These are strange days, indeed, for the chief executives of America's banks.

"We are being bashed, on the one hand, for not loaning sufficiently to stimulate a recovery," said Curt Bradbury, chairman and chief executive officer of Worthen Banking Corp., Little Rock, Ark.

"On the other hand, the trend of regulation is to crush the banks with burden, to make it virtually impossible to lend into the recovery," he added.

Other chief executive officers at the nation's biggest banks agree.

Gets Their Dander Up

In fact, no other issue stirred such strong feelings among the bank CEOs who responded to the 1992 American Banker/Heidrick & Struggles survey. The mandates passed by Congress and enforced by the regulatory agencies, they say, are changing the basic business of banking.

"If it is costing $10 billion, as some estimates say, that is not $10 billion of cost to banking; it is $10 billion of cost to consumers of bank services," said John Medlin, chairman and chief executive officer of Wachovia Corp., Winston-Salem, N.C.

"But a more subtle and serious result is the gradual destruction of entrepreneurial spirit in banking," he added.

Bankers once exercised judgment about the character of potential borrowers - personal attributes that cannot be quantified, but that determine who succeeds in business and who does not. But lenders today are focused almost exclusively on the numbers, which are needed to satisfy examiners.

"It is no longer possible to make a |character' loan," Mr. Medlin said. "Today there has to be such a precise quantification of everything. You can't just take a look at a situation anymore and say: |That's something my instincts and logic say are good for the bank.'"

Longer Regulatory Reach

Bank CEOs think the reach of congressionally written regulatory guidelines is far greater now than ever before.

"This year clearly established regulatory burden as a headache for bank chief executive officers, and that is new," said Emanuel N. Monogenis, head of the New York-based financial institutions practice for Heidrick & Struggles.

"In last year's survey, they talked about consolidation, competition, and capital," he added. "But regulation didn't come up."

In the 1992 survey, when asked about the three biggest headaches CEOs win face in the next decade, some ballots were cast for asset quality, nonbank competition, and profit pressures. But almost all respondents cited regulation.

Last year's banking law, the Federal Deposit Insurance Corporation Improvement Act - or FDICIA, which is pronounced fa-DISH-e-ah - directed regulators to come up with guidelines covering almost everything bankers do.

Paying the Piper

Not only were regulators required to set underwriting standards for bank loans, but also to establish guidelines governing the market value of bank stocks and the compensation of officers and directors.

"It stinks," said Samuel A. McCullough, chairman and chief executive officer of Meridian Bancorp, Reading, Pa.

"We have so much supervision and regulation now," he added. "They have the ability to remove management if they think something is wrong, and they have done so many times. They can remove boards as well.

"But there is just no way a regulatory body can understand a private institution well enough to know how much people should be paid," he added.

Not surprisingly, the CEOs interviewed for the American Banker survey said unanimously that their compensation should be based solely on the bank's performance - something they and their directors are in a position to judge.

"It just bothers me that this is something that has been put in a regulatory framework," added John C. Canepa, chairman and chief executive officer of Old Kent Financial Corp., Grand Rapids, Mich. "We have always been of the opinion that this is the responsibility of the directors and of management."

Clearly, executive compensation guidelines get a CEO's blood boiling.

Time Means Money

But other provisions in FDICIA put them in fear for the future of the industry.

"Let me put it to you this way," said Mr. Canepa, "we should be spending our time working with customers, making loans and providing additional products or services.

"But it looks like we're going to spend all our time filling out reports and complying with additional regulations.

"Our lending people should be out on the street, not sitting in the office filling out forms," he added.

Virtually every aspect of the CEO's job is being reshaped by regulation.

For example, all of the CEOs interviewed for this story said their relationship with their boards of directors was very good. But most said the new regulatory climate was having an impact on that relationship, even if it was only minor.

"Boards could afford to be more supportive in the past," Mr. Bradbury said.

"We have had three thrift failures here and RTC sued all the directors," he added. "So they absolutely have to be more critical."

