The Shadow Financial Regulatory Committee has resurrected the issue of independent audits for community banks.

The shadow committee argued that yearly audits should be viewed as the same cost of business borne by other institutions.

The shadow committee, an independent group that expounds quarterly on financial regulation, last month called for a review of the Federal Deposit Insurance Corp. rule that exempts banks with less than $500 million in assets, all 10,344 of them, from annual, independent audits.

Costs vs. Benefits

For many community bankers and the Independent Bankers Association of America, which argued strongly for the exemption, it's merely a cost-benefit issue. The cost of independent, annual audits to a small institution far outstrips the benefits to the banking system.

But for some bankers, the audit issues are a bit closer to home.

"We have to be able to live up to the same standard that we require of the people who borrow our depositors' money," said John McGrath, president of the $124 million-asset Sacramento First National Bank.

"Overall, auditors are going to be playing a greater role in the regulatory process," said Westbrook Murphy, director of regulatory advisory services at Price Waterhouse in Washington. "In the rest of the world, auditors exercise the role that in the United States has traditionally been played by the examiner."

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