If you really want to get regulators' attention about compliance run amuck, tell them an outrageous example of an examiner gone wild, preferably while hundreds of other bankers are listening in.

That's exactly what Joe Pierce did at SNL Financial's Community Bankers Conference near Atlanta this spring.

Pierce, the president and CEO of Farmers State Bank and its parent, the $494 million-asset F.S. Bancorp in LaGrange, Ind., sat on a panel with two regulators from the Federal Reserve and the Federal Deposit Insurance Corp. and shared this doozy.

It's about an FDIC examiner upset by a newspaper ad the bank ran wishing readers a Merry Christmas. Part of the ad states, "What is Christmas time? It's a quiet moment spent with loved ones, remembering the point in time when God gave His greatest gift to the world—His son Jesus Christ."

Pierce told the packed room that the bank had run this type of ad before and had received appreciative feedback from the communities it serves, some of which are predominantly Amish and Mennonite. But the young examiner in charge of its consumer compliance exam that next May was livid. According to Pierce, the examiner admonished the bank staff, saying he had "never seen anything so blatantly Christian." Pierce says the examiner then ordered Farmers State to pull 100 loan files so that he could search them for evidence of religious bias. He found none.

"I wanted to share the story and let the regulators know the extent of what's out there," Pierce said in an interview a few weeks after the April conference. "I was gratified to receive a round of applause from the audience after my Christmas story."

Pierce also told the regulators in the room that his employees typically spend more than 13,000 hours a year performing, and training for, compliance duties.

"Jaws dropped" when Pierce shared his experience with the Christmas ad, says Nancy Bush, a bank analyst and a contributing editor at SNL.

She says the audience was shocked not only that the examiner would take such a stance, but also that Pierce would be brave enough to tell the story in front of two regulators. According to Bush, the regulators stayed mum as Pierce spoke, but furiously scribbled down notes.

"The regulators may think they know what's going on with their examiners, but I bet they didn't know about the ridiculous stuff like this," Bush says.

Many bankers would fear retaliation after speaking out, but Pierce says he is unafraid. Well before the conference, he says, he complained to the FDIC ombudsman and had already received a follow-up call from M. Anthony Lowe, a regional director in the division of supervision and consumer protection at the FDIC's Chicago office.

"The position I took when I spoke with Anthony was that I thought this examiner was a bright young kid and that there were some opportunities for them to coach him on his approach," Pierce says.

The FDIC would not comment on Pierce's complaint or on how it was handled. Nor would it comment on the panel discussion where Pierce told his story.

Session attendees included Kenneth F. Burns, executive vice president for retail banking at Farmington Bank, a unit of the $1.8 billion-asset First Connecticut Bancorp in Farmington, Conn. Though he says he was not surprised by Pierce's experience, he generally is sympathetic toward examiners. He says they have a tough task in interpreting "the spirit" of 10,000 laws and applying them to more than 7,000 banks with different demographics.

"Just as many stories I hear about examiners being a little overbearing, I also hear stories about banks really pushing the regulatory envelope," says Burns.

But Blaise Bettendorf, another banker at the conference, says there is a problem with "field regulation," where individual examiners interpret the rules differently. The issue Pierce raised "seems to be an example of this and not necessarily the position of the regulatory agency," says Bettendorf, who is the chief financial officer at First Federal Bank and its parent, the $3.2 billion-asset First Financial Holdings in Charleston, S.C. "I know that there are official regulatory positions that are articulated to examiners by the regulatory agencies, but it would be great if they were actually consistently applied by examiners nationwide," she says.

Pierce will be able to test that consistency after this coming holiday season, when he intends to run his ad once again.

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