If Congress does not back off its demand for paperwork on lending compliance, we may have to go to the Smithsonian to see a bank in the years ahead. Meeting such government demands draining banks of time and money in enormous quantities.
All bankers have seen the findings of an American Bankers Association survey that show compliance eats up 59% of bank profits. And even as impartial an observer as John LaWare of the Fed has asked Congress to avoid mandating "minutely detailed regulation."
Conversations I had during my spring circuit of banker's conventions put flesh and blood on the bones of this problem.
At a conference held by M&I Data Services Inc., for example, one chief executive reported that his safety-and-soundness examination now comes every three to four years, while his compliance exam is every year. More important, the former lasts about nine days, while the last compliance exam lasted seven weeks.
Another speaker reported that his bank, with $350 million in assets, needs four compliance people today.
Think Paper, Not People
What is worse, this micro-management of the industry by regulators - on orders from lawmakers - forces bankers to think not of how they can serve their communities but about regulatory reaction to the paperwork.
Many bankers have turned down opportunities to take over institutions that need rescuing-obviously a plus for the communities involved - because they did not want the burden of having to meet CRA requirements in a new area.
At the North Dakota Bankers Association's convention, Tim Marrinan of Barefoot Associates, Bloomington, Minn., told of a bank in Mississippi closed by the regulators on CRA grounds alone.
He also reported that at one bank, two directors resigned on the spot when the regulator gave his CRA report because they felt they were helpless to solve the problem.
Mr. Marrinan, formerly director of compliance for First Bank System, Minneapolis, said compliance was the major issue today for banks that want to survive.
True Believers
To this observer, the sad part was that Mr. Marrinan felt the regulators were not merely grandstanding. Instead, he said, they honestly believe that banks are discriminating and must be put under a firm regulatory thumb.
This is the legacy of the savings and loan mess - a Congress that is hostile to all deposit-type financial institutions. The lawmakers believe that any public display of understanding of the bank's and thrift's problems would merely alienate voters.
Yet the bankers confide to me that all this "compliance" has not led them to make any loans they would not have made otherwise. All that has been done is to divert attention from the marketplace to the files.
In looking at the regulatory environment today, I thought back to another North Dakota convention. The principal speaker had been Earl Butz, then secretary of agriculture under President Nixon and President Ford.
"You think my job is regulatory exports and imports, worrying about subsidies and farm output and the like," Mr. Butz packing plant for a whole day because he saw a rodent - an inspector robbing the workers of a day's pay and the owners of a day's profit to get revenge on his spouse in some way or other."
A Grim Platoon
What reminded me of Mr. Butz's remarks was the descriptions I heard from bankers this spring of the somber examiners coming in to find CRA violations - no matter what.
It is hard for bankers to reconcile the strident demand for loans in certain areas with the simultaneous demand that banks cut risks and built capital.
But hardest to buy is that the same compliance regulations are not imposed on mortgage bank-told me as we traveled around Grand Forks together after the meeting. "But it is not."
"My real job is to control the Department of Agriculture inspector who has had a fight with his wife and then closes down a packing plant for a whole day because he saw a rodent." The inspector, Mr. Butz said, was "robbing the workers of a day's pay and the owners of a day's profit to get revenge on his spouse in some way or other."
Why should a mortgage banker be able to select the loans he wants to originate without fear of regulatory oversight, while a banker in the same community must document every action and be prepared to defend every rejection?
Obviously, one reason is because the banks, have been so busy fighting against each other on the branch issue that they have not had time to get together on these more important questions.
But such efforts should certainly be the top of the agenda of most banker's meetings. For otherwise we may see the last bank on exhibit next to the Spirit of St. Louis.
At the least, the meetings of state banker's associations will more likely be held in phone booths than ballrooms. Mr. Nadler is a contributing editor of American Banker and professor of finance at the Rutgers University Graduate School of Management.
