WASHINGTON -- In an unprecedented attempt to ascertain the costs of a new regulation, the Federal Reserve Board is planning to survey the banking industry as it begins to wrestle with Truth in Savings rules.
Fed staff members are developing the survey, which will ask about 2,500 banks to log every hour and dollar spent in preparing to comply with the disclosure rules, knows as Regulation DD, which take effect March 19.
In a tandem effort, the Fed will conduct a before-and-after survey of consumers to determine if they see any improvements in deposit-account disclosures as a result of the Truth in Savings requirements, which were mandated by Congress in the 1991 banking law. About 750 people will take part in the poll.
Burdens to Lighten
The Fed is responding to pressure from the banking industry to reduce the growing regulatory burden, agency staff members said. The Fed has never before attempted to quantify the costs of complying with a new regulation as it takes effect.
The effort is in keeping with the current mood in Washington, particularly among banking lobbyists who complain about rising legal and compliance costs. They have received a sympathetic hearing from regulators and administration officials.
Meanwhile, the Fed intends to use the Truth in Savings data as a benchmark for future studies.
October Green Light Sought
A proposal to conduct the surveys is to be presented to the Fed Board of Governors for a vote within the next two weeks. Staff members said they hope to get final approval to begin the cost survey by late October, after a brief period for public comment.
The research plan has already been approved by the board's consumer and community affairs subcommittee, chaired by Governor Lawrence B. Lindsey.
Fed governors have made no secret of their distaste for the Truth in Savings law. Though they approved regulations on Sept. 10 to meet the congressional mandate, they complained that the extensive disclosures of yields, fees, and penalties on savings accounts could confuse and overwhelm consumers, and would add to banks' expenses and paperwork.
Pressure on Deposit Yields
Mr. Lindsey and Governor John P. LaWare also expressed concern that the Truth in Savings rule could backfire on consumers.
Some banks could find compliance so burdensome that they might narrow their range of savings products. And the higher costs to banks could drive down yields on deposits.
The surveys could arm the Fed with evidence to present to Congress in future debates about the cost of regulation.
"Disclosure rules are very much in vogue, but we have so few hard numbers" to demonstrate their costs, said a Fed staff member working on the survey project.
The cost questionnaire will also solicit information on how banks currently disclose savings policies and practices to consumers, and how product offerings will change once the rules take effect.
But the guts of the survey, the Fed staffer said, is "a time and motion study" that could give the central bank its first accurate look at the legal and management costs of initial compliance.
A draft copy of the survey, obtained by American Banker, asks banks to break down compliance costs into two parts:
* Costs incurred to review the regulation before it became final. The final version is expected to be published in the Federal Register today.
* One-time startup costs after the rule is finalized but before the March 19 effective date.
Time Costs Money
Fed staff members say they suspect the cost survey will show that startup costs will far outstrip the ongoing costs of providing disclosures in periodic statements and handlingg out leaflets to new customers.
Some of the biggest expenses, the staff people said, are probably in the amount of time senior bank managers will spend in deciding how to implement Regulation DD. Legal fees, computer programming costs, and changes to the periodic statements sent to customers are also likely to be costly and time-consuming.
But being in the survey may just be an added headache for bankers, and only about 500 banks are expected to take part, staff members said.
"We will have to encourage institutions to keep at it," Griffith Garwood, the Fed's director of consumer and community affairs, said at a recent Fed board meeting. "It will allow us and the Congress to know what the costs of initiatives such as this really are."
Some of the Fed's Compliance Questions
Q: What were management, legal, and other expenses incurred before the adoption of Regulation DD? Q: What were start-up compliance costs, including analysis of rules and systems charges? Q: Has your bank increased certain accounts or services? Why? Q: Has your bank increased fees or changed terms because of Truth in Savings?