Regulations chafe Alaska banks.

• Author: Gerhart, Clifford
• Position: Industry Overview

Alaska's bankers say they are shackled by the expenses and business limitations caused by increasing regulation.

For decades, Hollywood has portrayed them as fat cats whose idea of a good time is to foreclose on widows and orphans. As a result, bankers don't attract much sympathy from the public when they complain about regulations introduced in the name of consumer protection. Banks became subject to stringent rules after the Great Depression, and more recently, a rash of bank failures during the 1980s encouraged additional government oversight.

Bankers admit that some regulation is good for the industry. They add, though, that compliance with rules drives up the consumer's cost of financial services and, in some cases, limits the kinds of services banks continue to offer.

The banking industry had hoped that the Federal Deposit Insurance Corporation Improvement Act of 1991 would lighten its regulatory load and give banks new powers. But while the bill did address some concerns of the industry, overall it increased banking's regulatory requirements. Consequently, Alaska bankers consider the act one more burden to bear.

According to executives of the state's banking industry, an increasing number of mandates -- including some that affect not just banks, but all businesses -- are unfair or ineffective. Among requirements and responsibilities they cite most often as unnecessarily restrictive are those affecting appraisals, environmental liability, community reinvestment and disclosure.

Bankers are particularly incensed that many demands on banks do not apply to other vendors of financial services, thereby creating an uneven playing field; banks must bear additional costs as a result of many regulations and must follow operating practices that often restrict flexibility.

Willis Kirkpatrick, director of banking, securities and corporations for the state Division of Banking in the Alaska Department of Commerce and Economic Development, believes that banks are overregulated. He says many of the "extremely voluminous" rules have little to do with the business of commercial banking and should be eliminated.

Kirkpatrick points out that although banks are regulated as if they were monopolies, the interest rates they receive from the Federal Reserve Board are determined by competitive market forces. "The problem is that banks have become regulated to the point where they're like a public utility. But, of course, they don't have any way of setting their own rates like a utility," he explains. "There's no guarantee a privately funded and highly regulated bank can make a profit."

Robert Gray, president of Anchorage-based National Bank of Alaska, says the 1991 Federal Deposit Insurance Corporation Improvement Act created 40 to 100 new regulatory initiatives. The Federal Reserve System has created 60 task forces to write regulations to...