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Washington, D.C. – The Senate Banking Committee held a hearing today to look into ways to relieve community banks and credit unions in rural states from the burden of filing unnecessary reports while draining much needed resources. U.S. Senator Mike Enzi, R-Wyo., member of the Banking Committee, spoke about the importance of lessening the current paperwork and reporting burden on smaller financial institutions in Wyoming.

The full text of Enzi’s statement follows.

Statement of Senator Mike Enzi
Senate Banking Committee Hearing on the:
“Consideration of Regulatory Relief Proposals”
March 1, 2006

Thank you, Mr. Chairman. I would also like to thank Senator Crapo for his hard work on this issue. Providing regulatory relief for our nation’s financial institutions, and the agencies who regulate them, is an important but difficult task. There are many stakeholders and interests to balance. At last count, the list of proposals was reaching 200. I’m sure by the end of this process we will have even more. I look forward to reviewing this comprehensive legislative package once it has been introduced.

The reason our committee is pursuing a regulatory relief proposal is to reduce the paperwork and administrative burden placed on our financial institutions. And we must also ensure that they are operating in a safe and sound manner, with their customers’ best interests in mind. However, these terms can have different meanings, depending on the bank, the customer, and the context.

A standard disclosure process used by a large national bank is sometimes not appropriate for a small community bank, but they are forced into a one-size-fits-all approach. There are thousands of examples of this all over the country, including my home state of Wyoming.

Wyoming, like many rural states, has a strong system of community banks and credit unions. These institutions are often an anchor to our towns. They are community centers where Wyoming residents can deposit checks, get a small business loan, or set up a savings account to save for a child’s college tuition. And usually, the person sitting across the desk is a friend or neighbor. In Wyoming, banking is done on a personal level, and that is a great way to do business. So when we examine the regulatory burden these banks manage, we need to look at it in a different context.

A large amount of money and resources are spent by banks filing transaction reports and disclosures required by their regulator. This includes currency transaction reports, suspicious activity reports, call reports, and many others. Often they can assist in investigations and prosecutions that put dangerous felons, even terrorists, behind bars.

However, some of these reports contain very little information, but are filed for the sake of compliance. Unnecessary reporting is a drain for law enforcement and financial institutions alike. Banks spend important resources filing these reports, and law enforcement agencies spend more time trying to sort the good information from the bad. This is a classic symptom of the one- size-fits-all approach. And it hits our small banks the hardest. Community banks often cite the time and cost of filing these reports as their largest regulatory expense.

We need to take a more commonsense approach to these processes. We need an approach that allows discretion if the customer is a long-term account holder, or if this particular activity is an everyday transaction for a customer with special needs. This would allow agencies to spend more time focusing on catching the criminals. It would also give banks more time and money to dedicate to their customers.

I have been working on another important issue for an industry familiar to me – accounting. When this committee considered the bill that became the Gramm-Leach-Bliley Act of 1999, we knew it would drastically change the way our financial industry operated. For example, Title Five of the Act enumerated the obligation of financial institutions to protect their customers’ private information, something that had never been done on such a large scale before. But for those in the accounting industry, this was old news. Certified Public Accountants are bound by privacy laws older and stricter than Gramm-Leach-Bliley. However, with the passage of Gramm-Leach-Bliley, CPAs were required to disclose privacy notices like everyone else.

State-licensed CPAs in all states are prohibited from disclosing personal information unless specifically allowed by the customer. Under Gramm-Leach-Bliley, institutions can share information unless prohibited by a customer. There is a significant difference here, and one that makes annual privacy disclosures for CPAs unnecessary.

I have been working closely with Congressman Mark Kennedy from Minnesota on an exemption of this annual disclosure for state-licensed CPAs who follow stricter privacy laws. While the cost of this annual disclosure can be annoying for larger firms, it can be deadly for small firms or sole proprietors. An exemption could save these firms valuable resources.

I look forward to working with my Banking Committee colleagues on this issue and other meaningful reforms for our nation’s small financial institutions.
Thank you Mr. Chairman.