Hey, Regulators! What Happened to the “Short” in Short Form Call Report?

What Happened to the “Short” in Short Form Call Report?

It’s the law of the land. After years of an ICBA initiated campaign to streamline the Call Report filing process for community banks, the Congress listened. The Economic Growth, Regulatory Relief, and Consumer Protection Act (S.2155) mandates that the nation’s federal bank regulatory agencies develop a “short form” call report for the first and third calendar quarters for all FDIC insured banks under $5 billion in consolidated assets.

In 21st century America such a statute is just common sense. There are no other small privately-owned businesses in America that are required to submit a 50+ page report on every minute detail of financial activities and equity position every 90 days – whether the information has materially changed or not!

To be fair, Federal bank regulatory agencies have “shortened” the previously 80+page quarterly call report to about 54 pages, a reduction of over two dozen pages. However, the main reason those pages were eliminated was that nearly all the data sought on those pages by the banking agencies did not apply to the nation’s community banks in the first place. So, with the elimination of those pages, a process that previously took 52 hours per quarter to complete (equivalent to just over one full work week for one person per quarter) now takes only 50.5 hours per quarter to complete for banks under $1 billion in assets according to the banking agencies. Time to pop the champagne cork, everyone! Small banks can now save a little over an hour every three months with the new and improved quarterly call report. Somehow, I don’t think that is what Congress had in mind when it ordered the regulatory agencies to create a short form call report for small community banks.  

And what defies common sense even more is that other non-bank financial businesses offering the same products and services to the same consumers are not required to file these overly burdensome reports – only commercial banks are required to do so. And worse, the smallest commercial banks in the nation are required to file basically the same report as the largest banks in the world! And to add insult to injury, community banks are only asking to file the short form call reports twice a year – not all four quarters. Year-end and mid-year reports would still be the full long form call report.  

Do Federal bank regulators seriously believe that a $50 million-dollar asset bank or even a $5 billion-dollar asset bank has a financial profile so dangerous and volatile that the bank must fill out an over 50-page financial report to regulators every 90 days? What is so vital in the typical community bank that regulators must drill down in minute detail into every financial facet of the bank every 90 days? Remember, every commercial bank in the nation, large and small is also examined and audited annually (and many times more often) by both Federal and state regulators and independent audit firms. So, the quarterly call reports are in addition to those audits and examinations.

Can we all get real? Congress gets it. Congress understood that requiring small banks to fill out reams of paperwork on every single financial item of the bank every 90 days was a waste of bank management time, and frankly regulatory authority time. There are much more productive uses of bank management time and regulatory time than pouring over a financial snapshot of a $200 million-dollar asset bank every 90 days.

Here’s an idea. How about a “no material financial changes” report filed at the end of the first and third quarters? It would be an attestation by the board and senior management of the bank that nothing material has changed financially in the bank since the filing of the most recent long form call report (year end and mid-year). That should do it, right?

But such an approach or something close to it is apparently unacceptable to Federal bank regulators. They cut a couple of dozen pages that mostly didn’t apply to community banks and believe that satisfies the requirement for a “short form” call report. Never mind that the time it takes for a small bank to fill out the report is essentially the same as it was before they reduced the number of pages. Again, is this what Congress really intended? I think not.

It is high time that our bank regulatory agencies recognize that in 2019 America the banking system has evolved to a point where anachronisms like 50+ page quarterly call reports every 90 days for small commercial banks makes absolutely no sense at all.

Blowin' in the Wind

Blowin’ in the Wind

“How many times can a man turn his head
And pretend that he just doesn't see?”

Peter, Paul and Mary ~ “Blowin' in the Wind”

"Equal Justice Under Law" is a societal ideal that has guided the American judicial system since our founding. But within the American financial services system this ideal, this phrase, which is engraved on our Supreme Court Building, has been undermined by size and wealth. “Too Big To Prosecute” and “Too Big To Jail” are more apt phrases - at least when it comes to holding the mega financial firms like Wells Fargo accountable.

Much of the current distrust of our nation's banking system and the public cynicism toward our regulatory authorities stem from the fact that not one single CEO or even the second or third ranking executives of the so called "Too Big To Fail" (TBTF) financial firms was ever prosecuted much less charged with any kind of wrongdoing. What do you think spawned movements like “Occupy Wall Street”?

How many times does Wells Fargo have to break the law and violate banking regulations before real consequences are imposed? The laws and regulations that Wells Fargo has violated over the past decade are too numerous to count. Yet the CEO, top executives, and the Board have faced no personal consequences. And like the most recent fines, the numerous monetary penalties levied against Wells Fargo amount to nothing more than a slap on the hand in relation to the firm’s balance sheet. We must demand a regulatory and judicial system that will punish wrong doers no matter their societal perch or the size of their institution.

The public knows that crimes were knowingly committed, and yet the CEOs and senior executives who committed these crimes were allowed to "retire" with enormous multi-million dollar bonuses and severance packages in their pockets. All the while, community banks and bankers were and still are severely punished for what are relatively minor offenses compared to many of the outrageous actions of the mega financial firms.

"Equal Justice Under Law" indeed. More like the kind of justice you find in south American dictatorships or third world countries run by "strong men". If you are a mega bank CEO and your firm is big enough and rich enough, “Equal Justice Under Law” has a much different meaning for you than it does for the ordinary community banker.

Former Attorney General Holder openly admitted this fact in public testimony to the Senate. In plain language he admitted that the Department of Justice does hesitate to bring the top executives of the largest financial institutions to account because their institutions are so large and powerful. And to hold one of these executives accountable could destabilize the nation’s entire economy. Basically, he said that these institutions have become so large and powerful that they are too big to prosecute and so are their executives.

So regulatory authorities default to the smaller community banks by making examples out of them and their executives for far less offenses. No wonder the public is so jaded and cynical. The general public is not stupid. They see this unequal treatment before their eyes. Why is the Main Street bank CEO prosecuted, but not the Wall Street CEO or senior executive? “Unequal Justice Under Law” seems to be the apt phrase here.

"Equal Justice Under Law" has been the cornerstone upon which we differentiated ourselves from nearly every other nation on earth for most of our nation’s history. Now it seems we are just like everyone else - if you are a top executive of a mega institution, you are safe from the consequences of your actions, no matter how many thousands of lives you and your institution have ruined – so says the United States Attorney General.   

And what or who is going to change this sorry state of affairs? “The answer, my friend, is blowin’ in the wind; the answer is blowin’ in the wind.”