The “Ever Expanding” Call Report & Growing Fed Regulatory Burden
In previous posts, I showed how the number of regulatory restrictions that apply to banks, including those from the three primary bank…
In previous posts, I showed how the number of regulatory restrictions that apply to banks, including those from the three primary bank regulators, the Office of the Comptroller of the Currency, the Federal Reserve and the Federal Deposit Insurance Corporation has been increasing since 1970. In this post, I will show how the rise in regulatory restrictions also mirrors the growing complexity of the call reports that financial holding companies, which are parent corporations to banks, have to complete to comply with regulations.
In a 2015 speech, Federal Deposit Insurance Corporation Vice Chairman Thomas Hoenig identified the “ever-expanding call report” as a challenge facing smaller, community banks, especially since many of the schedules in the forms would not be relevant for such banks. While larger banks might better absorb the compliance costs associated with completing the call report, the growing burden affects them, too.
Currently, there are bank call reports, which reflect bank level activity, as well as financial holding company call reports, which reflect the aggregate activity at the parent holding company level. Here, I’ll focus on the financial holding company call reports, simply because: 1) I have a longer historical sample of holding company call reports than bank call reports, and 2) as of Quarter 4, 2016, about 85% of all U.S. commercial banking entities (that’s including community banks), operate within a holding company.
To quantitatively define what I mean by the “ever-expanding” call report, I use the number of pages in the forms. Other useful measures might include the number of pages of the call report instructions, the word counts for the instructions, or even the number of entries in a call report that an entity must fill out. Since the Federal Reserve is the primary regulator for financial holding companies, I’ll compare the growth in the holding company call reports with the growth in the Federal Reserve regulatory restrictions and word counts embodied in parts 200–299 of Title 12 of the Code of Federal Regulations (CFR).
The figure below depicts the annual regulatory restrictions and word counts for the Federal Reserve, as well as the number of pages in the June call report for each year. I index the three series to equal 100 in 2007.
The figure shows that in 1996, regulatory restrictions and word counts in the CFR pertaining to the Federal Reserve equaled 6,135 and 791,294 respectively, while the holding company call report was 29 pages long. By 2016, regulatory restrictions and word counts in the CFR pertaining to the Federal Reserve rose to 13,333 and 1,553,141 respectively, while the holding company call report was now 65 pages long. Between 1996 and 2016, the average annual growth rate of: 1) call report page numbers equaled 4% (5.6% after 2007), 2) regulatory restrictions equaled 3.9% (5.3% after 2007) and 3) word counts equaled 3.4% (5.1% after 2007). The only year when CFR regulatory restrictions, word counts and call report page numbers declined was in 1999.
In sum, unless the use of the term refers to the elimination of a specific subset of regulations, there does not appear to be any overall evidence of bank holding company “deregulation.” Instead, regulatory complexity for bank holding companies has grown since the mid-1990s. The growing length of holding company call reports also mirror this growing regulatory complexity.