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ICBA Says Regulatory Overkill Is Overwhelming Community Banks

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Washington, D.C. (June 22, 2004) - Colorado community banker Dale L. Leighty, chairman of the Independent Community Bankers of America (ICBA), told the U.S. Senate today that a steadily accumulating burden of regulation is unnecessarily hindering community banks from fully meeting the financial needs of their customers and communities.

"We have had to devote so much of our resources and attention to regulatory compliance that our ability to serve our communities, attract capital and support the credit needs of our customers is diminished," said Leighty, testifying on behalf of the ICBA before the Senate Banking Committee. "There is not any one regulation that community banks are unable to comply with-it is the cumulative effect of all the regulations that is so burdensome."

For perspective on the problem, Leighty, the president and chairman of First National Bank of Las Animas, Colo., noted that the typical $75 million-asset community bank has about 25 employees, fewer employees than the 26 separate federal consumer compliance rules alone. "And the time spent on compliance is time the bank is not using to serve its customers," he said.

Leighty said that ICBA recommends that Congress continue progress in promoting tiered regulation and supervision that accommodates the differences between community banks and larger, more complex institutions. The trade association also advocates shifting the disproportionate burden of supervisory and regulatory resources away from community banks and toward larger institutions that present the most potential risk to the financial system.

Leighty strongly urged Congress to "be bold and open-minded" when it considers forthcoming recommendations from the joint-agency Economic Growth and Regulatory Paperwork Reduction Act task force studying how to streamline and eliminate unnecessarily onerous banking regulations. He made detailed suggestions involving 18 banking regulations-including the Community Reinvestment Act (CRA) rules, Truth in Lending, Bank Secrecy Act, call report requirements and Sarbanes-Oxley Act rules-that Congress could change to streamline and make more effective, for community banks and consumers alike.

Leighty highlighted the CRA rules as a prime example of regulatory overkill disproportionately affecting community banks. And as coast-to-coast banking monoliths grow ever larger, he said, evaluating the CRA performance of large complex banking organizations and locally operated community banks by the same standards no longer makes sense.

Leighty pointed to a joint agency proposal and House legislation that, if adopted, would allow more community banks to direct more resources in meeting the credit needs of their communities. H.R. 3952 would raise the current $250 million asset-size ceiling for eligibility for streamlined CRA exams to $1 billion. The banking agencies have proposed raising the ceiling to $500 million in assets. ICBA vigorously supports both proposals.

As many regulatory requirements are hard-wired in statute, Leighty said, Congress must play a role in reducing the increasing regulatory burden that is seriously hindering community banks from doing what they do best: Serving as engines to the nation's local economies.

"The ICBA urges Congress and the regulatory agencies to address these issues before it is too late," Leighty said, summarizing his remarks. "This is especially true for consumer lending rules, which, though well intentioned, too often merely increase costs for consumers and prevent banks from serving customers. The fact that banks and thrifts are closely examined and supervised should be taken into account in the regulatory scheme, and depository institutions should be distinguished from nondepository lenders."

The full text of Leighty's testimony is available on ICBA's website at www.icba.org.