Reality Check

Reality Check

While ideologues pontificating from ivory towers claim that community banks don’t need regulatory relief, since they are doing just fine financially, boots on the ground tell a different story.

Community banks are drowning in a torrent of regulatory compliance costs, and Jack Barrett, president and CEO of First Citrus Bank, wants that to change.

Federal agencies that supervise financial institutions should focus on the largest institutions with the most complex transactions, Barrett wrote in a May 13 letter to Martin Gruenberg, chairman of the Federal Deposit Insurance Corp.

Barrett claims that the FDIC devotes three-quarters of its supervisory efforts to community banks that hold 13% of the industry’s assets while devoting only one-quarter to the largest banks.

“How is it sound for a soundness regulator to direct three times the amount of supervisor resources to 13 percent ($2.1 trillion) of industry assets, while 87 percent, $13.2 trillion of exposure, garners a mere 1/4th of supervisory resources?” Barrett’s letter said.

However, it’s not the misallocation of FDIC resources, but the cost to First Citrus of managing all that regulatory scrutiny, that causes Barrett the most heartburn.

In 2014, First Citrus incurred $412,000 in expenses related to regulation, compared to less then $25,000 spent each year prior to 2008. The biggest chunk of regulatory expenses last year — $189,000 — was for personnel, as First Citrus, like many other community banks, has had to beef up compliance staff.

Regulatory costs equated to 72 percent of the bank’s net income of $662,000 in 2014.

“If we are too small to save, do the regulatory agencies know we are also small enough to drown in torrential compliance costs?” the letter said.

Yes, they know it. They’ll pay lip service to the problem, then get about the business of consolidating the banking industry on the Canadian model favored by some. A few huge banks, working hand-in-glove with the central government to redistribute credit to those who most “deserve” it

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