Cover the business of banking for long enough and you will develop a certain numbness to complaints about the regulatory burden. Excessive burden is the main objection to new rules affecting the industry, and opposition to new rules is pretty much reflexive among bankers.

But when you look at the flood of new regulations facing the industry right now, and add to that the significant pile of new requirements put into place over the past several months, their complaints about being suffocated seem less like an overstatement.

Since the beginning of the year, bankers have had to deal with changes in the Real Estate Settlement Procedures Act regarding the good faith estimate delivered to consumers prior to a loan closing, changes to the disclosures required by the Truth in Savings Act, changes to the Truth-in-Lending Act adding new disclosures for private education loans, changes under the Credit Card Act to the disclosures for open-ended consumer credit accounts, and changes in the way checks are processed under the Expedited Funds Availability Act.

That's not all. At least eight more significant regulatory changes will take effect in the second half of the year, and momentum is building in Congress for a broad regulatory restructuring that could bring even more changes.

"It is significant, dramatic, and I think we have only just begun," says Edward B. Kramer, executive vice president for regulatory programs at Wolters Kluwer Financial Services in New York. "We still don't know the final shape and form of some of the most recent proposals."

Thomas W. Ellison, chairman and chief executive at the $370 million-asset Commercial Bank of Texas in Nacogdoches, says that over the past year, his bank has received an average of one notice a week from a regulator requiring some change, each of which has to be incorporated into the bank's official policies and procedures.

"We have attorneys and CPAs on staff so I think that compared to the average community bank we are better prepared to adapt to new policies and procedures," says Ellison. "But if you are talking about a $100 million-asset bank with maybe four officers who have the background to write policies and procedures, it is a challenge for some of those banks to keep up."

Part of the problem, according to Jeanne Capachin, an analyst with IDC Financial Insights in Boston, is the haphazard way new regulations are being issued.

"There are a lot of new regs in a lot of new areas and it makes it difficult for banks because they are coming in piecemeal," she says.

Much of the current flurry of regulatory action is no doubt a reaction to the financial crisis and the role banks played in it, but Kramer, a former deputy superintendent of banking for New York, says that it is also a result of the change of administrations in Washington.

"Even six months before the 2008 election, the career regulators began to demonstrate a sense of empowerment," he says.

After eight years under the Bush administration, which was more hands off on regulation, banking supervisors are now attending to what they view as unfinished business.

Unfortunately, says Richard Riese, director of the American Bankers Association's Center for Regulatory Compliance, regulators' unfinished business is having a serious impact on the business of banking.

By changing the way certain banking products are structured and increasing the compliance cost of delivering them, he says, regulators are engineering major changes in the business case for offering certain credit.

As a result, says Riese, "You are going to see banks pulling back from these products."

The overhaul ultimately could affect credit availability for consumers, he says. "These aren't just little tweaks. Bankers have to ask 'Do I do credit cards going forward? Do I do debit cards with overdraft at all? Some people are leaving the mortgage business altogether because they don't have the systems in place and they are not ready to go."

Beyond the products that banks offer, Riese says, the changes will likely have an impact on banks' attractiveness to investors.

"I think this will so change the business case and so change the prospects that it will ultimately change who will invest in banking, and that will have an impact on what the industry looks like in the future. I can't predict what the picture will look like, but this is a period of uncertainty that will hit everyone."

It is commonly understood that increased regulation has a disproportionately large effect on community banks, where the ability to spread compliance burdens out over multiple parts of an institution is limited.

"If you were to ask bankers what their single biggest risk is today they would probably say regulatory risk," says Ellison, of Commercial Bank of Texas. "If your examiner gives you a surprise that threatens a source of income, you can find your whole business model under threat because of a regulatory change."

In good times, many banks might respond to such a regulatory onslaught by selling themselves to larger, deeper-pocketed institutions, but that's not an attractive option at a time when sellers are barely fetching book value.

But a flurry of consolidation might be just what's needed to get policymakers to ease up on the regulations.

In a report co-written with Marc DeCastro, IDC Financial's Capachin said that, ultimately, the value of a broad and diverse banking sector will trump the urge to continue piling on new rules.

"It is in the best interest of legislators and regulators to maintain a stable financial system," she wrote. "Community-based institutions provide a great deal of stability to the U.S. banking system."

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