Finer Points Blog

    Community Bank Customer Service Can’t Be Shut Down

    Oct 18, 2013
    iluvcommunity-bank The government shutdown has come to an end, though the debate over federal policies and spending is far from over. Among the chattering classes, there are numerous and varied opinions over who won or lost the political stalemate and what, in the end, our nation gained from the impasse.

    I won’t get into all that. But what I can tell you is that the relationship between community banks and their customers—particularly those who have not been working the past 15 days—has proven more resilient than ever. Reports have come in from around the nation about community banks that have stepped up when their customers needed it most by offering flexibility to furloughed workers.

    From Boston to the Washington area to Colorado and elsewhere, community banks offered payment forbearance and interest-free loans to help their customers through this unique circumstance. And while the agreement to fund the federal government and lift the debt ceiling authorizes retroactive pay for furloughed federal workers, this community bank flexibility was essential at a time of great financial uncertainty.

    As a representative of the community banking industry, this kind of customer support makes my job easier. Here’s an example. After the federal banking regulators last week issued guidance encouraging banks to work with customers affected by the shutdown, House Financial Services Committee ranking member Maxine Waters (D-Calif.) sent a letter to ICBA reiterating the importance of the guidance. Our response? This is what community banks do, we wrote in a follow-up letter. They work one-on-one with their customers to solve problems. They are relationship bankers who are personally available to their customers in good times and in bad. In fact, this is what makes a community bank a community bank.

    So while there might not exactly be peace in Washington after this latest political battle, there is peace of mind in communities across the nation because of the community banks that serve them. While government operations may be suspended and federal employees furloughed, the relationship-based banking model that community banks have long employed can never truly be shut down.

    Rumor Mongering Always Leads to Bad Results

    Oct 16, 2013
    rumor It’s amazing what you can learn if you just ask. The recent needless confusion over a Consumer Financial Protection Bureau information request is a prime example of why it is important to ask the right people the right questions.

    After recently receiving a series of panicked messages from community bankers from coast to coast about an information request from the CFPB, ICBA immediately went into detective mode to find out the truth. After a couple brief exchanges with the CFPB to get the facts, we were able to clear up the confusion.

    So, here are the facts. The rumor mill began churning on Wednesday with a series of emails to community bankers claiming that the CFPB ordered approximately 200 banks (including some community banks) to provide information as part of a CFPB effort to examine the institutions. The inaccurate emails said the affected banks were sent a fax and asked to file a copy of their standard form account agreement for consumer checking account products by Oct. 11. According to the emails, the CFPB had not informed other regulators of their request.

    Needless to say, many community bankers who received the emails were alarmed and confused. Fortunately for them, and the rest of us, these emails were utterly false and misleading.

    Turns out, the CFPB’s request was sent as part of its “market monitoring” mandate, which directs the bureau to monitor for risks to consumers in the offering of financial products and services. It was not part of any examination effort. (Quick reminder: the CFPB does not have examination authority over community banks with less than $10 billion in assets.) Further, the request was faxed to two banks—not 200—and the CFPB did, in fact, inform the prudential regulators about the request.

    In my own communications with CFPB Director Richard Cordray about this matter, he was clear that the bureau has no intention of examining community banks or even using its “ride-along” authority to participate in a sampling of community bank exams conducted by prudential regulators.

    So, I’m glad that’s cleared up, though I am a little curious as to why hundreds of community bankers were put through such a state of panic and confusion for no reason. The original emails that distracted these hardworking individuals from running their businesses were absolutely false and unnecessary—so misinformed that it’s hard to believe anyone would send them in good faith.

    In the future, I encourage community bankers nationwide to feel free to check with anyone at ICBA if they have questions or concerns about regulations, compliance or any other issue. ICBA has your back.

    Chairman Bernanke Reports Progress in Fight for Tiered Regulation

    Oct 04, 2013
    20131004-bernanke Federal Reserve Chairman Ben Bernanke had some positive things to say this week about the nation’s community banks. Noting that community banking is fundamentally a local and relationship-based business, the Fed chairman said that community banks have a natural incentive to act in the interests of their communities.

    Chairman Bernanke also focused on one of the industry’s greatest challenges—the cost of complying with new and existing regulations. He said the Fed understands community banker concerns with regulatory burdens and is committed to scaling its regulations to banks’ size and complexity.

