Remarks
FDIC
Vice Chairman John Reich
Exchequer Club
November 17, 2004
Good afternoon. I’m delighted to have both the honor and the pleasure of being here
with you today. I’d like to talk about a subject that is important to me—and that’s the
crushing impact of regulatory burden on community banks. I’m here to add my voice to
those who believe accumulated regulatory burden – which impacts the entire banking
industry - is now beginning to choke an important sector of the banking industry.
When I was a community banker in Florida more than 15 years ago, I never dreamed
that one day I would find myself in Washington, D.C. leading the charge against a
problem that at the time, and even now to many, seems almost insurmountable. I’m
glad to have this opportunity.
When FDIC Chairman Don Powell asked me early last year to lead the interagency
initiative under EGRPRA —the Economic Growth and Regulatory Paperwork Reduction
Act of 1996—I saw it as an opportunity to have a hand in addressing a longstanding
problem. I knew of course that we would face tremendous obstacles.
Also, having spent a number of years on Senate staff, I know how hard it can be to build
coalitions and get things done. Given the entrenched nature of regulatory burden, I was
not at all surprised at the level of apathy and skepticism many expressed as we
launched our initiative in July of last year. I didn’t particularly want to raise unrealistic
expectations. Nor did I want the effort to be perceived as a Don Quixote expedition,
tilting at windmills. But I also didn’t want to set the bar too low.
Bankers have often told us that if we’re going to do anything, be bold. Don’t tinker at the
margins, which would only create more burden with no real relief. I agree with this
premise, and I am quite willing to take on issues generally regarded as sacrosanct
because this is a problem – you may be beginning to gather – that I feel strongly about.
After a long career in banking and a second career in government, I believe regulatory
burden is a problem for the entire banking industry from Citibank to the smallest
community bank in North Dakota, and the incontrovertible fact is - regulatory burden
disproportionately impacts smaller community banks. I’m absolutely convinced it is
becoming a problem of such magnitude that community banks are now suffocating
under the weight of accumulated regulation. If we are going to continue to have a
community banking industry, this is a problem we must solve. This is my highest priority
as Vice Chairman of the FDIC.
Some may say – what about your free market principles -the consolidation of the
industry is simply the free market at work. I believe in free markets, and allowing
FDIC
Vice Chairman John Reich
Exchequer Club
November 17, 2004
Good afternoon. I’m delighted to have both the honor and the pleasure of being here
with you today. I’d like to talk about a subject that is important to me—and that’s the
crushing impact of regulatory burden on community banks. I’m here to add my voice to
those who believe accumulated regulatory burden – which impacts the entire banking
industry - is now beginning to choke an important sector of the banking industry.
When I was a community banker in Florida more than 15 years ago, I never dreamed
that one day I would find myself in Washington, D.C. leading the charge against a
problem that at the time, and even now to many, seems almost insurmountable. I’m
glad to have this opportunity.
When FDIC Chairman Don Powell asked me early last year to lead the interagency
initiative under EGRPRA —the Economic Growth and Regulatory Paperwork Reduction
Act of 1996—I saw it as an opportunity to have a hand in addressing a longstanding
problem. I knew of course that we would face tremendous obstacles.
Also, having spent a number of years on Senate staff, I know how hard it can be to build
coalitions and get things done. Given the entrenched nature of regulatory burden, I was
not at all surprised at the level of apathy and skepticism many expressed as we
launched our initiative in July of last year. I didn’t particularly want to raise unrealistic
expectations. Nor did I want the effort to be perceived as a Don Quixote expedition,
tilting at windmills. But I also didn’t want to set the bar too low.
Bankers have often told us that if we’re going to do anything, be bold. Don’t tinker at the
margins, which would only create more burden with no real relief. I agree with this
premise, and I am quite willing to take on issues generally regarded as sacrosanct
because this is a problem – you may be beginning to gather – that I feel strongly about.
After a long career in banking and a second career in government, I believe regulatory
burden is a problem for the entire banking industry from Citibank to the smallest
community bank in North Dakota, and the incontrovertible fact is - regulatory burden
disproportionately impacts smaller community banks. I’m absolutely convinced it is
becoming a problem of such magnitude that community banks are now suffocating
under the weight of accumulated regulation. If we are going to continue to have a
community banking industry, this is a problem we must solve. This is my highest priority
as Vice Chairman of the FDIC.
