CSBS is the professional association of state officials who charter, regulate and supervise the
nation's approximately 7,000 state-chartered banks and more than 400 state-licensed foreign
banking offices nationwide.
CSBS Supports Effort to Reduce Regulatory Burden
Senators Shelby and Mack deserve special recognition for their efforts to remove regulatory
burdens from our banks, which allows them to compete with other financial entities at home and
around the world. This competition encourages efficiency and innovation, which benefits the
economy and consumers alike.
State Initiatives on Regulatory Burden
Technology has played a large part in regulatory relief effort at the state level. Through the use of shared technology, state and federal banking agencies have been able to improve the quality of the examination product while making the examination process less intrusive and costly for
financial institutions.
Coordination and cooperation have been hallmarks of state bank supervision in the 1990s. This cooperative atmosphere will certainly continue to improve the quality of examinations and
enhance our ability to protect the safety and soundness of the banking system. It has already led
to a single regulatory point of contact for a multi-state state chartered bank.
S. 1405 the Financial Regulatory Relief and Economic Efficiency Act
The Federal banking agencies should consult with State bank supervisors in their
efforts to simplify call reports.
It is critical to our nation's banking system that the states continue to serve as the laboratory for
change and federal law should not unnecessarily inhibit state innovation. We would like to work
with the Committee to expand upon opportunities to allow for innovation at the state level
without raising concerns over safety and soundness.
We recommend a resolution be added to the bill promoting the use of plain English for all future regulations.
Good morning, Chairman D'Amato, Senator Shelby and members of the Senate
Banking Committee. I am Edward Leary, Commissioner of Financial Institutions for the State of
Utah, and Chairman of the Conference of State Bank Supervisors (CSBS). I have been involved
with banking for twenty-three years, first with a community bank and then as a bank examiner, as
Chief Examiner, and for the last five years as Commissioner. Thank you, Mr. Chairman, for
asking us to be here today to share the views of CSBS on regulatory burden reduction, and more
specifically on S. 1405, the Financial Regulatory Relief and Economic Efficiency Act of 1997.
CSBS is the professional association of state officials who charter, regulate and supervise the
nation's approximately 7,000 state-chartered banks and more than 400 state-licensed foreign
banking offices nationwide.
We applaud your long-standing commitment and your efforts to reduce theburdens imposed by unnecessary regulations that are duplicative or unrelated to the safety and
soundness of our nation's financial institutions. Senators Shelby and Mack deserve special
recognition for their efforts to remove these federal regulatory burdens, which allow our banks to
compete with other financial entities at home and around the world. This competition
encourages efficiency and innovation, which benefits the economy and consumers alike. Your
initiatives over the last several sessions of Congress have kept banking regulators focused on
improving the efficiency of our banking system. These reforms have certainly contributed to
making our nation's banking institutions more competitive in the financial services industry, and
benefitted consumers by lowering the cost of capital. However, I think we might all agree that -
as certain provisions in your legislation indicate - broader financial modernization is long
overdue and necessary to make our capital markets truly competitive.
State Initiatives on Regulatory Burden
The state banking departments, through CSBS, have a long-standing policy in support of
measuring each regulatory requirement against its benefit to the public. In supervising state-chartered institutions, we have seen first-hand how the cumulative effect of regulatory
requirements may actually have a detrimental effect on the public, by diverting banks resources
from lending and other financial services to regulatory compliance. Over the past few years the
states, in conjunction with our federal counterparts, have focused our efforts on reducing the
burdens on our state-chartered institutions.
Technology has played a large part in this regulatory relief effort. Through the use of shared
technology, state and federal banking agencies have been able to improve the quality of the
examination product while making the examination process less intrusive and costly for financial
institutions.
On-Site and Off-Site Examination
One of the benefits of the dual banking system has been the innovation and experiences that
varying state and federal regulatory approaches have brought to bank examination and
supervision.
For instance, while the Office of the Comptroller of the Currency was a major innovator in
supervision through off-site monitoring, the experience of the banking industry in the 1980s
demonstrated that off-site monitoring cannot be a substitute for on-site examination. However,
offsite monitoring is an effective way to obtain a general overview of a bank's condition without
the time and expense of an on-site examination. Today, both state and federal regulators use a
combination of on-site and off-site evaluation methods. In fact, CSBS has worked to pave the
way for coordination among the federal regulators in developing several new automated
examination tools that will both strengthen the examination process and reduce on-site time. Our
goal is to improve our time in the institution, and expedite the entire examination process, thus
freeing bank management to devote their efforts on the business of banking.
Improved Use of Technology in the Exam
Federal and state banking regulators facilitated by CSBS have been working on new automated
examination tools that enhance the supervisory process and make that process less burdensome
on the banks. New technologies have improved communication among the federal and state
banking agencies. Equally important, these new technologies will lead to an examination process
that is less expensive to administer and less intrusive for financial institutions, while
providing a better and more consistent product. The banks, the regulators and
taxpayers all benefit.
ALERT/Examiner Workstation
The Federal Reserve and the FDIC independently developed automated systems that extract loan
information from the databases of banks and allow examiners to review the loan data off-site.
These programs reduce the amount of time that examiners spend transcribing data in the bank -
time that the examiners can more productively use doing analyses.
ELVIS
A new analytical tool has been automated for use on virtually all laptop computers through a
stand-alone software program called "ELVIS" (Examiner Laptop Visual Information System).
ELVIS is the new technology tool that implements the agencies' new risk focused examination
system for community banks. Under this new program examiners analyze of six of the most
important activities of community banks, including loan portfolio management, securities,
management and internal controls, earnings and capital. Supplemental modules review activities
such as electronic banking, mortgage banking, and international banking.
