A revolt by the banking industry against regulatory burden helped pass legislation this year with more than 50 provisions for red-tape relief.
Bankers are used to being pummeled by new and changed regulations, but many say the atmosphere has changed with passage of the Community Development and Regulatory Improvement Act.
The law, approved by Congress this month and awaiting President Clinton's signature, is the industry's first positive legislation in years.
While many of the regulatory relief measures are small, together they will lift a large burden off the industry. This legislation may represent something even greater: a more positive, and more profitable, future for the banking industry.
"It's the first time in 10 or 15 years when the regulatory pendulum has begun to swing backward," said Kenneth A. Guenther, executive vice president of the Independent Bankers Association of America.
Congress is finally recognizing the industry is overregulated. One of the bill's provisions loosens the legislature's control over regulators, allowing them to issue guidelines instead of rules in areas such as asset quality and stock valuations.
Many bankers saw this amendment to the Federal Deposit Insurance Improvement Act as a payback for the 1991 law and the 1989 Financial Institutions Reform, Recovery, and Enforcement Act, enacted as a result of the savings and loan crisis.
"Congress went overboard in its reaction to S&Ls going under," said Mark McMillian, vice president of Jefferson National Bank, Charlottesville, Va. "Now they've finally seen the error of their ways."
Steven Verdier, a lobbyist for the Savings and Community Bankers of America, concurred. "It sends a signal to regulators that Congress is looking for a way to make life easier rather than more miserable."
This legislation was a major victory for banking trade associations, whose members made regulatory relief their number-one priority. Coupled with the expected passage of interstate branching, this has been a record year for banking legislation.
Industry members hold different views on which provisions of the community development bill will be most important to banks. "There's no one magic bullet in this bill," said Edward Yingling, the American Bankers Association's chief lobbyist. "It's a combination of a lot of things."
Under the new law, Camel 1 institutions with less than $250 million and Camel 2 banks with less than $100 million will be examined every 18 months instead of annually. According to the ABA, 9,000 banks would qualify for this more lenient treatment.
The agencies also are required to better coordinate their exams and decide within two years which agency will take the lead in the exam process. Also within two years, the agencies must review and eliminate outmoded regulations and policies.
What many consider the most immediately gratifying part of the bill is a streamlining of currency transaction reports.
The General Accounting Office told the Senate Banking Committee in March that a third of the 42 million currency reports financial institutions filed over the next three years will be useless because they will cover routine deposits by established businesses.
Under the law, the Treasury Department is required to exempt banks from filing reports on certain institutions, including wellknown businesses. The Treasury Department is expected to draft a list telling banks which customers are exempt.
Experts predict banks will be filing 30% fewer CTRs and Mr, Yingling said the change could save the industry $40 million a year.
The Treasury Department had been working on similar changes to anti-money laundering rules and plans to rework the form itself to reduce banks' regulatory burden further.
Allan L. Kraemer, vice president of corporate compliance for Bank of America, praised the coming changes. "It's an affirmation of a new direction," he said. "The bill is not leading the charge, it's following the charge."
Jo Ann S. Barefoot, president of the Columbus-based consulting firm Barefoot, Marrinan & Associates, said the bill represents the beginning of a more modern regulatory process. As it is now, she said, "The banking law is just overgrown with obsolete, complicated, cumbersome regulatory machinery and is very inefficient."
After the bill passed the House, Donald G. Ogilvie, ABA executive vice president said: "Banking took one foot out of the 1930s today."
These streamlining processes, said Mr. Yingling, are the kinds of changes that will keep banks competitive. "In the past few years, [regulatory burden] was literally threatening to strangle our industry," he said.
Julie Williams, chief counsel at the Comptroller of the Currency's Office, said the new law validates her agency's ongoing regulatory review. "It echoes things we are trying to do... in terms of a balance between the burden and the benefit," she said.
The OCC is also ahead of the other agencies because it has an ombudsman and an appeals process. The law requires the other agencies to add both to handle banker complaints.
However, most in the industry admit bankers don't use the appeals process for fear of retribution from examiners. "I think we have to be realists," Ms. Barefoot said. "There's no secret bankers are afraid to appeal when they have problems."
Robert P. Chamness, executive vice president of CFI ProServices, Portland, Ore., disagrees. He said because the industry has weeded out the "high rollers" and only the professional bankers remain, now is the time to begin appeals and ombudsman programs.
Some' others tempered their responses to the legislation by saying the industry still has a lot of work to do on regulatory relief.
"Members of Congress are quite profoundly spooked by the earlier crises," said Karen Shaw, president of the Institute for Strategy Development in Washington.
Leonard A. Bernstein, an attorney with Philadelphia-based Reed Smith Shaw and McClay, predicts the most important parts of the legislation will be the studies commissioned on everything from variable-rate mortgages to the consumer credit system.
"It's an opportunity for the industry to provide detailed input and suggestions for streamlining the compliance burden," Mr. Bernstein said.
Mr. Yingling said the ABA will work on more regulatory relief in the areas of fair lending and community reinvestment.
"We've hopefully turned a corner from the atmosphere created by the S&L crisis," Mr. Yingling said. "But we're going to keep fighting every day."
Mr. Verdier agreed. "Every year is a new year," he said. "Consumer groups will regroup and find problems and scandals to inflict more pain on the industry. It's just a matter if being constantly vigilant."
Red Tape Relief
Bankers' lives will be eased by more than 50 provisions in the law. Here are the most important
* EXTENDS EXAM schedules for all CAMEL 1 banks under $250 million in assets and CAMEL 2 banks under $100 million from every year to every 18 months
* DIRECTS FEDERAL and state examiners to coordinate their exams and develop a system for naming a lead agency to conduct a unified exam
* REDUCES CURRENCY transaction reporting by exempting well-known businesses
* AMENDS FDICIA to allow regulators to issue guidelines instead of regulations on asset quality and earnings and stock valuation standards
* REQUIRES AGENCIES to review and eliminate outmoded regulations and policies within 2 years
* REQUIRES AGENCIES to set up a regulatory appeals system and an ombudsman office
* EXEMPTS CERTAIN business and agricultural loans from the Real Estate Settlements Procedures Act
* ELIMINATES THE requirement that banks publish their call report information in local newspapers
* LIFTS BANKS' responsibility for foreign deposits in cases of sovereign action
* DIRECTS REGULATORS to take into account the size and activities of a bank in issuing capital rules on interest rate risk, concentration of credit risk and nontraditional activities risk
* STREAMLINES THE application process for bank holding company reorganization and new activity requests
* ALLOWS BANKERS' banks to offer correspondent services to bank holding companies and extends their secured lending limits to 15% from 10%
* EXTENDS THE grandfather period on management interlocks another five years
* STREAMLINES THE process of forming holding companies
* REQUIRES THE agencies to make most new rules and amendments effective on the first day of a calendar quarter
* PERMITS THE filing of call reports electronically
* REDUCES CERTAIN insider lending rules
* STREAMLINES TRUTH in Lending disclosures for radio advertising of consumer leases
* REQUIRES REGULATORS to complete action on applications within a year of receipt