Banks spent about $100 million last year complying with the internal control reporting provisions of the Federal Deposit Insurance Corp. Improvement Act, according to a recent study.

The law requires banks with more than $500 million in assets to file a report with regulators every year asserting that internal controls are in place. A certified public accountant must attest that the report is correct.

Banks shelled out the $100 million for documentation, training, and CPA fees, said Curtis C. Verschoor, a senior accountancy research professor at DePaul University in Chicago. Dr. Verschoor conducted the study in conjunction with Chicago's Bank Administration Institute. His findings are based on responses from 48 banks. The banks surveyed include 16 of the nation's 19 largest.

Total compliance costs ranged from $50,000 to $2.5 million per bank. The average cost was $568,000. Dr. Verschoor used the information gathered from the 48 respondents to project costs for the rest of the industry. The grand total, he said, is around $100 million.

The cost of complying with section 112 of the FDIC Improvement Act far outweighs the benefits, concluded Dr. Verschoor. The requirement does not prevent loan losses, as it was intended to do, he said.

"Internal control reporting does nothing to force improved bank management," Dr. Verschoor said.

The problem is that the requirement focuses on financial statement reporting, Dr. Verschoor said. "Financial statements are historical," he said. "The money has been loaned out long before users receive the financial statements."

Dr. Verschoor said in an interview this week that bankers ought to lobby Congress to repeal this provision in any future regulatory relief legislation.

The recently passed community development bank bill, which included many such provisions, did not address this issue.

But now bankers have a cost figure to back up their claims. "I hope that knowing the cost, Congress will take another look at it." Dr. Verschoor said.

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