STAN RAGALEVSKY
Not optimistic about future
From amid the multitude of federal, state and municipal regulations governing the activities of financial institutions, the federal Financial Services Regulatory Relief Act of 2006 emerged – to little apparent acclaim from local banks.
“There’s very minimal relief in the act that everybody is touting that actually supports community banks in their mission to support the community,” said Juliann Thurlow, president of Reading Cooperative Bank and a member of the Massachusetts Bankers Association’s Legal and Regulatory Compliance Committee.
Stan Ragalevsky, an attorney and partner with Kirkpatrick & Lockhart Nicholson Graham in Boston, echoed Thurlow’s view of the act, which was signed by President Bush last month.
“This is almost in the nature of a technical-corrections bill, in that there is no significant amount of regulatory relief for the banks, with a couple of exceptions,” he said. “In fact, you might say that the credit unions got more regulatory relief out of this bill than the banks.” Some joke that the provisions in the bill actually seem to allow “more relief for regulators than the banks,” he added.
Two community banks contacted by Banker & Tradesman are still reviewing the act, while a spokeswoman for TD Banknorth – the $40 billion Portland, Maine-based bank with some 400 New England branches, including about 150 in Massachusetts – said the bank’s legal team “just didn’t see how there was any major impact on us.”
Ragalevsky said the act – whose origins go back about six years ago, shortly after the passage of the Gramm-Leach-Bliley Act, or Financial Services Modernization Act of 1999, which allowed banks to affiliate with securities firms – had “a lot more in it initially.”
For example, said Massachusetts Bankers Association Federal Regulatory Policy Director Jon Skarin, the bill did not include initial provisions that would have changed existing laws in states that only allow banks from certain states to enter that state, and did not reduce Currency Transaction Report (CTR) requirements – an anti-money laundering and terrorist provision of the Bank Secrecy Act that requires banks to report all transactions over $10,000 to the Department of the Treasury.
“Literally millions” of those reports are filed every year, Skarin said – and they’re often completely innocent. For example, banks often have customers who have businesses with large cash flows, such as a plumber or car repair shop owner, he explained.
An initial provision in the act would have allowed a streamlined process to exempt customers with whom the bank had had a relationship for over a year, who regularly have large transactions. The final version requires the General Accountability Office, or GAO – Congress’ investigational arm – to study the use of CTRs by financial institutions over the last three years and recommend improvements to the examination process.
a’A First Step’
The act does provide some relief to smaller banks, according to Skarin.
For example, it changes a current law that allows all healthy banks with assets of up to $250 million to be examined by the government for “safety and soundness” every 18 months instead of every 12 months. The new law also extends the provision to banks with assets of up to $500 million.
“It’s a significant process. This reduces the burden,” Skarin said.
Thurlow called that change “the only positive piece” in the bill. Ragalevsky described it as “the most important thing they did for community banks.” Some 60 to 70 Massachusetts banks will be affected, he said.
Another provision would create a model privacy notice – such as the kind banks send out to their customers annually – that banks could cut and paste, rather than creating their own, Skarin said. The actual text of the notice is due to be produced in the next few months.
“I would expect a lot of people will use this,” he noted. “I expect it will make it easier for the banks and consumers” because they might stop getting different privacy notices from different institutions.
“It’s supposed to be a plain-English, easy-to-understand document. I don’t envy the regulators their jobs,” Skarin joked.
He added that in his opinion, the most significant provision in the new legislation involves proposed so-called “Regulation B securities push-out rules,” which will “hopefully force regulators to come together” to devise regulations that work when securities firms and banks conduct business under the same roof, as allowed by the Financial Services Modernization Act.
Current regulations governing the two types of industries conflict, Skarin explained.
Some of the act’s provisions, he said, don’t take effect for another year to three years.
“It’s not like the bill was just signed and everything changed,” said Skarin. “Some of the things the banks would see more immediate impact from will take time.”
America’s Community Bankers, a national trade group, called the Financial Services Regulatory Relief Act “an important down payment in a continuing process,” while Independent Community Bankers of America President and Chief Executive Officer Camden R. Fine wrote in Independent Banker’s November issue that Bush took “a crucial, constructive first step” in signing it.
Skarin added MBA’s voice to the mix, saying, “I think we view this as hopefully a first step in providing regulatory relief. Compromises were made; deals were cut to get a bill done.
“The intent,” he added, “was to get it signed into law with the hope that in the next [congressional] session there can be more conversations.”
Ragalevsky took a less optimistic view.
Now that legislative relief has been offered, he predicted, Congress may not take such matters up again with the same urgency anytime soon.
If bankers come looking for relief in the next year or two, Ragalevsky said, “the response might be, ‘We thought we addressed this. Come back in five years.'”
