April 03, 2012
That’s undoubtedly what NYT readers were asking after reading a piece saying that banks are fleeing federal regulators in order to avoid the excessive burden. The piece begins by telling us about Monadnock Community Bank, a small community bank in New Hampshire.
According to the piece, William Pierce, the president of Monadnock, is planning to sell the bank to credit union so that it can avoid the burdensome regulation of the Office of the Comptroller of the Currency (OCC). As an example, the piece tells us that the OCC required the bank to review its procedures for dealing with delinquent mortgages, even though it has only had two foreclosures in the last four years. This review is supposed to require the time of 3 of the banks 18 employees.
Okay, let’s see what our friend, Mr. Arithmetic, says about this. According to the piece, Monadnock has $82 million in assets. Let’s say that half of this, or $41 million, is in residential mortgages. The average home price nationwide is a bit over $200,000 (considerably higher in the Northeast). If the average mortgage has a loan-to-value ratio of 75 percent, that implies a value of $150,000. That means that the bank should have about 270 mortgages on its books.
Apparently the bank is careful with its loans, since it only had two foreclosures in the last four years, but let’s say that nonetheless an incredibly high percentage of the loans are still delinquent. If 10 percent of the mortgages were delinquent, then this would mean that Monadnock has 27 delinquent loans.
How long will it take 3 employees to review how these 27 delinquencies? If it took 2 hours for each mortgage (which seems extreme, unless the record-keeping is a mess), we get a total of 54 hours, or roughly two days work for each employee. In short, if Mr. Pierce’s claim about the burden of this regulation is true, it speaks more to the quality of his staff and his supervision than the burden of the regulation.
As a practical matter, presumably the bank has some list of procedures on handling delinquent mortgages. This would probably have to be reviewed and updated. This process should probably not require a great deal of time for one worker, although the bank would likely have other workers read and edit the revised version.
The piece should have made an effort to evaluate the claim that new regulations are imposing an excessive burden on Monadnock and similar banks, rather than just presenting them to readers as though they are true. Readers are likely to be very sympathetic to a small community bank. Putting the unexamined claims of Mr. Pierce at the beginning of the piece gives considerable credence to the claims of an excessive regulatory burden.
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