The process targets the activities posing the highest level of risk at each institution and enhances
examiners' ability to diagnose emerging problems. The process will provide greater consistency
in examinations conducted by the Federal Reserve, the FDIC and the states, and is expected to
produce more efficient, effective examinations.
The Federal Reserve Board, the FDIC and the state banking departments began full
implementation of this common risk-focused automated tool for the examination of state-chartered community banks on October 1, 1997.
GENESYS (General Examination System)
A third tool, GENESYS - whose development originated in the FDIC will build on the advances
of ALERT/Workstation and the ELVIS program. It is an automated examination package that
draws analytical data from agency mainframes, provides examiners with new ways to analyze the
data by computer, and produces an examination report. The FDIC, CSBS, and the Federal
Reserve are now working closely together to develop a product that we can all use, and that can
draw data from either the FDIC or the Federal Reserve's mainframes. The FDIC expects to
release of GENESYS to all examiners by the fourth quarter of this year.
Technology allows examiners to gather and analyze data in a better manner
while making the whole process less intrusive to the financial institution. The thoughtful application of technology has allowed regulators to achieve the goal you established - to make the regulation of financial institutions more intelligent and less burdensome - while actually improving the quality of the examination and therefore the safety and soundness of our financial institutions.
Interstate Supervision
Coordination and cooperation have been hallmarks of state bank supervision in the 1990s. This
cooperative atmosphere will certainly continue to improve the quality of examinations and
enhance our ability to protect the safety and soundness of the banking system.
With Riegle-Neal's enactment in 1994, CSBS, on behalf of the state bank supervisors, began a
collaborative state/federal project to create a seamless supervisory system for state-chartered
banks operating on an interstate basis.
CSBS formed, with the FDIC and the Federal Reserve System, the State-Federal Working Group. The working group's goal is to minimize conflicts and duplication among the state and federal bank regulators in supervising interstate state-chartered banks.
Separately and through the State-Federal Working Group, the state banking departments
developed and signed two agreements: the Nationwide Cooperative Agreement, signed by all 54
state banking departments, and the Nationwide State/Federal Supervisory Agreement, signed by
the states, the FDIC and the Federal Reserve. Signed in November 1996, the Nationwide
Agreements unanimously agreed to by the state banking departments, the Federal Reserve and
the FDIC - were the culmination of two years of work toward a system of "seamless supervision"
for the interstate operations of state-chartered banks. The agreements serve as a model for
cooperation and coordination between the states and the federal regulators. This collaborative
effort reduces regulatory burden for state-chartered banks as state and federal regulators continue
to work together for efficient, effective state bank supervision.
The agreements provide a single regulatory point of contact for state-chartered banks that branch
across state lines. Both the Federal and state regulators have designated a single point of contact
for the overall supervision of a multi-state bank.
Under the Riegle-Neal Amendments Act of 1997, which we applaud you for passing so quickly, home state law will apply in almost every area. State-chartered banks must comply with host state laws governing intrastate branching, community reinvestment, consumer protection and fair lending. The Riegle-Neal Amendments Act of 1997 reduces burdens on State-chartered institutions that operate in more than one state, and allows them to offer a uniform menu of products and services across state lines.
S. 1405, "Financial Regulatory Relief and Economic Efficiency Act"
Section 210 of the bill requires the Federal banking agencies to jointly develop a system under
which insured depository institutions and their affiliates may file call reports. Since over half of
the insured depository institutions are state-chartered banks, we ask that you include a provision
requiring the federal agencies to consult with state bank supervisors when developing this system.
Other Suggestions for the Bill
Encourage Innovation
State initiatives have been the source of almost every major innovation in the U.S. banking industry. Everything from checking accounts to adjustable-rate mortgages, from electronic funds transfer to interstate branching, originated at the state level. A state bank was the first to offer a NOW account; state banks developed the automatic teller machine (ATM), and continue to provide the industry with innovative models for new products and applications of technology. State authorization of new bank powers has allowed new activities to emerge within local markets, minimizing systemic risk.
It is critical to our nation's banking system that the states continue to serve as the laboratory for
change and that federal law not inhibit state innovation unnecessarily. We would like to work
with the Committee to expand upon opportunities to allow for innovation at the state level
without raising concerns over safety and soundness.
Plain English Regulations
CSBS commends the Office of Thrift Supervision for implementing the National Performance
Review's initiative on plain English. The guidelines set forth in the Federal Register Document
Drafting Handbook (January 1997 edition) help to make regulations more readable for the
financial institutions that have to implement those regulations. Plain English drafting
emphasizes informative headings often written as a question, non-technical language, and
sentences in the active voice. Suggestions include making the documents visually appealing and
presenting text in a way that highlights the main points that should be communicated. Although
regulations will still be necessary after this bill passes, these suggestions will help make those
rules less mind-numbing.
We believe that the other federal banking regulatory agencies should also be encouraged to
follow these guidelines. We recommend that you add a resolution to the bill promoting the use
of plain English for all future regulations.
Conclusion
The quest to streamline the regulatory process while preserving the safety and soundness of our
nation's financial system is critical to our economic well being and the health of our nation's
financial institutions. Like you, and like our federal agency counterparts, we at the state level are
constantly balancing the public benefits of regulatory actions against their direct and indirect
costs. Our most important guide is the fundamental principle of safety and soundness.
We commend you, Mr. Chairman, for your tireless efforts in this area. We appreciate this opportunity to testify on this very important subject and look forward to any questions you and the members of the committee might have.
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