WASHINGTON -- A higher standard of compliance is emerging.

Bankers are no longer simply expected to avoid problems, said examiner-turned-compliance officer Allan Kraemer. Today, the government requires bankers to prove that they are doing things right.

As vice president of corporate compliance for Bank of America, Mr. Kraemer knows what he is talking about. The San Francisco giant has just pocketed its second consecutive "outstanding" rating under the Community Reinvestment Act.

Mr. Kraemer came to town this week for the American Bankers Association's National Regulatory Compliance Conference, which drew a record 500 attendees.

Ready to Meet Challenge

As chairman of the ABA's compliance executive committee, Mr. Kraemer gleans a broad view of the state of bank compliance.

Interestingly, he does not resent today's more demanding standards.

"It's a reasonable goal," according to Mr. Kraemer. "The rules require an orchestrated response."

As that quote makes clear, Mr. Kraemer is a cautious man.

He points to the Treasury Department's pitch for banks to adopt procedures to flag suspicious customers who could be laundering money. Those "know your customer" guidelines are expected to become rules soon.

"Treasury is doing the right thing," Mr. Kraemer said.

Stint as Examiner

Mr. Kraemer was a national bank examiner from 1973 to 1981 in the Santa Barbara, Calif., outpost of the Office of the Comptroller of the Currency.

That was back when examiners just looked at what the bank was doing and counted the vault cash.

Today, examiners concentrate more on how the bank is operating and whether it is fulfilling all its social obligations.

The biggest change between then and now is that regulators now ask bankers to prove they are in compliance, Mr. Kraemer said in an interview this week.

Unfortunately, some examiners are not as well trained as others, he said.

This inconsistent training becomes a problem for compliance officers when a bank's board members accept an examiner's word as gospel, Mr. Kraemer said. If an examiner ignores something the compliance officer considers important, the officer's credibility is tarnished.

A Kind of Warranty

That's not to say Mr. Kraemer has given up on his former profession.

"Rightly or wrongly, there's a warranty in a bank exam," he said.

If that's true, Bank of America has a solid warranty with it enviable CRA track record. It marks a major turnaround for a bank that was near insolvency in the mid-1980s.

"We saw the bad things that can happen if you don't comply with rules," Mr. Kraemer said.

He credits B of A's compliance success with running the program like a strategic business plan.

"I look at compliance like I'm managing a product," he said.

An Aspect of All Jobs

Setting up that business plan, said Mr. Kraemer, requires a bank to first ensure that senior management builds compliance into every employee's job description.

Employees are responsible for monitoring and reporting any problems. Mr. Kraemer warned that banks can't have a "shoot the messenger" attitude.

"You can't have a culture where people hide the problems," he said.

At Bank of America, Mr. Kraemer said, although the compliance manager oversees the process, the senior management is ultimately responsible.

"The compliance officer makes sure compliance is 'done,' but does not necessarily 'do' compliance," he said. "Management is accountable for performance."

Banks want to comply and work hard to set up good compliance programs, he said. But problems crop up when banks let their programs lie stagnant.

"You can't put compliance on autopilot," he warned.

Keeping Up

Bankers also have to keep up with the constantly changing face of compliance.

Every day, Mr. Kraemer is barraged by phone calls, mail, and computer messages about various changes.

He contends with about 200 changes each month, either internal or external policies or rules or even changes to the bank's marketing that affect compliance.

Fair lending and the Real Estate Settlement Procedures Act take most of his time now. But he said he also spends time compliance "gardening," or taking care of those smaller regulatory issues that could get bigger if left unattended.

Although some smaller banks may consider Bank of America to be in a different league, Mr. Kraemer said he's learned a lot from community banks. For example, he has copied some compliance tricks from Old Point National Bank, in Hampton, Va. The main difference between $137 billion-asset BankAmerica Corp. and $276 million-asset Old Point, he said, is that his compliance people are full time while Old Point's work part time.

Credit to Others

Mr. Kraemer, 46, talks modestly about his achievements constantly giving credit to mentors and others who have taught him along the way. He said that although he's now been in the same job for six years, it still seems like a different job every day.

But, he admits, "it's changing a little more than I'd like."

He said retraining after the government has tinkered with a rule drains the bank's resources. But Mr. Kraemer, who also teaches at the ABA's compliance school, said employee education is essential to keep on top of new issues.

What he'd like to see, though, is more lead time for rule changes.

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