Statement of John M. Reich Vice Chairman Federal Deposit Insurance
Corporation on Regulatory Burden Relief Efforts Before the Subcommittee on
Financial Institutions and Consumer Credit of the Committee on Financial
Services U.S. House of Representatives
June 9, 2005 -- 10:00 AM
2128 Rayburn House Office Building
Mr. Chairman, Ranking Member Sanders, and Members of the Subcommittee, I very
much appreciate the opportunity to testify and update you on efforts to reduce
unnecessary regulatory burden on federally-insured depository institutions. I am here
today as the leader of the inter-agency regulatory review process mandated by the
Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA). In this
capacity, and as a former community banker with over 23 years experience, I commend
the distinguished Members of this Subcommittee for your steadfast commitment to
pursue meaningful regulatory relief legislation, while maintaining the safety and
soundness of the banking industry and protecting important consumer rights. As I have
said before, our nation's banks, particularly America's smaller community banks, are
counting on us to succeed in our efforts to reduce regulatory burden.
My testimony this morning will discuss the importance of balancing the relative costs
and benefits of regulations, the proliferation of regulation in recent years and the high
costs on the industry, as well as the cumulative effect of regulations on our nation's
bank and thrift institutions, particularly smaller community banks. I will also outline our
efforts to review regulations and address, on an inter-agency basis, some of the existing
regulatory burden, as mandated by EGRPRA. I will then describe some actions the
Federal Deposit Insurance Corporation (FDIC) has taken internally to reduce burdens
imposed by our own regulations and operating procedures. Finally, I will suggest certain
specific legislative actions that can be taken to stem the ever-increasing tide of
regulation on the banking industry.
The Importance of Balancing the Costs and Benefits of Regulation
Our bank regulatory system has served us quite well, over many years, often helping to
restrain imprudent risk-taking, protect important consumer rights and fulfill other vital
public policy objectives. Statutes and regulations help preserve confidence in the
banking industry and in the financial markets by ensuring that institutions operate in a
safe and sound manner, promoting transparency in financial reporting, and encouraging
fair business practices. However, as more and more laws are passed, and new
regulations are adopted to implement these laws, I think it is incumbent upon public
policy makers to ensure that the intended benefits of our regulations justify the
considerable costs. I think we need to periodically take stock of the cumulative effect of
all regulatory requirements on the industry. No one would advocate a system where
people spend more time trying to figure out how to comply with all the laws than
engaging in their primary economic activity. As Federal Reserve Board Chairman Alan
Greenspan said in a speech a few months ago, "to be effective regulators we must also
attempt to balance the burdens imposed on banks with the regulations' success in
Corporation on Regulatory Burden Relief Efforts Before the Subcommittee on
Financial Institutions and Consumer Credit of the Committee on Financial
Services U.S. House of Representatives
June 9, 2005 -- 10:00 AM
2128 Rayburn House Office Building
Mr. Chairman, Ranking Member Sanders, and Members of the Subcommittee, I very
much appreciate the opportunity to testify and update you on efforts to reduce
unnecessary regulatory burden on federally-insured depository institutions. I am here
today as the leader of the inter-agency regulatory review process mandated by the
Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA). In this
capacity, and as a former community banker with over 23 years experience, I commend
the distinguished Members of this Subcommittee for your steadfast commitment to
pursue meaningful regulatory relief legislation, while maintaining the safety and
soundness of the banking industry and protecting important consumer rights. As I have
said before, our nation's banks, particularly America's smaller community banks, are
counting on us to succeed in our efforts to reduce regulatory burden.
My testimony this morning will discuss the importance of balancing the relative costs
and benefits of regulations, the proliferation of regulation in recent years and the high
costs on the industry, as well as the cumulative effect of regulations on our nation's
bank and thrift institutions, particularly smaller community banks. I will also outline our
efforts to review regulations and address, on an inter-agency basis, some of the existing
regulatory burden, as mandated by EGRPRA. I will then describe some actions the
Federal Deposit Insurance Corporation (FDIC) has taken internally to reduce burdens
imposed by our own regulations and operating procedures. Finally, I will suggest certain
specific legislative actions that can be taken to stem the ever-increasing tide of
regulation on the banking industry.
The Importance of Balancing the Costs and Benefits of Regulation
Our bank regulatory system has served us quite well, over many years, often helping to
restrain imprudent risk-taking, protect important consumer rights and fulfill other vital
public policy objectives. Statutes and regulations help preserve confidence in the
banking industry and in the financial markets by ensuring that institutions operate in a
safe and sound manner, promoting transparency in financial reporting, and encouraging
fair business practices. However, as more and more laws are passed, and new
regulations are adopted to implement these laws, I think it is incumbent upon public
policy makers to ensure that the intended benefits of our regulations justify the
considerable costs. I think we need to periodically take stock of the cumulative effect of
all regulatory requirements on the industry. No one would advocate a system where
people spend more time trying to figure out how to comply with all the laws than
engaging in their primary economic activity. As Federal Reserve Board Chairman Alan
Greenspan said in a speech a few months ago, "to be effective regulators we must also
attempt to balance the burdens imposed on banks with the regulations' success in
obtaining the intended benefits and to discover permissible and more efficient ways of
doing so." I could not agree more. It is all about balance and I am afraid that the scales
have now tipped too heavily to one side and need to be rebalanced.
The Proliferation and High Cost of Regulation on the Industry
In my testimony before this Subcommittee last year, I reported that, since enactment of
the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) in 1989, the
Federal bank and thrift regulatory agencies have promulgated a total of 801 final rules.
Since I testified in May of last year, the agencies have adopted an additional 50 final
rules, which means that there have been a total of 851 final rules adopted since
FIRREA, an average of about 50 new or amended rules promulgated every year. This
does not even include the rules adopted by the Securities and Exchange Commission
(SEC), Financial Accounting Standards Board (FASB), Public Company Accounting
Oversight Board (PCAOB), American Institute of Certified Public Accountants (AICPA)
and a whole host of state regulatory authorities nor regulations that apply to companies
in general (such as tax and environmental rules).
d
It is quite a challenge for bankers to maintain the capacity to respond to the steady
stream of new regulations while continuing to comply with existing regulations. Some of
the new regulations and reporting requirements facing the industry include those
doing so." I could not agree more. It is all about balance and I am afraid that the scales
have now tipped too heavily to one side and need to be rebalanced.
The Proliferation and High Cost of Regulation on the Industry
In my testimony before this Subcommittee last year, I reported that, since enactment of
the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) in 1989, the
Federal bank and thrift regulatory agencies have promulgated a total of 801 final rules.
Since I testified in May of last year, the agencies have adopted an additional 50 final
rules, which means that there have been a total of 851 final rules adopted since
FIRREA, an average of about 50 new or amended rules promulgated every year. This
does not even include the rules adopted by the Securities and Exchange Commission
(SEC), Financial Accounting Standards Board (FASB), Public Company Accounting
Oversight Board (PCAOB), American Institute of Certified Public Accountants (AICPA)
and a whole host of state regulatory authorities nor regulations that apply to companies
in general (such as tax and environmental rules).
d
It is quite a challenge for bankers to maintain the capacity to respond to the steady
stream of new regulations while continuing to comply with existing regulations. Some of
the new regulations and reporting requirements facing the industry include those