We are in the Wrong Country
by Blair Rugh
Recently, I was interviewed by a British journalist who was writing a paper on the comparative compliance burden on banks in different countries. He had completed his work on countries in the European Union and the rest of Europe and was beginning on the United States. He began his interview by stating that in Europe, bankers felt that the anti-money laundering rules and the enhanced government reporting of a bank’s financial condition caused by the credit crisis were the two most burdensome areas of regulation. He then asked me if an American banker would feel the same.
I told him that the Bank Secrecy Act was certainly burdensome and that the complexity of the call report had increased markedly in recent years, but those issues paled in the cost of compliance with the conglomeration of consumer compliance regulations that United States banks must address. I explained to him that virtually every aspect of a relationship between a consumer and his or her bank was governed by a regulation, and frequently by four, five, or more regulations, each of which dictated exactly how a bank must handle a transaction and how it must disclose its actions to its customer. I also explained to him that since the passage of Dodd-Frank, the reach and complexity of the regulations had at least doubled and in the area of mortgage lending, had increased exponentially.
The gentleman obviously had little knowledge of American banking regulations as he was pretty shocked by what I was telling him. I don’t think he ever grasped the concepts of CRA or UDAAP. He asked what I thought the cost was to an average bank in complying with these regulations. I told him I had no idea, but that it was a lot. I did tell him that 20 years ago, a typical community bank had a one-person compliance department and the person was paid about $50,000 per year. Now, that same bank probably has four persons in the compliance department and that the average salaries have more than doubled.
The gentleman’s naivety about U.S. banking regulations and the complexity of our consumer regulations reminded me of an experience I had several years ago. The bank automation company I was then with was installing its software in a bank in Turkey. It was my responsibility to learn about Turkish regulations to make sure our software would accommodate them. I had the opportunity to have lunch with the head of the Turkish Central Bank. During the luncheon, I questioned him about Turkish regulations. Whenever I mentioned any area of consumer regulation, he became totally befuddled. When I asked if they provided disclosures for deposit accounts or loans, he thought I was crazy. I asked if there was a rule about when a bank had to make deposited funds available for disclosure and he said, “No, each bank makes it available when it wants to.” Finally, I asked him if Turkey had any rules about discrimination based on race, religion, sex, etc. His eyes lit up. Finally, he had a question he could answer. “Of course we have those laws. If a lady is married, she must have her husband’s consent to open an account, and if she is not married she must have her parents’ permission.” I can see Congress trying to get that one past the National Organization for Women.
More important, the interview made me think about how much frivolous information banks are required to collect and disclose or report. Does a depositor really care what frequency a bank compounds or credits interest? Or when it is explained to them, do they even understand? We will begin paying interest when we get credit for the deposit. What in the world does that mean? Look at the proposed HMDA rules. We are going to have to begin collecting every piece of information about a borrower other than their height, weight and blood type, and that may not be far behind. But, my rantings on that topic are for another article.