The country's smallest banks have barely a fortnight to flag their concerns over a burdensome piece of regulation designed for the big institutions that caused the financial crisis.
The Financial Services Authority (FSA) has set a 9 November deadline for comments on its recovery and resolution plans (RRP) consultation paper.
More commonly known as "living wills", these RRPs are designed to either save a bank that comes under severe financial stress (recovery) or, if beyond rescue, devise how best to wind down the businesses without causing a shock to the financial system (resolution).
These plans have been piloted on six major banks, including Royal Bank of Scotland and HSBC, which have produced documents thousands of pages thick to show how to unwind their complicated operations in the event of a crisis.
But the FSA wants to go further. It is asking the simplest, smallest banks with no systemic impact to come up with living wills by June and has also included all other deposit-taking institutions in the UK. Many of them and the few experts in the new field of drafting living wills think that RRPs for as many as 200 institutions needlessly drain a small organisation's resources.
"These small banks are having to grow their risk and regulatory teams, which is a high cost per unit for them," argues one adviser. "I'm not sure that their board directors are going to have the time to get into these RRPs as there's such a volume of regulation coming through the sausage machine."
The boss of a small family-owned bank, who does not wish to be named, says they are being made to pay for the mistakes of the major, complex institutions that lent so many bad loans before the market collapsed in 2007. "The amount of reporting we've had to do has increased tenfold in the past few years," the chief executive says, pointing out that the bank does not need an RRP. "Our owners have unlimited personal liability; we're a simple bank with a couple of billion pounds of deposits, and our balance sheet can be shown on half a piece of A4 paper."
It is certainly questionable that the FSA chairman, Lord Turner, really had this type of bank in mind when he said a little over two years ago: "Living wills will be a forcing device for the clarification and simplification of legal structures."
The FSA has emphasised that the length of the RRP should be "proportionate" to the size of the institution and the risk its demise poses to the wider economy. The point is to ensure there is sufficient information to ensure that depositors' money is safe and can be repaid within a week in the event of failure.
David Sayer, the global head of retail banking at KPMG, says: "Clearly these financial institutions differ significantly in size and some may find the preparation of living wills more onerous than others. To overcome any unnecessary burden on smaller institutions, the regulator has made it clear that they will be proportionate in the scope of their requirements."
Yet the consultation says that the FSA is not yet set on how it will define proportionate, saying it will "revisit how we implement" the approach at a later date. For recovery plans, the document simply states that there are likely to be fewer options for survival than bigger firms, and so this part of the living will inevitably be shorter than those seen in the pilots.
Simon Hills, the executive director of the prudential capital and risk team at the British Bankers' Association, says that there is "no doubt" that the task will be onerous but has a more pressing concern: FSA staff. "One of the concerns of the small banks is that it does an RRP and plonks it on an [FSA] supervisor desk and then finds that the FSA isn't resourced sufficiently to look at the plans. I can't see how they are going to manage."
If the FSA decides to outsource this work, the cost will fall on the banks. The FSA would presumably be hiring the very few consultants who have worked on living wills, meaning there would be fewer, more costly experts to advise small banks on draft RRPs.
However, Hills does point out that in many cases the living will should simply be a case of merging the existing documents small banks already have to produce as a result of regulatory changes since the credit crunch. These include such requirements as individual liquidity adequacy assessments and reverse stress tests.
Some small banks broadly support the extra regulation, even if it largely repeats that which already exists. Malcolm Hayday is chief executive at the Charity Bank, the only not-for-profit bank in the UK as it lends money to charitable organisations. He says: "We haven't had to hire new staff [to draft an RRP]. At first you think 'oh my god', but when you stop to think about it, this really isn't that onerous."
The Charity Bank has already submitted two drafts of its RRP to the regulator, which has so far only suggested a few changes to a document no more than 30 pages long.
Phillip Monks, the chief executive of two-year-old bank Aldermore, says that the FSA is right to be concerned about even the smallest bank failures. "Even if a bank the size of an Aldermore went bankrupt, there would be a run on other financial institutions if depositors couldn't get their money," he says, pointing out that customers in rival banks might be so spooked as to pull their money out of accounts.
The counter-argument to gruelling regulation remains: it is better to be too careful than underprepared.