Statement by John P. LaWare, Chairman, Federal Financial Institutions Examination Council and Member, Board of Governors of the Federal Reserve System, before the Subcommittee on Financial Institutions Supervision, Regulation and Insurance of the Committee on Banking, Finance and Urban Affairs, U.S. House of Representatives, February 18, 1993 - Statements to Congress - Transcript

Federal Reserve Bulletin, April, 1993

The regulatory burden on banking institutions is large and growing. The cumulative regulatory burden on the banking industry may well be more than the sum of its parts. This burden has grown slowly but relentlessly over the years, layer by layer by layer. Although genuine public policy benefits may develop from any single regulatory proposal, it is important to recognize that the combined banking regulations and prohibitions create a substantial, if not approaching unmanageable, burden for many institutions. When these burdens are aggregated, the affect the economy by reducing the efficiency and competitiveness of the banking industry.

At this time, we need to make fundamental decisions. If there is to be real reduction in burden, we must revisit our overall approach for developing banking laws and establish a more direct process for balancing the benefits of regulatory proposals with the burdens they inevitably impose. We cannot continue to view banking institutions as the appropriate vehicle for implementing government policies without recognizing the costs. While the intended benefits of a regulation may be evident, we should recognize that those benefits are not free to society, or to consumers, because they appear to be paid for by the banking system. Those costs are shifted to consumers through lower interest rates paid on deposits and higher costs for loans and other banking services.

Administrative relief is limited by statutory requirements, however. In many instances, the agencies have little power to change the provisions that impose substantial burdens. Significant reductions in regulatory burden will require legislative action - and than minor adjustments to the existing laws and regulations.

I hope that the FFIEC study completed last year represents the start of an ongoing process to address the problem of regulatory burden on the banking industry. The steps already taken by the regulatory agencies and the sixty specific suggestions still under consideration represent an important, if modest, first step. Perhaps regulatory relief, like regulatory burden, can be cumulative.