Take Charge: Combat Call Report Encroachment with ICBA Petition

20130415 Letter

Before I was ever a community banker, I was a cadet at the Virginia Military Institute and an officer in the U.S. Army. One of the core principles instilled in me during my military training was the importance of never giving up ground—of always looking for opportunities to take ground from the enemy.

Well, in ICBA’s constant war on excessive regulation, we are mounting a new assault to halt and roll back what has become a significant burden for many community banks—the quarterly call report. Last week we launched a petition urging relief from the increasing length and complexity of the call report and advocating streamlined reporting rules for community banks.

But just like in combat, we need boots on the ground. In this case, we need a massive show of force to demonstrate to regulators that we are not about to lay down our arms. That is why I’m calling on every community banker, every staffer, every director, every industry ally—join the fight! Sign our petition today to help us turn the tide.

Let’s be clear what we’re fighting for here. The massive growth of the call report—to nearly 700 pages of instructions and 80 pages of forms—has a tangible impact not only on community banks and their compliance staff, but also on the success and economic growth of the local communities they serve. Like other regulatory burdens, the additional time and resources that community banks devote to the call report cannot be dedicated to local economies.

And there is no question that the size and complexity of the call report burden is rapidly growing. ICBA’s recently released call report survey found that the annual cost of preparing the report has increased for 86 percent of community bank respondents over the past 10 years. Further, 98 percent of respondents said ICBA’s proposed short-form call report, which qualifying community banks would submit twice annually, would reduce their regulatory burden. Seventy-two percent said the reduction would be substantial.

That is why we must act now! Community banks and the communities they serve can’t cede any more territory to the growing call report threat.

As part of our broader fight for regulatory relief, we must hold our position on this crucial issue. Let’s turn out in force, let’s halt the advance of this costly burden, and let’s strike a blow for smarter and more equitable regulation! Sign ICBA’s call report petition, enlist reinforcements, and make sure Washington hears every single one of us loud and clear!

Let’s Cut Call Report Paperwork Down to Size

ICBA Call Report survey infographicRegulatory paperwork continues to occupy far too many community bank resources that could be dedicated to improving local communities, and the problem is only getting worse. A new ICBA survey spotlights the tangible impact of one of the more onerous burdens that is only getting heavier—the quarterly call report.

While regulators are proposing to yet again expand call report requirements for all banks, ICBA’s new survey details the impact of existing reporting rules.

The 2014 ICBA Community Bank Call Report Burden Survey found that the annual cost of preparing the call report has increased for 86 percent of respondents over the past 10 years. Meanwhile, the total hours dedicated to preparing the call report increased for 73 percent of respondents. Further, one in three survey respondents said the number of employees involved in call report preparation has increased, with more than 60 percent saying they have at least two employees who prepare their report.

Why the increasing time and expense? Here’s a reason—the call report has grown from 18 pages in 1986 to 29 pages in 2003 to nearly 80 pages today! The instructions alone are 630 pages, and regulators are considering padding that with another 57. In fact, the call report—which community banks have to submit every 65 business days—has more pages than the typical U.S. community bank has employees.

Make no mistake—the additional staff time and resources that community banks devote to the call report are resources that cannot be used to expand our economy. That is why ICBA is proposing a simpler and more streamlined approach for smaller and less complex banks.

Instead of continuing to add to the paperwork overload, we propose that regulators allow highly rated, well-capitalized community banks to file a short-form call report twice per year. This report would cover the first and third quarters of the year, with community banks continuing to submit the usual long-form call report during the second and fourth quarters.

Think it will help? Community bankers sure do. According to our call report survey, 98 percent of respondents said the short-form call report would reduce their regulatory burden, and 72 percent said the reduction would be substantial.

Look, enough is enough. The truth is that new regulatory burdens detract from the ability of community banks to serve their communities. Instead of tying up local institutions in knots of red tape, let’s free their hand and allow them to promote the sustainable economic growth our nation desperately needs.

Note to Regulators: Exercising Fiduciary Responsibility is Not a Community Bank Board Problem – But You Might Make It One!

