A HIT ON HARLEM

by DEBORAH C. WRIGHT
October 9, 2006

http://www.nypost.com/...

CARVER Federal Savings & Loan is this nation's largest African-American run bank, with 10 branches and approximately $800 million in assets. We are a relatively small fish in the banking world, but still subject to the same rigorous regulation and oversight by federal and state agencies as the biggest global financial institutions.

In 1996, Carver became a public company and is now listed on the American Stock Exchange. Going to the public markets helped increase the resources we could bring into the capital-starved communities that we serve. But if we had foreseen the regulatory burdens than have been thrust on public companies after the Enron scandals, we would never have made this move.

What happened? In 2002, Congress passed a corporate reform act known as Sarbanes-Oxley, or "SOX" for short.

Banking was arguably already the most regulated industry in America. Even at Carver—a small player on a field of financial giants—four government regulators pour over our books annually and impose financial controls. Our banking regulators are tough and independent, and have helped us build systems that assure our customers and shareholders that our operations are sound.

SOX adds a whole new layer of regulation—one that is redundant, and very expensive to comply with. To meet the requirements of SOX, we've had to dedicate staff and hire a boatload of lawyers, accountants and other consultants for compliance paperwork that contributes nothing to the success or integrity of our core business.

The big corporations may have the financial and human resources to absorb this burden without pain, but at Carver the impact is palpable.

Headquartered on 125th Street in Central Harlem, Carver is a community institution where the expenses we incur and time we spend unproductively come right out of our returns to shareholders, and rob us of resources we could put into services needed by our customers.

And things are about to get worse. For the law's first four years, public companies like Carver, with a market cap of less than $75 million, were exempt from its onerous provision, known as Section 404. But this provision will kick in for Carver and other small companies in 2007, more than doubling our compliance costs.

When the costs of lawyers, consultants, agencies and other related expenses are taken into account, we already are paying more each year on oversight-related costs than the dividends we pay to our shareholders. And that doesn't include the very real human costs of diverting our energies from our real mission: serving our customers.

SOX applies to all publicly owned corporations, regardless of size. It's not only the big players in the corporate world that get hurt by over-regulating American business. It's also small institutions and the communities they serve.

New York City is clearly losing business and tax revenues as a result of companies opting to list on foreign exchanges to avoid SOX compliance. Not to mention those public companies opting out of American capital markets by going private, delisting from any exchange. And these losses are trickling down to Harlem, Southeast Queens, Bedford Stuyvesant, the South Bronx and other communities across America.

At Carver, we work very hard to achieve profitability and generate the returns expected by our shareholders. We count pennies in order to provide quality services to customers who are mostly working families, senior citizens, church groups and local businesses. We get good marks from our bank regulators, who watch our fiscal condition carefully. SOX has added nothing to our safety or soundness, but it has drained scarce resources.

Congress should revisit Sarbanes-Oxley, protect small companies from its excessive requirements, and remove those provisions that make American business and our stock exchanges less competitive in the international marketplace.

Deborah C. Wright is chairman and CEO of Carver Bancorp Inc and a member of the Board of Directors of the Partnership for New York City, the city's leading business organization.