How to Get Congress to Pay Attention to Banks' Regulatory Burden

The banking industry has been trying to get Congress to pay attention to the harmful effects of the growing regulatory burden for years.

Some may recall the Carter Golembe study, commissioned by the American Bankers Association in 1989. His report concluded: "Regulation in banking is pervasive. Internal operations, competitive practices, product offerings and relationships with customers are all subject to intervention."

Since then, banking regulation has become far more pervasive. The uninformed, who include members of Congress, will argue that if there is too much regulation, why did so many consumers lose their homes in foreclosure, and why did the industry have to be bailed out?  In my opinion, the real culprit was the repeal of Section 20 of the Glass-Steagall Act, which prohibited banks that were members of the Federal Reserve System from affiliating with any business organization "engaged principally" in issuing, underwriting, or selling securities. Its repeal provided an incentive for banks to generate large volumes of mortgages that their affiliates could securitize and sell to investors.

Had they kept these mortgages in their portfolios they would not have followed such loose underwriting standards. These loose standards spawned The Mortgage Reform and Predatory Lending Act, enacted as Title XIV of Dodd-Frank. Not all of the rules implementing Title XIV have been finalized, but it is clear that they will add substantially to the already crushing regulatory burden, especially on community banks, which cannot afford the resources necessary to keep up with the never-ending avalanche of laws and regulations that apply to consumer transactions.

One of the problems in alerting members of Congress to the problem is that they rarely even read the full text of the bills upon which they are voting. I doubt whether Christopher Dodd and Barney Frank read the almost 1,000 pages of their bill. Who were the draftsmen of the Dodd-Frank Act and who gave them their marching orders?

One of the problems typically associated with bank legislation is that often its drafters seem to be unfamiliar with existing law, resulting in redundancies and an often confusing placement of provisions affecting a particular subject in different sections of the U.S. Code. For example, there are provisions respecting real estate appraisals in a number of different statutes. Grouping them in one place would save already over-burdened lawyers and compliance officers from having to look in a number of different directions to find all of the requirements regarding appraisals.

I attribute this shortcoming to the fact that there are few banking law generalists today. This is the result of two factors, the growth in volume and increasing complexity of bank regulation, and the need for employers, whether of banks, outside firms or the government, to quickly develop specialists in specific areas who can hit the ground running.

The question is what can we do about the excessive regulations? I believe a new approach to delivering the message is required. Instead of white papers and other written presentations, why not produce a video that members of Congress could pop into their laptops and watch on their (too) frequent trips home. It could focus on a typical banking transaction, such as a residential mortgage loan, and show the various laws, regulations, official guidance and other regulatory issuances that come into play at every stage of the process.

The video could also focus on procedures banks must put in place before the customer walks in the door, such as SAFE Act registration, adoption of policies and procedures regarding real estate lending generally, real estate appraisal and evaluation policies and procedures, establishment of a consumer compliance program and so on.

An ordinary video lecture format would not suffice. A more creative approach is needed, perhaps showing a typical mortgage closing and then cutting away to a scene from a bank compliance department, or to a training session. I do not have a blueprint in mind for video production. My point is, simply, that it should be a real attention grabber, not a typical industrial presentation. Bank in-house lawyers and compliance officers should work on the project, along with a creative video professional.

In the long run, a complete overhaul of our banking laws is needed, to replace the patchwork quilt of laws that have been enacted, piecemeal, over the past 150 years. However, that would be a Herculean project and is not likely to occur in the foreseeable future. In the short run, perhaps we can at least stem the tide by developing an innovative approach to delivering the industry's message to Congress.

William M. Aukamp is counsel at the law firm of Archer & Greiner in Pennsylvania and a former chairman of the Delaware Bankers Association.