Details of pending reg changes still uncertain

With regulation changes now a sure thing for bankers, the industry has come face-to-face with the old Chinese curse: “Be careful what you wish for, you may get it.”

The Gramm-Leach-Bliley Act, passed last year, tore down the old barriers set up in 1933 by what was commonly called the Glass-Steagel Act.

The previous federal Depression-era measure prohibited banks, insurance companies and brokerage houses from getting into each other’s business. Now that those walls are down, someone has to figure out how to regulate a new order.

Gramm-Leach-Bliley gives regulators 18 months to work out a new set of rules, due out sometime in the summer of 2001. Meanwhile, everyone is taking a wait-and-see approach because nobody knows what will really happen.

“We’ll see very little change in regulation until we see what the direction of the industry is,´ said Colorado State Bank Commissioner Richard Fulkerson. “At this point it applies to the Citi-groups of this world. That is the model that is out there right now ­ companies that can get these huge economies of scale, about $10 billion and up (in assets).”

Don Childears, president of the Colorado Banking Association, said regulators will employ a strategy he calls “functional regulation” while waiting to see how the industry will respond to the new law.

“The appropriate existing regulatory body will be going in and regulating things,´ said Childears. “State insurance regulators will continue to regulate what they already have. The SEC will regulate the brokerage business. The traditional bank-regulatory agencies will handle traditional banking activities. Rather than having one regulator, it gets sliced vertically.”

Childears said there may be some duplication in the regulations as brokerage houses perform banking functions or as banks get into the insurance business, but for now functional regulation is the way it will be handled. “We think of it as the cost of doing business,” Childears said.

Sometime in the next two to three years, Fulkerson said, regulators will be looking to see how the law is working for smaller community banks.

“The devil is in the details,” he said. “Can we combine insurance and securities regulations? I don’t know.”

None of this really bothers Bill Farr, president of Centennial Bank Holdings Inc., mainly because he thinks there won’t be too much effect on smaller operations, such as his own.

“The big banks will buy insurance companies and brokerage houses,´ said Farr. “The banks our size will not do that because we have super insurance companies around here. They know what they’re doing. We know how to make loans. You’ll have to be big to hire all the expertise to buy and run these things.”

Some other changes that have already taken place under Gramm-Leach-Bliley include:

Smaller banks will have more access to the federal banking system through small-business loans and agricultural loans. The move is designed to improve liquidity, Fulkerson said.

Smaller banks will have the time frame between Community Reinvestment Act exams expanded from two years to three.

Corporation status may change under the bill. Companies with 125 shareholders may acquire S Corporation status. In an S Corporation ­ previously limited to companies with 75 shareholders ­ the corporation tax is waived, and shareholders are taxed solely on their dividends.

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