| Federal regulators could reduce regulatory burden on banks by simplifying capital rules, streamlining call reports and increasing the appraisal threshold for commercial real estate loans, a consortium of regulators told Congress this week.
Those recommendations were the result of a regulatory review required by the Economic Growth and Regulatory Paperwork Reduction Act, or EGRPRA. Under that 1996 law, member agencies of the Federal Financial Institutions Examination Council must review their rules every 10 years to identify outdated, redundant or otherwise unnecessary regulations. This latest review focused particularly on the impact to smaller financial institutions. The federal banking agencies hosted six public outreach meetings nationwide and received more than 250 comment letters in total.
In their 400-plus page report to Congress, the regulators suggested simplifying capital requirements for community banking institutions – for instance, replacing its treatment of high volatility commercial real estate exposures with a simpler treatment for most acquisitions, development and construction loans. They also suggested raising the appraisal threshold for commercial real estate loans from $250,000 to $400,000.
The American Bankers Association praised the agencies’ work as “clearly an improvement over the review conducted 10 years ago,” but in a statement Wayne Abernathy, the association’s executive vice president of financial institutions policy and regulatory affairs, also said, “We cannot have a regulatory system that adds regulations every year and reviews them every decade. Instead, reviewing and eliminating unnecessary regulations should be a continuous, ongoing effort by each banking agency. The agencies’ report lays the foundation for just such an approach.”
Regulators noted in their report that they had already taken steps to simplify call reporting requirements, with the introduction last year of a streamlined call report for institutions with less than $1 billion in assets. That new call report, which will take effect at the end of this month, has been reduced from 85 to 61 pages, the report said.
Regulators also reduced the frequency of on-site safety and soundness examinations from 12 to 18 months for certain institutions – namely, those with “outstanding” or “good” composite conditions and under $1 billion in assets. That asset threshold had previously been $500 million, so when regulators raised it, that qualified about 611 more institutions for longer exam cycles. Those institutions will also be eligible for less-frequent Bank Secrecy Act examinations.
Among other things, federal regulators also indicated that they were working on clarifying guidance on flood insurance and attempting to address appraiser shortages in rural areas.
