Fed Advisory Council Highlights Concerns over Regulations, Exams

Members of the Federal Reserve’s Community Depository Institutions Advisory Council — which includes several ABA member bank CEOs — raised concerns about compliance examination processes and the current regulatory landscape in a recent meeting, according to minutes released by the Fed.

“The council is very concerned that the working partnership that has existed for many years between examiners and bankers and credit unions is no longer working well, as manifested by increased examination timeframes, less risky concerns being mentioned as matters requiring attention or documents of resolution, and a lack of exam focus on an institution’s overall risk profile,” the group said.

Council members said they observed regulatory expectations for large institutions “trickling down” to community institutions, and they emphasized the need for regulators to tailor examinations based on the risk profiles of individual banks. They also raised concerns about the reduction in the overall level of examiner experience and expertise, noting that less-experienced examiners tended to take a “check-the-box” approach when conducting an examination, rather than focusing on the bank’s risk profile.

The council cited several examples of ongoing regulatory challenges, including the complex Basel III capital rules, the TILA-RESPA integrated disclosure mortgage requirements and Qualified Mortgage rules. They also noted that bankers continue to face significant competitive pressure from digital lenders, particularly with millennial customers. Members noted that millennials “demonstrate a willingness to accept less favorable terms in exchange for the convenience of digital loan application processes.” They cited excessive regulations and intransigence on the part of core processors as key roadblocks in this area.

The CDIAC advises the Fed on the economy, lending conditions and other issues. Members are selected from representatives of commercial banks, thrift institutions and credit unions serving on local advisory councils at the 12 Federal Reserve Banks. One member from each of those councils serves on the CDIAC, which meets twice a year with the Fed board in Washington.