While legislation to consolidate the four banking agencies is "resting with four feet in the air," industry consultant Karen Shaw said a reincarnation could meld the Office of the Comptroller of the Currency, the Office of Thrift Supervisory aspects of the Federal Deposit Insurance Corp.
Ms. Shaw, president of the Institute for Strategy Development, gave an update of doings on Capitol Hill to the 500 bankers gathered here this week for the American Bankers Association's compliance conference.
Any merger of the regulators could get complicated, Ms. Shaw said, because the Bank Insurance Fund is rich and the Savings Association Insurance Fund is broke.
Ms. Shaw does not think Bank Insurance Fund money will be used to buck up the Savings Association Insurance Fund.
"SAIF won't be recapitalized until nuclear waste is broken down," she said.
Another problem is that the FDIC has no chairman, she said. The nominee, banking attorney, Ricki Tigert, remains in limbo as Congress debates how and when to hold Whitewater hearings. Sen. Alphonse D'Amato, R-N.Y., is holding up Ms. Tigert's nomination until lawmakers investigate the Arkansas real estate company's connections to President Clinton.
State Authority to Broaden
Interstate branching will have a big impact on compliance because it will give much more authority to the states, according to Ms. Shaw. "Even national banks will have to go back and look at state laws," she said.
Ms. Shaw made two other predictions.
* That the Federal Trade Commission would require credit bureaus to release an individual's risk score. (Right now, customers rejected for a loan can get access to specific problems in their credit records but not the bureau's judgment of their likelihood of going bankrupt.)
* That deposit insurance could be yanked from banks that have severe fair-lending violations.
Another compliance guru, Barry Leeds, president of Barry Leeds and Associates, N.Y., also talked about fair lending in his session before the bankers.
People are confusing mystery shopping with matched-pair testing, he explained.
"Testing is not shopping, no matter what [Attorney General] Janet Reno says," he said. A mystery shopper compares results to a standard while matched-pair testing is a case-by-case comparison.
Mr. Leeds' company does matched-pair testing.
Two trends Mr. Leeds has seen lately: better fair lending results in banks that separate their lending and retail operations; improved results across the board from banks he examined two to four years ago.
There's money to be made from mutual funds, but bankers aren't sure what they have to tell customers to steer clear of regulatory trouble.
The session on complying with the rules governing for nondeposit investment products had to be moved donw the hall to a larger room to accommodate all the bankers interested in learning more.
Wayne M. Sturges, vice president at Chase Manhattan Bank, said the prospectus for his bank's proprietary funds clearly explains that invested funds are not insured by the government or guaranteed by Chase. The disclosures point out that the money is at risk.
Chase has not decided, however, whether to include that information on mutual funds sold through the bank by a third party, he said.
Mr. Sturges' main advice: Create a paper trail for examiners so you can prove that your customers were fully informed.
"Documentation is the key," he said.
From the audience, Charlotte E. Overton, a vice president with Citibank, agreed, noting that Citi requires customers to sign a document acknowledging that they understand the risks.
Ensuring compliance also demands self-policing, she said.
"If you're not doing [mystery] shopping, get going," Ms. Overton told the audience.
The New York State Banking Commission sent testers into Citi branches wearing wires to record what mutual funds sales representatives disclosed to customers, she explained.
"We found out things we would never have found out any other way," Ms. Overton said.
As the American Bankers Association's top litigator, Mike Crotty follows trends in banking law. At the conference he gazed into his crystal ball and saw expensive lawsuits lurking.
Class-action suits will be filed against banks for unreasonable ATM fees and discriminatory lending, Mr. Crotty predicted.
Bankers should fight - not settle - these broad-based lawsuits.
"Don't whimp out," he said. "The more we settle, the more copy-cat suits will be filed."
But Mr. Crotty was also pushing an alternative to litigation: arbitration.
Arbitration's first attribute is that there is no option for class action. It is just one party versus the bank.
Other benefits of arbitration:
* They are decided by industry experts, not lay juries.
* No punitive damages.
* Awards are more predictable.
* They are faster and more efficient than jury trials.
Mr. Crotty did note that selecting arbitration waives the right to appeal.
