Bryan McKenzie of the Charlottesville Daily Progress reports that small banks are confused by new federal “regulations” that seem to appear at random:
With a quarter-century in the industry, Patricia G. Satterfield has long recognized that regulation of banks is a subjective practice. But the president and CEO of the Virginia Association of Community Banks says the current regulatory environment is the most difficult and “over-reaching” of her career.
“Banks are receiving uncertain and mixed messages in the examination process. They don’t know what to expect,” she said. “What was once A-OK is no longer A-OK, but no one knows that until after the examination.”
That, bank officials say, is what happened recently to Old Dominion Bank in North Garden, which entered into a formal agreement with the Office of the Comptroller of the Currency to make changes to its lending practices, accounting and capitalization.
The agreement states that federal regulators found “unsafe and unsound banking practices” and requires the bank’s board of directors to develop new plans for capitalization, loan reviews and contingency funding. But Old Dominion officials say the bank is safe and sound and that the agreement is a result of ever-changing requirements and regulations used by the bank examiners.
“We’re doing everything right, it’s just that the rules are changing,” said Charles V. Darnell, president of Old Dominion Bank. “We are solvent and we’ve addressed all of their concerns mentioned in the letter.”
Regulators declined to give any details on where or how Old Dominion failed to meet federal standards or what those standards are or if the standards had changed without the bank’s knowledge.
Neither would examiners say whether Old Dominion was on sound financial footing or otherwise, or what criteria were used to determine the bank’s condition, or if the agreement was the result of changes in federal requirements.
The definition of regulation is “to make regular,” yet most of what the government touts as regulation is just the opposite. The prevailing model of “regulation” since the Progressive Era has been to make things irregular and subject to the subjective discretion of government officials — usually unelected, extra-constitutional agencies. This is not a model of regulation at all, but really a perverse category of patents. While we generally associate patents with creation rights over literature and inventions, the patent power applies to a wide range of state activities designed to monopolize (or cartelize) private industry.
Entities like the Comptroller of the Currency or the Federal Trade Commission are not government agencies at all but semi-private corporations that hold valuable patents over economic activity. And unlike the more limited patents granted to writers and inventors — which are not so much “patents” as they are licenses to sue — agency patents are self-executing and indefinite in time and scope.
The Old Dominion Bank story is a case on point. The “regulator,” the Comptroller of the Currency, holds a patent to “charter, regulate, and supervise all national banks” in the United States. As the patent-holder, all banks ultimately depend on the Comptroller’s discretion to stay in business, irrespective of whether they are profitable or satisfy customers. If there’s any conflict, the Comptroller’s patent overrules the market.
Even if you believe it’s necessary to have the Comptroller walking around dictating to banks how they should operate via secret agreements, this still does not make it “regulation.” True regulation only comes from a decentralized market process, where standards can develop through trial-and-error. Government patent-holders act primarily to defend and expand the scope of their patents. Any “regulation” that derives from this centralization process is purely incidental.