    Needless to say, this was music to my ears. Crushing regulatory burdens collectively pose the greatest threat to the survival of the community banking industry. By sapping local institutions of resources they could be devoting to serving their customers and promoting growth, overly burdensome regulations make community banks less competitive, deter de novo charters, and drive industry consolidation.

    As I said this week on Bloomberg TV, this is a very real, existential threat to our industry. And ensuring that policymakers understand the implications of the laws and regulations they impose is why we do a lot of the things we do at ICBA.

    It’s why we’ve been working relentlessly with Congress to advance provisions of our Plan for Prosperity, our wide-ranging and practical platform of reforms that lawmakers can enact now to begin lightening the regulatory load on our industry.

    It’s why this week we released our comprehensive white paper on housing finance reform to ensure that community banks—and the borrowers who rely on them—are not squeezed out of the mortgage market.

    It’s why addressing our nation’s too-big-to-fail problem, which results in both economic calamities and new regulations on the community banks that had nothing to do with these crises, remains so important.

    It’s why we relentlessly advocate a level playing field among all sector competitors—banks, credit unions and the Farm Credit System.

    And it’s why Chairman Bernanke’s words were so valuable, because tiered regulation and two-way dialogue with regulators is essential to keeping community banks open for business. ICBA, our affiliated state and regional community banking associations, and community bankers nationwide have long called for regulations that distinguish between community banks and larger and riskier institutions. It’s good to know our voice is being heard at the highest levels.

    Thank you, Chairman Bernanke. We’ll stay in touch.

    (Double) Standards of Accountability

    Sep 24, 2013
    20130924-double-standards While much of the nation’s financial policy cognoscenti spent last week musing on the lessons learned since the Lehman Brothers bankruptcy, some FDIC officials spent the anniversary a little differently. Five years after the largest bankruptcy filing in U.S. history marked the Wall Street meltdown from which we are still recovering, the FDIC sued 16 community bankers from a failed bank in Georgia for nearly $22 million.

    It’s not the first time representatives of a failed community bank were sued for Deposit Insurance Fund losses, and it won’t be the last. And this is neither the time nor the place to prosecute or to defend these individuals. But there is nevertheless something to be gained by comparing these Main Street bankers’ week with that of Wall Street, even if it is a bit like comparing apples and oranges.

    In the community banking world, officials from the failed Security Bank in Macon, Ga., were publicly named in a lawsuit stemming from their bank’s July 2009 failure. Not only did regulators shut down the business, these individuals are also being sued four years later for more than $1 million each. They are accused of making faulty loans.

    Contrast this with what happened last week on Wall Street. JPMorgan Chase, one of a handful of megabanks that contributed to a financial crisis that caused millions of Americans to lose their homes and jobs, agreed to pay more than $1 billion in fines in a single day. The largest of its financial penalties followed the “London Whale” fiasco, in which the bank funded high-risk trades in part with federally insured deposits, lost $6 billion, dodged regulatory inquiries and hid its losses.

    With more than $1 billion in fines, JPMorgan almost looks like it got the short end of the stick. But let’s look at these penalties in context. Relative to each bank’s total assets, the Security Bank penalties are nearly 20 times bigger than JPMorgan’s. Further, these individuals would have to pay the fines out of their own pocket. For a colossus like JPM, even $1 billion is small beer.

    Of course, it’s hard to match these cases one to one. They are different fines for different circumstances. After all, Security Bank officials are facing the repercussions of the very failure of their bank. JPMorgan, on the other hand, is paying penalties and fines for a series of violations of the law, which seemingly occur daily. JPM and the other megabanks have already had to deal with what regulators dished out when these institutions were at the brink of  failure—billions of dollars in taxpayer-funded assistance that kept them open. Meanwhile, in the eyes of the government, the little bank in Macon, Ga., was too small to save, and so are its directors.

    Like I said: apples and oranges. In the banking world, anniversaries—and accountability—mean different things to different people.

    Another Day, Another Fine?

    Sep 19, 2013
    20130920-another-day-another-fine

    We’ve all been subject to countless articles and opinion pieces on the fifth anniversary of the collapse of Lehman Brothers. Everyone wants to know what we’ve learned since the nation’s fourth-largest investment bank declared bankruptcy on Sept. 15, 2008, and there has been no shortage of ink and computer pixels dedicated to the subject.

