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FDIC Federal Register Citations

Conference of State Bank Supervisors


September 16, 2005

Robert E. Feldman
Executive Secretary
Attention: Comments/Executive Secretary Section
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429

RE:    Annual Independent Audits and Reporting Requirements

Dear Mr. Feldman:

The Conference of State Bank Supervisors (CSBS)[1] is pleased to have the opportunity to provide input on the FDIC’s proposal on Annual Independent Audits and Reporting Requirements.  The proposal will raise the asset threshold from $500 million to $1 billion on requirements for internal control assessment and external auditor attestation.  We support this provision.    The proposal would also require members of the audit committee to be outside directors for institutions between $500 million and $1 billion in assets, but those directors would not necessarily need to be independent of bank management.  We believe that the chairman and a majority of the committee should be independent and strongly recommend that the final rule include these requirements.

Through state supervisory examinations, often done jointly with the FDIC, state banking supervisors are acutely aware of the regulatory burden currently placed on the banking industry.  Overall, CSBS views the proposed changes as a valuable tool to reduce regulatory burden for our nation’s community banks, the vast majority of which are state chartered.  Community banks provide critical fuel to our nation’s economic engine, but are often faced with a disproportionate amount of regulatory burden due to their limited staff.  The increasing compliance responsibilities and cost burdens of regulatory requirements could have the effect of stifling this critical component of our nation’s economy.  Accordingly, CSBS supports efforts to reduce regulatory burden when doing so does not compromise safety and soundness considerations or consumer protection.  We believe this proposal meets those criteria, and CSBS supports raising the asset threshold in Section 36 of the Federal Deposit Insurance Act to $1 billion.

Given its importance in the safety and soundness of any financial institution, internal control is evaluated as part of the regulatory supervision of an institution, and its adequacy is a key factor in the management rating assigned to an institution.  Furthermore, as part of the external audit of a bank’s financial statements, the external auditor generally obtains an understanding of internal control and reports certain internal control matters to the institution’s audit committee.  If the proposal is finalized, CSBS Regulatory Committee[2] plans to recommend that all state banking departments enhance their review of the external audit reports to verify their thoroughness and effectiveness.  We encourage the FDIC to join us in this effort.

It is important to have an independent voice on a financial institution’s audit committee.  We understand community bankers’ concerns about and difficulties in attaining and keeping a fully independent audit committee, especially those in smaller, rural communities.  However, the state banking departments see value in maintaining a significant level of independence when fulfilling this very important role.  Accordingly, although we see benefit in alleviating some burden on banks to have a fully independent audit committee, for safety and soundness considerations CSBS requests the FDIC to require the committee’s chairman and a majority of the committee to be independent of bank management.

State bank supervisors recognize that community banks are currently struggling to manage their ever increasing compliance costs.  We believe it is important to support the goals of materially reducing the regulatory burdens currently imposed on the financial institution industry.  CSBS applauds the FDIC’s continuing efforts to reduce regulatory burden, where possible, without jeopardizing safety and soundness or consumer protection.

Thank you for your consideration, and we invite you to call on us if we can provide additional information on this proposal or any other initiative to reduce regulatory burden.

Best personal regards,

Neil Milner
President and CEO


[1] CSBS is the national organization of state officials responsible for chartering, regulating and supervising the nation’s 6,250 state chartered commercial and savings banks and over 400 state-licensed branches and agencies of foreign banks. 

[[2] The CSBS Regulatory Committee is chaired by North Carolina Banking Commissioner Joseph A. Smith, Jr. and is comprised of an additional 36 state bank commissioners and deputy commissioners across the country.

 


Last Updated 09/19/2005 Regs@fdic.gov

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