (HMDA)
• BAB members believe the small bank threshold for reporting under
the Home Mortgage Disclosure Act is no longer realistic. The members
suggested increasing the asset threshold to at least $500,000, but $1 or
$2 million is more realistic.
• Bankers noted that some holding companies keep a number of charters
to stay under the HMDA and CRA asset size.
Community Reinvestment Act (CRA)
• BAB members noted that smaller banks are hardest hit by CRA
requirements. It's difficult, if not impossible, for many of the smaller
banks to meet the investment criteria.
• One member credited the FDIC as setting a precedent by allowing CRA
credit for participation in the Money Smart financial education program.
The precedent should be extended to give CRA credit for other good
works, such as sponsoring Little League teams and the like.
Expedited Funds Availability
• BAB members agreed that this regulations needs to reviewed. The
requirement that funds from cashiers' checks be granted on a next-day
basis is generating significant fraud losses due to new technologies
that allow scanning and/or color-copies.
Real Estate Settlement Regulations
• BAB members suggest that huge improvements could be made to lessen
the regulatory burden in documents required for real estate loan
settlement. It was suggested that lessening the amount of disclosure
required may assist consumers by allowing them to focus on fewer papers.
We have enclosed examples of the settlement documents that one of the
BAB members suggested could be eliminated.
• BAB members also suggested that the Truth in Lending Act’s right of
rescission should be eliminated. Bank customers have complained when
they do not receive refinance monies immediately upon loan closing. No
bank on the BAB has ever had a right of rescission excersized.
Limitations on Insider Dealings
• For smaller banks, these regulations have the effect of driving
their potentially best customers to other institutions. Banks can give
preferred loan rates to employees, but not to officers and directors.
• BAB members expressed an interest in having regulators separate
insider abuses from justified preferential treatment for insiders who
merit it, as banks can do for employees.
Flood insurance
• FEMA flood maps are often years out of date.
• Generally, flood maps are not changed for 10-12 years, even though
action has been taken to change the flood plane. Research, however, to
change the 100 year flood plane is costly for banks to consider.
• In those cases where banks attempt to update the flood maps, there
are paperwork delays. Examiners criticize banks for making a
determination on the flood insurance question until some kind of
official paperwork is in the loan file, even though "you know the house
is on top of a hill and not going to be flooded," said one BAB member.
Conclusion
CSBS commends the FFIEC’s and the FDIC’s efforts to review all
banking regulations in order to reduce regulatory burden. In conclusion,
we would like to highlight that new proposed regulations on identity
theft were released following the conference call with our BAB. Such
regulations certainly may be necessary to protect consumers against
malfeasants taking advantage of changing and updated technologies to
commit fraud. As regulations continue to proliferate, however, it is
critically important that regulators continually evaluate which
regulations may no longer be necessary.
We also note that as the difference between banks, savings
associations, credit unions, and investment/ brokerage firms continues
to blur, it is important to ensure that financial institutions are not
placed at a competitive disadvantage. CSBS further recommends regulators
use sunset provisions in regulations. Such provisions would require
regulations to be reviewed on a regular basis to ensure the need for the
regulation still exists.
CSBS welcomes the opportunity to work with the FFIEC to assist in
alleviating outdated an unduly burdensome regulations. Thank you for
your consideration and we invite you to contact CSBS for any additional
information or assistance.
Best personal regards,
Neil Milner
President and CEO
Conference of State Bank Supervisors
Washington, DC
____________________________________________
CSBS is the professional organization of state officials responsible for
chartering, regulating and supervising the nation’s 6,395
state-chartered commercial and savings banks and 419 state-licensed
branches and agencies of foreign banks.
68 Fed. Reg. 35589, (June 16, 2003).
The CSBS Bankers Advisory Board is the organization's bank membership
leadership group, which provides advice and support to the Board of
Directors, and serves as a resource to CSBS members and staff throughout
the year.
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