As community bankers we have a fiduciary responsibility to our customers and communities as well as our shareholders. While it may not always be an explicit legal duty, it’s inherent to the community bank relationship business model and serves a key role in our success—after all, community banks only succeed when their customers and communities do the same. That’s why, when I read a recent speech given by Federal Reserve Governor Daniel Tarullo during the Association of American Law School’s 2014 Midyear Meeting in Washington, D.C., which hovered on the possibility of broadening directors’ fiduciary duties, I was taken aback.

In his speech, Gov. Tarullo alludes to whether the fiduciary duties of the boards of regulated financial firms should be modified to reflect what he has characterized as regulatory objectives. He says, “Doing so might make the boards of financial firms responsive to the broader interests implicated by their risk-taking decisions even where regulatory and supervisory measures had not anticipated or addressed a particular issue. And, of course, the courts would thereby be available as another route for managing the divergence between private and social interests in risk-taking.”

As a former community banker, and one that now represents the premier association for the community bank industry, I’ve seen a lot. And that’s why this struck such a nerve. While I realize that a change of this nature, and magnitude, would require statutory changes, it nevertheless is a slippery slope. Combine this with the fact that community bank boards have been subject to a broad fiduciary duty for decades, and you have a very volatile and dangerous situation. 

Community bank directors should not be subject to a broader legal fiduciary duty. It’s one that could lead to more emphasis being put on the community bank system than the megabank system. We already see this happen when a small bank director gets sued by a regulator. The problem is that you never see the same situation play out with a megabank director being caught behind the lines. Doesn’t it seem as though the small guys are always low hanging fruit for the regulators? Why is that? Are they just easier to spot? I guess you could say that small banks don’t have nearly as many layers of leaves to hide behind as those at the megabanks do.

That’s why if the possibility of broadening directors’ fiduciary responsibility to include risk management is ever put on the table, it should absolutely apply to the systemically important financial institutions or SIFIs. The forest is way too dense in those tall skyscrapers on Wall Street anyway, and that’s exactly why regulators need to hold the megabank board directors to the same standards that they already hold community bank board directors to. 

The bottom line is that no bank should be more camouflaged than the other when it comes to fiduciary responsibility—no one. We all need to wear the same fatigues on this one.

Free Societies and the Rule of Law

Operation Choke Point is a U.S. Department of Justice-led joint effort with federal regulators designed to choke off access to banking services by businesses engaged in fraudulent or otherwise illegal activities. The public policy end was to protect Americans by driving seedy, fraud-laden businesses out of business. The means were to deny targeted businesses the basic but vital banking services that any business needs to process payments, thus forcing them out of the marketplace.

However, as members of Congress from both parties have protested, the cure has become worse than the disease as the scope grew to include whole classes of perfectly legal but politically controversial businesses. Banks continue to experience regulatory intimidation to drop long- standing customers that include Internet-based businesses, payday lenders, telemarketers and debt collectors.

Some of the darkest days in history have started when government intervention into free markets is driven by a political agenda and not the rule of law. Quiet pressure of this sort from an all-powerful government cannot be tolerated in a free society.

These days it is rare that Congressional Republicans and Democrats agree on anything, much less on protecting the freedom of banks to serve unpopular, but legal, businesses. I applaud them for standing together to defend the rule of law and demanding an end to government-sponsored, politically motivated, subtle bureaucratic intimidation.

Let’s be clear, no credible voice is talking about protecting illegal or fraudulent businesses. The federal government has plenty of appropriate tools to enforce state and federal laws. Justice and regulators should take aggressive enforcement action against law breakers. Likewise, Justice and regulators must stop undermining the rule of law by encouraging banks to discontinue serving legal businesses, many of which are regulated companies they have successfully banked for decades. Government must clean up Operation Choke Point and end subtle pressure from regulators to discontinue banking politically unpopular groups.

Two Congressmen from my home state of Missouri, Republican Blaine Luetkemeyer and Democrat Lacy Clay, pointed out the human cost of Operation Choke Point on consumers who are further shut out of the free enterprise system, and the need for a safe harbor for insured depositories to bank the legitimate companies who serve them. There must be immediate relief and indemnity for insured depositories to continue providing basic banking services.

We must stand ready to work with regulators to restore confidence and clarity so that community banks can serve a broad range of legal businesses that follow state and federal laws. A solution could include a regulator-certified safe harbor and indemnity for insured depositories that provide banking services to companies that demonstrate compliance with laws and regulations applicable to their business.

The regulators started Operation Choke Point; they can stop it.