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COMMUNITY BANKS' HIGH COMPLIANCE COSTS EXACERBATE CREDIT CRUNCH

 SAN DIEGO, March 12 PRNewswire/ -- The Independent Bankers Association of America issued the following:
 It is clear President Clinton recognizes that the credit crunch is denying small business the credit it needs to prosper. That was underscored this week by his announcement of administrative actions to relieve some of the regulatory burden debilitating community banks.
 Community banks are the traditional providers of credit for small business, but regulatory overkill is hampering their ability to lend. The regulatory burden is hurting community banks, and in essence, small business and the economic recovery.
 A recently released study by the Independent Bankers Association of America (IBAA) leaves no doubt that the cost for community banks to comply with regulations, both in time and money, is overwhelming. Even before implementation of the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), compliance costs were a drag on the community banking industry and its customers.
 The study is IBAA's response to Federal Reserve Board Chairman Greenspan's challenge to present "unassailable documentation" of the regulatory burden. More importantly, it provides the factual underpinning to justify prompt action by Clinton and hopefully Congress.
 According to the study, conducted by the accounting firm of Grant Thornton and titled "Regulatory Burden: The Cost to Community Banks," the annual cost for community banks to comply with just 13 pre-FDICIA regulatory areas is $3.2 billion. That means community banks spend a whopping 24 percent of their net income before taxes on complying with just a fraction of the rules that govern the industry.
 In terms of time, the study shows that community banks spend 48 million hours annually complying with only 13 regulatory areas. Translated to full-time equivalent employees, about 22,800 staffers must dedicate their time to compliance matters.
 The six-month study is the first to focus solely on the compliance costs of the nation's 9,700 community banks, defined by IBAA as locally owned and operated institutions. However, if the compliance cost is extrapolated to cover all commercial banks in the United States, the cost would be approximately $11 billion for the 13 selected regulatory areas.
 The study substantiates the report by the Federal Financial Institutions Examinations Council (FFIEC), issued last year, which concluded that the compliance cost for all banks in all regulatory areas may be as high as $17.5 billion. Extrapolating the IBAA/Grant Thornton data to cover all commercial banks, it is clear that the FFIEC estimate is low.
 The study gives definitive evidence that the regulatory burden is especially hard on small banks. Banks with assets under $30 million incur three to four times the compliance cost of larger banks.
 According to IBAA statistics, the average community bank has $42 million in assets and about 20 full-time employees. The study indicates that such a bank faces annual compliance costs of $178,000. In terms of time, the cost is 3,137 hours or 1.5 full-time employees (7.5 percent of the bank's workforce).
 However, the study indicates that small banks can benefit from exemptions. The Home Mortgage Disclosure Act proved to be the least costly regulatory area -- $17.5 million and almost 421,000 hours annually -- largely because the smallest banks are exempt from Regulation C. The study proceeded in three phases. In Phase I, Grant Thornton used written questionnaires to determine which regulatory areas community bankers deemed most onerous. In Phase II, Grant Thornton conducted on-site cost studies at nine representative community banks.
 In Phase III, results of the field cost studies were used to develop separate surveys covering each of the 13 regulatory areas identified in Phase I. These surveys were then sent to 2,600 community banks.
 IBAA is the only national trade association which exclusively represents the interests of the nation's community banks.
 -0- 3/12/93
 /CONTACT: Ken Guenther or Diane Casey in San Diego, 619-234-1500, ext. 2792, or Viveca Ware, in Washington, 202-659-8111, all of the Indendent Bankers Association of America/


CO: Independent Bankers Assocation of America ST: California IN: FIN SU:

KD -- DC013 -- 5563 03/12/93 14:09 EST
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Date:Mar 12, 1993
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