March 2007

by Don Ogilvie, Independent Chairman

The honeymoon was probably overrated, anyway. Now a somewhat anxious marriage between the Bush administration and the Democratic-led 110th Congress is under way.

Will we see more disagreements between the White House and Congress? Will the president use his veto more often? Will party maneuvering before the 2008 primaries make it hard to pass legislation? Yes, yes and yes.

What can bankers reasonably expect from Washington this year? What should — what can — Congress do?

One thing is certain — without support from both Democrats and Republicans, it’s unlikely that any banking legislation can make it to the president’s desk. But there are three issues that do seem to meet the important test of support on both sides of the aisle. Congress should act on them quickly.

First, the Senate should pass the Seasoned Customer CTR Exemption Act of 2007 (H.R. 323). This bill, passed by the House in January, would relieve financial institutions from having to file millions of meaningless currency transaction reports on their regular customers each year. The bill would reduce costly paperwork for banks and allow law enforcement people to focus their resources on finding the true crooks.

Second, both houses should pass the Industrial Bank Holding Company Act of 2007 (H.R. 698) and close the loophole that has allowed commercial firms to open state-chartered industrial loan companies (ILCs). ILCs are banks for all intents and purposes, except that they do not fall under the same strict regulatory and supervisory regimen that applies to banks. Regulators need the ability to monitor, supervise and oversee all aspects of a bank — including the bank holding company — to prevent systemic bank failure.

Allowing commercial firms to own ILCs means that regulators have little or no control over the much larger commercial aspects of those companies. It’s very much a safety-and-soundness issue. Congress needs to pass H.R. 698 and reestablish the historic and justified separation between commerce and banking.

Third, our lawmakers must address an alarming decline in the global competitiveness of U.S. banks. A Deloitte analysis concludes that a growing patchwork of anti-money-laundering regulation around the world, tougher rules under the USA Patriot Act, and the ongoing costs of Sarbanes-Oxley requirements are threatening U.S. bank competitiveness abroad.

And U.S. banks are in danger of falling further behind under the Basel international capital accords if federal regulators require our banks to hold higher minimum levels of capital than foreign banks.

In January, Mayor Michael Bloomberg of New York, a Republican, and Sen. Charles Schumer, D-N.Y., jointly released a study warning that the United States is losing its role as the world’s most important capital market. The study says that frivolous lawsuits, regulation, securities law and other competitive factors are driving global markets activity out of New York to London, Tokyo and other foreign financial centers.

Other research, financial expertise and informed opinion are leading to the unmistakable conclusion — shared by many across a broad political spectrum — that we have overregulated our financial institutions. A serious, sustained, bipartisan examination of the issue is needed now in Congress. Hearings should begin immediately.

Finally, I would like to see Congress pause for a deep breath before plunging on.

Bankers have talked about the effects of too much regulation on the banking industry until it has almost become a cliche. But the regulatory burden is real, and every new law adds to the cumulative costs of running a bank. Is it too much to ask that our lawmakers evaluate each banking proposal in the light of how much paperwork — and eventual cost — it creates for banks and their customers?

If there is to be credit card legislation, for example, Congress must recognize the tremendous variety and usefulness of cards here and around the globe — and not jeopardize their wide acceptance or add to the cost of providing them.

Every banker I know is working hard to improve profits, enhance performance and provide good customer service. They respect the law, support the nation’s war on terrorism, run sound banks, provide credit broadly and within sound lending guidelines, protect the privacy of their customers and support their local communities. They don’t need more regulation; they need less.

As the independent chairman of the new Deloitte Center for Banking Solutions (the Center), I will be looking at all the political, economic and competitive implications for banking throughout the new year. The Center will be a home to seasoned banking and nonbanking executives, former regulators and Deloitte professionals from diverse industry and business disciplines, who seek to impact the industry’s future by examining issues that affect both banks and their customers. Through independent and shared research as well as executive forums and peer discussion, the Center will fuel innovative thinking and provide executable solutions. 

In the coming months we’ll use this space to talk about some of the key risks we see for bankers, and we’ll be offering advice and solutions to help you find the very best path to eventual success and improved profitability.
I hope you’ll want to join us in this exploration.

View the article below that appeared in American Banker