When House Banking Committee Chairman Jim Leach traveled home to Iowa last weekend to talk with community bankers, compliance was on his mind.
"Community bankers tell me that more time today is consumed in the exam process with compliance than safety and soundness," Rep. Leach said. "This is nutty."
The Iowa Republican warned consumer advocates fighting his regulatory relief legislation, saying the burdensome compliance requirements will force the industry to consolidate and become less responsive to community needs.
"Because of the cost of paperwork, and ... the frustration of dealing with capricious compliance standards that have little applicability in many communities, smaller bankers are increasingly looking to consolidation with larger bank holding companies," Rep. Leach told the Iowa Independent Bankers Association on July 22.
Moving an institution's decision-making authority to distant corporate headquarters leads to "token bank support for one or another vocal voice in a community but reduction in local leadership, jobs, and commitment to the community itself," Rep. Leach said.
Turning his attention specifically to the Community Reinvestment Act, Rep. Leach said the law should be reformed, not repealed.
"Review of the cost implications of our regulatory infrastructure in is order," Rep. Leach said. "I believe CRA should be refined, but care should be taken to understand that it cannot be repealed."
It cannot be repealed because President Clinton would not allow it, he said. Thus, the regulatory relief bill wending its way through Congress must tread lightly on reinvestment reform, Rep. Leach said.
Rep. Leach also noted that, while some experts claim repeal of the Glass-Steagall Act will create huge financial firms, it also will allow small banks to offer a wide array of products to their customers.
"The effect of empowering small banks is to reduce reasons for consolidation in the financial services industry," Rep. Leach said.
The Banking Committee chairman added that because of objections from the banking and insurance agent lobbies, both the Glass-Steagall bill and regulatory relief legislation are facing "process hurdles" rather than "substantive ones."
"It's been a frustrating summer," Rep. Leach confessed. "What seemed a straightforward path six months ago now appears to require more toil - the building of more legislative and industrial bridges."
However, he added that he was "hopeful that a constructive banking agenda can still be advanced this year."