Some may say – what about your free market principles -the consolidation of the
industry is simply the free market at work. I believe in free markets, and allowing
markets to work. I don’t believe the banking industry is a free market. According to the
MIT Dictionary of Modern Economics, a free market is “A market in which there is an
absence of intervention by government and where the forces of supply and demand are
allowed to operate freely.” If you would have been in a meeting room with me at the
Mayflower Hotel last week listening to over 100 community bankers sound off on how
regulatory issues are impacting and impeding their operations, you might conclude the
market is not so free. Eight (8) outreach meetings around the country during the past 15
months from New York to Seattle and 6 cities in between have given bankers the
opportunities to express similar thoughts about an over-regulated industry.
Today I’d like to focus on three aspects of the issue.
why our regulatory burden reduction efforts matter.
the progress we’re making with the EGRPRA initiative.
some larger solutions worth considering: including a two-tiered regulatory concept, and
creating better consumer disclosures.
Let me begin by saying that bank regulation obviously serves a clear and important
purpose. No one in this room would dispute that statement. Our regulatory system has
provided the framework for the most successful financial services industry in the world,
while protecting the safety and soundness of financial institutions and the consumers
who are served by them. Bank regulation must continue to serve these highest of
purposes.
Today’s rapidly evolving, increasingly complex financial services industry poses an even
greater challenge for regulators than in the past. With some financial conglomerates
holding more than $1 trillion in assets, protecting safety and soundness is an ever-
growing responsibility. With a greater array of increasingly sophisticated financial
products and instruments, protecting consumers must remain a top priority.
But when unnecessary, outdated, unduly burdensome, or duplicative regulations
accumulate to their present magnitude, and the cost of compliance escalates to the
level it currently represents on bank income and expense statements, it becomes
critically necessary to find solutions. The explosion of new regulations in recent years
has made that job all the more challenging and all the more important.
Since 1989, 801 new rules, regulations, and amendments to existing rules have been
imposed on the industry, on top of what already existed prior to that time. That amounts
to an average of more than 50 new rules, regulations, or amendments every year.
Regulatory burden is hard to measure, because it tends to become indivisible, if not
invisible, from a bank’s other activities. Still, if you look at the various studies that have
been done in the past, the cost of compliance with accumulated regulations amounts to
about 12 to 13 percent of a bank’s non-interest expenses. Now-outdated research by
the American Bankers Association and the Federal Reserve in the 1990s indicates that
the total cost of compliance for banks today would range from $26 billion to $40 billion a
MIT Dictionary of Modern Economics, a free market is “A market in which there is an
absence of intervention by government and where the forces of supply and demand are
allowed to operate freely.” If you would have been in a meeting room with me at the
Mayflower Hotel last week listening to over 100 community bankers sound off on how
regulatory issues are impacting and impeding their operations, you might conclude the
market is not so free. Eight (8) outreach meetings around the country during the past 15
months from New York to Seattle and 6 cities in between have given bankers the
opportunities to express similar thoughts about an over-regulated industry.
Today I’d like to focus on three aspects of the issue.
why our regulatory burden reduction efforts matter.
the progress we’re making with the EGRPRA initiative.
some larger solutions worth considering: including a two-tiered regulatory concept, and
creating better consumer disclosures.
Let me begin by saying that bank regulation obviously serves a clear and important
purpose. No one in this room would dispute that statement. Our regulatory system has
provided the framework for the most successful financial services industry in the world,
while protecting the safety and soundness of financial institutions and the consumers
who are served by them. Bank regulation must continue to serve these highest of
purposes.
Today’s rapidly evolving, increasingly complex financial services industry poses an even
greater challenge for regulators than in the past. With some financial conglomerates
holding more than $1 trillion in assets, protecting safety and soundness is an ever-
growing responsibility. With a greater array of increasingly sophisticated financial
products and instruments, protecting consumers must remain a top priority.
But when unnecessary, outdated, unduly burdensome, or duplicative regulations
accumulate to their present magnitude, and the cost of compliance escalates to the
level it currently represents on bank income and expense statements, it becomes
critically necessary to find solutions. The explosion of new regulations in recent years
has made that job all the more challenging and all the more important.
Since 1989, 801 new rules, regulations, and amendments to existing rules have been
imposed on the industry, on top of what already existed prior to that time. That amounts
to an average of more than 50 new rules, regulations, or amendments every year.
Regulatory burden is hard to measure, because it tends to become indivisible, if not
invisible, from a bank’s other activities. Still, if you look at the various studies that have
been done in the past, the cost of compliance with accumulated regulations amounts to
about 12 to 13 percent of a bank’s non-interest expenses. Now-outdated research by
the American Bankers Association and the Federal Reserve in the 1990s indicates that
the total cost of compliance for banks today would range from $26 billion to $40 billion a