The Quick Fix

The subject was the increase in the amount of money laundering going on, in spite of all the reporting from the financial industry during the past few years.

The speaker was an agent from one of the government agencies who was addressing bankers at the American Bankers Association Security and Risk Management Conference in Phoenix in January.

He was concerned, he said, that in spite of all the policies and procedures that had been inaugurated, that more money laundering than ever was going on in the United States.

"I think," he said, "that what may be needed are some new regulations for the banking industry that would get this activity under control."

"?some new regulations for the banking industry?"

What an innovative idea!
I'm pleased to report that the audience, either out of politeness, or because they were too stunned at this proposal to act, did not tar and feather the agent and carry him out of Phoenix on a rail. But I'm just as sure that the idea ran through several minds.

But when you look back over the past few years at the financial industry, the government has tried to solve several problems by doing just what the speaker was suggesting.

The quick fix.
Congress was lobbied by the "physically challenged" (it is no longer politically correct to say "handicapped") with the result that the Americans with Disabilities Act (ADA) was passed, effective in 1992.

The result?
There are very few financial institutions in the United States that have not made some changes in order to accommodate these individuals. ATMs have been made accessible, ramps built, doors changed, special teller stations installed-at no little expense to the offices involved.

In the meantime, complaints multiply about hotels, restaurants, stores and theaters that are inaccessible to wheelchairs. These complaints threaten to push Congress to pass legislation "adjusting" ADA-which in turn can affect the banking industry further by creating additional requirements. Complaints from consumer groups in 1987 resulted in the Expedited Funds Availability Act (EFAA) which led to Regulation CC. The requirements of quicker availability has led to millions of dollars in losses to the financial industry through fraud and kiting. CC needs fixing. The answer? More regulations-Know Your Customer regulations and requirements which may possibly lead to fines if certain procedures are not followed in opening accounts.

The Community Reinvestment Act is a major example of a regulation gone wrong. It is now up for amendment and "fixing", and it's no secret that meeting the new requirements for additional data collection would mean tremendous cost to the banking industry-with minimal beneficial results.
The Bank Secrecy Act and its twin, the Anti-Money Laundering Act, evidently was supposed to cure the drug problem here by plopping regulations on the banking industry to report large/frequent/suspicious transactions. To no banker's surprise, it's not working.

But the answer surely is not, as this agent suggested, writing some new regulations for the banking industry!

Financial institutions are the most regulated industry in the country, and, in spite of (but certainly not because of) all these regulations managed to make money during the past year. It comes as a surprise to some that banks are not an extension of a government agency-they're supposed to be profit making businesses.

The kind of "quick fix" the speaker was expressing is a common belief among government agencies. We need to "fix" that thinking! When regulations go out for comment?COMMENT!

Copyright © 1994 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 4, No. 8, 2/94