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Action requested! -- diversity, assessing your bank's practices



To All Bank Presidents and CEO's:

Note: From Roger Beverage:

I apologize for having to send you yet another action request on top of the one we sent out Thursday dealing with the FASB proposal about accounting for expected credit losses. But this one is equally as important, at least in my opinion.

The federal banking agencies have issued a proposed policy statement that deals with the standards they plan to use to assess your bank's diversity policies and practices. Here's the background:

Dodd-Frank contains a provision [Section 342(b)] mandating the establishment of an Office of Minority and Women-Owned Inclusion (OMWI) in each federal banking agency. Each OMWI is then "responsible for all matters of ... (each) agency relating to diversity in management, employment and business activities."

Each of these offices must have a director whose responsibilities include developing diversity standards for:

(b) "(A) equal employment opportunity and the racial, ethnic, and gender diversity of the workforce and senior management of the agency;

"(B) increased participation of minority-owned and women-owned businesses in the programs and contracts of the agency, including standards for coordinating technical assistance to such businesses; and

"(C) assessing the diversity policies and practices of entities regulated by the agency." (emphasis added)

From the express language highlighted above, it appears the agencies DO have the authority to "assess" such policies and practices of your bank, and that's what this proposal is all about. For a lot of reasons, I believe there is a good argument that this proposal is outside the bounds of federal law.

During the debate on Dodd-Frank, the state associations alongside of the American Bankers Association worked strenuously to oppose the original proposal that would have required federal banking agencies to develop diversity and inclusionary practices for the banks they regulate, in addition to the agencies themselves. The language highlighted above represents the "compromise" that was agreed to by the House and Senate.

Even though I believe the proposal may not be valid under the law, I encourage you to submit your comments anyway. This compromise has no "teeth" in it. In other words, there is no enforcement mechanism in the statutory language that will enable your bank's federal regulatory agency to impose or require specific requirements with respect to your bank's individual hiring, management and procurement processes.

At least not yet. And that's what I worry about.

Importantly, the agencies believe the goal of this statutory section is to improve transparency and awareness of the need for diversity policies and practices within the banking industry. The standards they come up with are intended to provide them with guidance they need in order for them to properly assess what banks do and have done.

The agencies have encouraged banks to make a "self-assessment" of its own standards. In addition, such an assessment is not the same as a "traditional examination" or some other supervisory treatment of the regulated bank. (Note: this also applies to credit unions.)

What it appears to me this means is the agencies will not use the examination or supervision process to "enforce" these proposed standards. In fact, they are looking for comments that will help regulators understand how they can do a better job of taking into consideration the individual circumstances of and individual bank in making these assessments, particularly for smaller community banks.

If your bank has more than 100 employees, or is a federal contractor with 50 or more employees and contracts of $50,000 or more, it's required to submit an annual report on the Employee Information Report EEO-1form. The standards in that report can be used as a guide.

Here are the four key areas the assessment standards cover:

  1. The bank's commitment to diversity and inclusion.

  2. Your bank's workforce profile and employment practices.

  3. The bank's procurement and business practices and supplier diversity.

  4. What the bank has done and is doing to promote the transparency of organizational diversity and inclusion.

What I'm Asking You To Do:

Write a letter on your bank's letterhead. Address the following bullet points as they apply to your bank and your community.

  • Specify your bank's total assets, number of employees, number of customers, the composition of your Board, your geographic location, the characteristics of your local service area, i.e., minority groups, and the general nature of the economy in your bank's trade area.

  • Point out that your bank appreciates the fact that the agencies recognize the standards ultimately developed will not be a part of the examination or supervision process. To do otherwise would not only be contrary to the statute, but impose unnecessary costs which will ultimately be borne by your customers.

  • Flexibility is the key to the ultimate success of encouraging diversity and inclusion.

  • A "one-size-fits-all" approach makes no sense given the diverse nature of banks and the communities they serve. Any requirement for diverse applicant pools must necessarily be tailored to a specific bank's location and the communities in which it operates.

1. Your bank's commitment to diversity and inclusion.

  • Do you have a policy that describes your commitment to diversity and inclusion? If so, set it out here.

  • What do you do now about employment practices and maintaining diversity?

  • Point out that CRA requirements and fair lending requirements have made all banks including yours more sensitive to issues involving diversity and inclusion, not just in our employment practices but also in how we view our customers.

2. Your bank's workplace profile and employment practices.

  • What does your workplace profile look like today?

  • If you already file the Form EEO-1 form (noted above) that should be enough to determine the appropriate standard for your bank in terms of its commitment to both diversity and inclusion.

  • If you do not file that Form, you should not be forced to model your bank's status and practices based on these reports because your bank was exempted from having to comply with these requirements. To now require such a standard would expose your bank to an unnecessary and extended litigation risk and lead to higher costs for your customers.

  • This Form and others like it were never designed or intended to apply to smaller, rural community banks.

  • Given the nature of your community and service area, it should be a relatively simple effort to measure your bank's diversity accomplishments. There is no need for an expanded, scientific analysis based on "metrics."

  • Self-assessment is sufficient and appropriate for banks like yours; any mandate as such is in violation of the statute.

3. The bank's procurement and business practices and supplier diversity.

  • Describe the nature of your community and the business environment briefly.

  • Are there minority-owned or women-owned businesses in your trade area with which you do NOT now do business?

  • It's one thing to impose diversity standards and parameters on small community banks that are using their own funds to purchase supplies and services from their trade areas. It's entirely another thing to force these same standards on small community banks with respect to which entity they choose to do business with, not to mention it's well beyond what is authorized by statute.

I think this proposal is crazy, quite frankly, and I hate to ask you to comment. But I'm concerned that if community banks don't make their views known on this proposal it will eventually morph into some that will be applied under the current one-size-fits-all mentality that seems to have Washington by the throat.

- - - - • • • - - - -

COMMENTS: Where to send them: (Send to your primary federal regulator - and send only to one of the addresses listed below). Be sure to list the Reference Number.


RE: OCC - Docket ID OCC-2013-0014

Email: regs.comments@occ.treas.gov (Use Address and Information Below in your Heading)

By Regular Mail:

Legislative and Regulatory Activities Division
Office of the Comptroller of the Currency
Mail Stop 9W-11
400 7th Street S.W.
Washington, D.C. 20219

Federal Reserve

Make sure you include this identification:

RE: Docket No. OP-1465

Agency website: http://www.federalreserve.gov and follow the instructions for submitting comments at http://www.regulations.gov/apps/foia/proposedregs.aspx.

Email: regs.comments@federalreserve.gov

By Regular Mail:

Robert deV. Frierson, Secretary,
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue N.W.
Washington, D.C. 20551


RE: Docket No. OP-1465

Website: http:///www.fdic.gov/regulations/laws/federal/purpose.html and follow instructions for submitting comments.

Email: Comments@fdic.gov – include "Comments" on the subject line.

Finally – and once again – I want to thank the American Bankers Association staff, led by Rob Rowe, for providing us with their research and suggestions. This effort is another example of how the Alliance between the ABA and the state associations is supposed to work for the benefit of ALL member banks.

Thanks very much for your attention to this important matter.




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