Kelly Sloan, The Business Times
The administrators of two Colorado banking groups praise proposed federal legislation easing the regulatory burden on smaller community banks.
The Small Bank Exam Cycle Reform Act passed the House of Representatives on a 411-0 voice vote on Oct. 6 and is headed to the Senate. A second measure titled the Taking Account of Institutions with Low Operation Risk — or TAILOR — Act of 2015 awaits a hearing before the House Financial Services Committee.
U.S. Rep. Scott Tipton, a Republican whose 3rd Congressional District covers Western Colorado, has sponsored both bills. Tipton serves on the House Financial Services Committee.
The Small Bank Exam Cycle Reform Act makes well-managed banks with less than $1 billion in total assets eligible for an 18-month bank examination cycle instead of the current 12-month cycle by amending the Federal Deposit Insurance Act to raise the qualifying asset threshold from $500 million to $1 billion. According to a statement from Tipton’s office, the change would allow an additional 676 banks across the country to qualify for the longer exam cycle.
Barbara Walker, executive director of the Independent Bankers of Colorado, said the measure is something the trade organization and others like it around the country have been working towards for at least two years “This particular examination cycle issue is just one aspect of our national affiliate’s plan for prosperity, which is how we direct our lobbying on behalf of community banks,” Walker said. “That is what this bill is all about — is local, community banks around the country.”
Walker praised Tipton for his work on the bill and for working closely with community banks. “He understands our issues, understands how we serve communities. And without regulatory relief, we are hard-pressed to continue to do so.”
Don Childears, president and chief executive officer of the Colorado Bankers Association, also supports the bill and “applauds Rep. Tipton for taking the lead.”
But Childears said he’s even more enthusiastic about the TAILOR Act, which would provide regulatory relief for community banks and credit unions by requiring federal regulatory agencies to tailor regulations to fit the business model and risk profile of specific institutions rather than imposing one-size-fits-all regulations. Proponents say the measure will help conserve time and resources not only for well-run banks, but also government regulators.
“This is absolutely the right thing to do,” Childears said. “It makes sure that regulators do not waste resources checking on banks that are in very good shape so that they can concentrate on those that present a higher risk.”
While Childears said he supports the exam cycle bill for addressing a specific issue, the TAILOR Act takes a broader, more systemic approach.
Under the TAILOR Act, “all future banking rules must take an institution’s business model and risk portfolio into account and tailor regulations to their particular circumstance. So if you are not involved in a particular activity, those regulations (that cover that activity) do not apply,” he said. “But if you are involved in activity that regulators feel is risky, all relevant regulation and oversight applies.”
Childears said the TAILOR bill establishes a permanent system for requiring regulators to make such distinctions and also to consider the effects of regulation on customers. He cites mortgage lending as an example: “There is so much new regulation that many smaller community banks simply no longer engage in mortgage lending.”
The TAILOR Act would apply to new regulations as well as to any amendments made to existing rules.
Banking industry officials say regulatory reforms such as those championed by Tipton are needed as regulatory burdens and compliance costs mount.
Walker cited a report released Oct. 1 by the Federal Reserve and Conference of State Bank Supervisors that revealed data from a national survey of community banks conducted with the assistance of the Cornell University Survey Research Institute.
According to survey results, regulatory compliance accounted for 11 percent of personnel expenses, 16 percent of data processing expenses, 20 percent of legal expenses, 38 percent of accounting and auditing expenses and 48 percent of consulting expenses. According to the report, this amounts to $4.5 billion annually, or 22 percent of the net income of community banks.
Childears said his organization estimated at one time the Dodd-Frank banking regulation bill would generate 20,000 pages of regulation. “They are two-thirds done and have already surpassed the 20,000-page mark. We are now estimating 30,000 pages of regulation to come out of Dodd-Frank. That is 10 and a half feet of regulation.”
Childears said that while all banks will be affected, smaller community banks will be hurt the most. “Big banks find it incredibly difficult to apply all these regulations, largely due to inconsistencies in them, but at least they have lots of resources,” he said. “With smaller banks, it is virtually impossible.”