As a former examiner for the Office of Thrift Supervision, John G. Lopez knows what can happen to banks with poor compliance records.
Now vice president and compliance officer at California's Glendale Federal Bank, Mr. Lopez is preaching the value of strict internal audits and no-nonsense compliance management.
"Self-assessments are fine, but audits make examiners smile every time," Mr. Lopez told the Western League of Savings Institutions' 1996 Compliance Conference here last week.
Among his suggestions: Craft the internal audit function to mimic a regulator's exam; give line employees compliance responsibilities; and establish a management committee to oversee compliance.
Bankers must realize, he said, that "while you strive for perfection, it is realistic to expect violations. The key is to prevent repeating past mistakes."
The $15 billion-asset Glendale studies prior examination reports to avoid repeating errors. These reviews also help the thrift learn what examiners expect its compliance program to include, he said.
Glendale's approach to compliance has reduced exams' length and appeased regulators, Mr. Lopez said.
Charles Washburn, a partner in the Los Angeles law firm of Manatt, Phelps & Phillips, said Glendale's method is effective. Too often, he said, institutions rely on consultants, or even regulators, to ferret out problems.
"It's always best if you find a problem yourself," Mr. Washburn said. "The one thing regulators hate is surprises."
Bankers don't like them much either. Glendale has a compliance committee, which includes Mr. Lopez and top managers from other departments. It meets monthly to discuss changes - such as in employee training - that are needed in compliance.
The committee has determined that compliance responsibility should be spread throughout the organization, reaching down to tellers and other line employees, Mr. Lopez said.
Spreading responsibility throughout the organization "makes more people realize how important compliance is to the bank," he said, and that helps keep violations to a minimum.
More and more banks have developed similar compliance committees, said Donald A. Hastings, compliance officer at Fullerton Savings and Loan Association, Fullerton, Calif.
"You have to have something like that," Mr. Hastings said. "It gets everybody involved. When it comes to compliance, what's really important is consistency."
Also important, Mr. Lopez said, is giving the compliance officer authority over line employees. Frequently, compliance officers are not taken seriously when they address employees about their behavior, he said.
That can change if top management gives compliance officers the power to punish employees who repeatedly break rules, Mr. Lopez said.