Legal Mandates

The FDIC improvement act requires the board's audit committee to be composed entirely of outside directors. The bank must also provide the committee with its own independent legal counsel.

"There's more detailed questioning from the board, and I don't have any problem with that," said Mr. McCullough. "Our audit committee was already composed of outside directors and we have in the past hired outside counsel for them on specific issues."

Throughout the bank, paperwork required under the new laws is on the increase.

It's just monumental," said Bram Goldsmith, chairman and chief executive officer of City National Corp. of Beverly Hills, Calif.

"It's not only the paperwork you do for your reporting; it's the compilation of information, the supporting material you need for examinations. You're not supposed to have anything in your head anymore. It's all supposed to be on paper."

He added: "A lot of it is overkill."

In the Public Interest

Despite their concerns about the rise of regulation, the CEOs did not reject out of hand even some of the most reviled laws, such as the Community Reinvestment Act.

"Banking has a special role, a special license, and special responsibility that goes along with that," said Wachovia's Mr. Medlin. "If you want to accept privileges, you have to accept special responsibilities to serve the public interest. The principle of CRA is part of that responsibility."

Nevertheless, that responsibility is an expensive one.

"You have to have a staff, and you have to have a reasonably high-level officer who spends full time on it," said Mr. Medlin. "With a secretary and assistants, you can easily spend a half-million dollars on salary and paperwork."

Still, he conceded, without the paperwork, regulators and lawmakers wouldn't know if banks were abiding by the law.

At times, the CEOs sounded almost amused by provisions in the improvement act.

"My general counsel is telling me that under some interpretations of FDICIA, I would have to stop sending my secretary to the lobby to make a deposit to my personal account because that's not a service we offer to all customers," said Mr. Bradbury.

"Presumably, I could open an account at a competitor's bank and send her over there," he said.

A Boost for Nonbanks

But all the CEOs agreed that the burden of regulation shouldered by the banking industry gives an edge to its nonbank competition.

"They have a tremendous advantage," Mr. Goldsmith said. "They don't have reserve requirements, they don't pay insurance premiums, they don't have the paperwork, they don't have to submit applications for everything they do."

Overwhelmingly, the CEOs who responded to American Banker's survey said the industry "isn't playing Washington right." Still, bank executives aren't sure what more they can do.

"I went to Washington and worked hard," said Worthen's Mr. Bradbury. "I pounded the pavement and, frankly, I didn't see any lack of effort, any lack of bankers on the Hill to explain our position."

For a while, that work seemed to pay off, Mr. Bradbury noted. The House Banking Committee passed a bill that contained much of what the Bush administration and larger banks wanted. So did the Senate Banking Committee.

Gonzalez Calls Shots

But the House Banking Committee's work was essentially discarded by the panel's chairman, Rep. Henry B. Gonzalez, D-Tex. Mr. Gonzalez, allied with another powerful committee chairman, Rep. John D. Dingell, D-Mich., of the Energy and Commerce Committee, asked the House leadership to place a much narrower bill before the House.

"Yes, all of our work was ineffective because the bill we wanted didn't pass and all we got out of it was this nightmare of FDICIA," said Mr. Bradbury. "But how are we bankers supposed to deal with Dingell and Gonzalez?"

Bank CEOs also believe they are suffering at the hands of lawmakers because they have an image problem.

"There's no question banks are treated in a hostile way by Congress," said Mr. Canepa. "Banks traditionally have had that reputation of being greedy, avaricious, preying on the consumer. I don't think that's the case. The savings-and-loan crisis obviously put Congress in a very hostile position."

Congress, added Mr. Goldsmith, "is looking for someone to take the fall" for problems in the economy.

Even so, Mr. Goldsmith conceded that the industry has caused some of its own legislative problems.

"The bank industry never has been as effective as the S&L industry because it has so many different lobbying groups: the large banks, the small banks, the ABA, and IBAA and so forth. So it's very hard to do any effective lobbying."

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