Every banker recognizes the need for regulation. What concerns bankers is overregulation. While regulatory agencies need to take decisive action to roll back unnecessarily burdensome regulations, our elected officials in Washington must also take an active role in reducing excessive regulation. Encouragingly, opportunities for legislative relief are now before Congress.
Excessive regulation clearly is having an adverse effect on our industry. The American Bankers Association published in June of this year the findings of a comprehensive industry survey that identified the incredible cost of bank regulation. According to the study, the price tag for bank compliance with governmental regulations during 1991 came to over $10 billion. This staggering figure represents an amount equal to 59 percent of profits for all banks nationwide. This may not seem like an excessive price tag to the people who "work for us" in Washington, D.C., but it is real money to the industry that absorbs the cost of regulatory burden. The facts and figures appear especially oppressive when coupled with the belief by bankers that the regulations provide little or no positive benefit to the consumers of our products and services. In reality, industry regulation has mushroomed into added, and in many instances unnecessary, cost.
I do not discount the importance of safety and soundness to our industry, but believe that reduction in regulatory burden is critical to the survival of our industry. The current level of regulatory burden has gone far beyond the basic issue of safety and soundness. Overregulation itself threatens the industry. It is difficult to measure the cost of the lost opportunity caused by overregulation, but it certainly impacts the financial performance of most banks. Reducing the burden would have a positive effect. A reduction in regulatory burden would be very good news for consumers and small business in that banks could fund $20 billion to $80 billion in additional loans each year if only 25 percent of the money banks now must spend on compliance could be redirected to bank capital.
While the drain on bank resources impairs lending capacity, another real cost for community bankers from the reams of regulations is the impairment of bankers' innovativeness and competitiveness. Community bankers who are in a position to understand and meet the needs of their local economy become tentative and rigid in the face of numerous governmental rules and regulations.
Understanding and dealing with over 1,000 pages of regulations, policies and procedures, plus regular updates from just one major regulator, is oppressive enough for the average bank. Compounding the problem is the fact that a majority of banks must deal with more than one regulator, thereby multiplying the volume of paperwork. The result is that only the largest banks can deploy the resources to do a thorough job of keeping track of the required regulations, and provide ongoing training necessary for compliance. But what about the smaller banks that do not have the resources to devote one or two employees exclusively to regulatory compliance? Fifty percent of the nation's banks have fewer than 25 employees. While these banks undoubtedly comply with the spirit of the regulations, they may lack the resources to comply with "the letter" of the regulations. They simply do not have the resources to do so.
Relief from regulatory burden may be in sight, but decisive action is required. I commend the efforts of congressional supporters of the 1992 Credit Availability and Regulatory Relief Act. This bill would go a long way in reducing or eliminating a wide range of unnecessary financial institution costs. Among the significant changes proposed in the bill are: reducing duplicative supervisory exams, reducing new and substantial auditing costs, minimizing government intrusion in day-to-day bank operations, eliminating burdensome appraisal requirements, and, importantly, reducing the paperwork requirements of the Community Reinvestment Act for small banks. I know that our industry will support this bill (and similar bills pending before Congress). It is critical that business and consumer groups also support these efforts. The banking industry and our customers will benefit from strong, appropriate federal regulation—let's get to a fair level of regulation that we can all work with.