    So I’ll spare you. I’m not particularly interested in speculating about what we’ve learned or how we’ve changed at the arbitrary five-year mark—I don’t know that it matters much. I’m more interested in results, in what we’ve done to address the problem of financial-services firms that are so big and so unmanageable that they put our entire economy at risk. And the fact remains that the largest financial firms are, by all accounts, larger and more concentrated than they were five years ago. So we still have work to do, don’t we?

    My real concern is that, lo these many years later, our opportunities for fundamental change are going up in smoke just like Lehman. For instance, take this week’s announcement that JPMorgan Chase agreed to pay $920 million to U.S. and British regulators for violating securities laws. Lest we forget, the fine was due to the “London Whale” fiasco, in which high-risk trades funded partly by federally insured deposits cost the megabank $6 billion, which it promptly hid from financial regulators.

    What was the impact of this announcement? A collective yawn. It’s widely viewed as just another in a long line of penalties. Another day, another fine. And that is dangerous. We cannot become desensitized to Wall Street’s failures and complacent about our need for further change.

    The cover of the latest Time magazine posits that, five years after Lehman, Wall Street has won. My first instinct was to ask a question: Won what? Wall Street hasn’t even had to get its hands dirty engaging in a street scrap. It hasn’t won anything because it hasn’t had to. Wall Street was guided through the financial crisis it created with a multi-trillion-dollar, taxpayer-funded safety net. Some battle.

    You want to see Wall Street pull out the big guns? You want to see what it’s really capable of? Let’s make some headway on really taking on the too-big-to-fail issue by breaking up these enormous financial institutions into more manageable parts. Let’s get some support behind the TBTF Act (S. 798), which would require these firms to put their money where their mouth is and hold upwards of 15 percent capital on their books to help offset the massive amount of risk they pose to our economy. But, then, maybe that’s the whole point. Wall Street won because it never had to put up its dukes. It never even entered the ring, and the crowd has all gone home.

    Well, I’m still ready for the fight. If we want to prevent another crisis like the one we woke up to five years ago, we can’t just go back to bed. I’m ready to see what Wall Street’s really got. Are you?

    Credit Unions, Farm Credit System Should Be Weaned from Taxpayer Subsidies

    Aug 29, 2013
    20130829-cus-and-fcs

    In case you hadn’t noticed, the credit union industry has been making a big deal lately about its own tax subsidy. The credit unions have led a social media campaign that urges policymakers: “Don’t Tax My CU.” For credit union members who have been recruited into the fight via their Twitter feeds, a taxpayer-funded competitive advantage over taxpaying community banks is apparently something to which their financial institutions should be entitled.

    Now, if it seems strange that in this time of fiscal belt-tightening an industry is making hay over the federal tax expenditures that it benefits from, remember that we are in the middle of tax season on Capitol Hill. I’m not talking about the hectic days of TurboTax and W-2s that end in April, but the comprehensive tax code rewrite that is in its initial stages in Congress. The House Ways and Means and Senate Finance committees have begun laying the foundation for federal tax reform, and they have pledged a “blank slate” approach that assumes all special tax expenditures are out the window, at least for now.

    So the credit unions’ circle-the-wagons defense of their taxpayer-funded advantage over other financial institutions makes perfect sense. Of course, the policy itself does not.

    Tax-advantaged financial firms, including credit unions and Farm Credit System institutions, use their subsidies to compete directly with taxpaying institutions, such as community banks. The result is that their lending comes at a significant cost to taxpayers—an estimated $31 billion over 10 years for credit unions and $1 billion every year for the Farm Credit System.

    These institutions operate as “stealth banks,” providing loans and banking services to consumers across the nation. The problem is: they aren’t taxed like banks, which imposes government preferences on our financial markets funded by the taxes that you and I pay.

    Perhaps most worrisome for credit unions is that we’ve seen this play out before. In 1951, Congress revoked the tax exemption for savings and loans, mutuals and cooperative banks because it determined that they were operating more and more like commercial banks.

    The same should go for credit unions and Farm Credit System institutions, which walk, talk—and lend and invest—a lot like banks. They should be taxed like them, too, so our nation’s financial institutions can operate on a level playing field. Congress should stick to its “blank slate” and not let these costly, unfair and outmoded subsidies back into our federal tax code. Should the credit union tax exemption be preserved, another taxpayer must clearly pay the tab.

    Wall Street Offers No Shortage of Reasons to Take On Too-Big-To-Fail

    Aug 22, 2013
    20130822-stop-wall-street
    With the too-big-to-fail threat continuing to hang over the U.S. financial system, the question on the minds of many Wall Street watchers has been: What will it take for Washington to act?

    The Wall Street financial crisis of 2008-10 has brought us a bevy of financial regulatory reforms and new capital rules, but still our largest and riskiest institutions continue to grow and incur even greater risks. With the public clamoring for decisive action, the conventional wisdom has been that it would take another major scandal to spur Washington to act on too-big-to-fail once and for all.

    With its penchant for excessive greed and recklessness, Wall Street has certainly done its part. In a matter of months, the megabanks have brought us:

    • JPMorgan Chase’s multi-billion-dollar “London Whale” trading losses funded partly by federally insured deposits,
    • anticompetitive behavior in the commodities market that has driven up consumer prices on everything from electricity and gasoline to Budweiser and Coca-Cola,
    • fines over collusion by megabank traders to profit by falsely inflating and deflating the Libor interest rate,
    • a federal bribery investigation over whether Wall Street megabanks have hired the children of powerful Chinese officials to help them win business in that nation, and
    • a government case contending that Bank of America sold thousands of fraudulent and defective mortgages to Fannie Mae and Freddie Mac.
    I could go on, but you get the picture. The question is whether Washington does too.

    On the legal side, the answer appears to be a tentative “yes.” Attorney General Eric Holder this week told The Wall Street Journal that the Justice Department plans to announce new financial-crisis-related cases in the months ahead. This will be important to punish wrongdoing and maybe even deter fraudulent behavior going forward.

    But we cannot get our arms around our problem—the systemically dangerous impact of too-big-to-fail—without congressional action. That is why ICBA continues to support the Terminating Bailouts for Taxpayer Fairness Act (S. 798), which would implement higher capital levels on the largest megabanks to limit the market distortions caused by their government guarantee against failure. It also would relieve community banks of several regulatory burdens to help them compete with their ever-consolidating competitors on Wall Street.

    To make drastic change we need to take collective action. Do you want your voice to be heard? Community bankers, their customers and consumers nationwide can do their part by going to www.endtbtf.com and telling their members of Congress to act now.

    Megabank Fines Today, Community Bank Regulations Tomorrow

    Aug 07, 2013
    regulation Well that didn’t take long. A week after JPMorgan Chase paid $410 million to settle allegations that it manipulated energy markets, the heat is now on Bank of America for its holdings of mortgage-backed securities in the run-up to the financial crisis.

    The Justice Department and Securities and Exchange Commission are suing BofA for allegedly misleading investors about the quality of $850 million in residential MBS. The announcement came on the same day that UBS agreed to a nearly $50 million settlement to quell allegations that it too misled investors in a complex security.

    Surprise, surprise—the fallout of Wall Street’s Great Recession continues. It’s nice to know that the enormous financial institutions that brought us the financial crisis are being held accountable, to some degree, for acting recklessly leading up to the crisis. But it’s important to remember that these institutions were also rewarded for their greed and excess with trillions of dollars in taxpayer-funded bailouts. Further, let’s not forget that their government guarantee against failure is estimated to be worth another $83 billion per year.

    To make matters worse, these are the kinds of activities that result in new across-the-board regulations for the banking industry—community banks included. It wouldn’t be the first time Main Street institutions had to pay their pound of flesh for the sins of Wall Street.

    So not only are these kinds of actions bad for investors, they are also harmful to the rest of us who have never gambled a red cent on these kinds of complex financial instruments. And while an $850 million fine might sound like a lot, it’s actually chump change for a multinational financial institution that made $4 billion in net profits in the second quarter alone. For UBS, $50 million is a rounding error.

    For me, this goes back to the issues of accountability and the healthy fear of failure that are sorely missing in our world of too-big-to-fail financial institutions. These firms are able to act in bad faith and take outsized risks because they enjoy an explicit guarantee against failure and financial penalties that are merely a small cost of doing business.

    With each new headline of megabank greed and recklessness, ICBA is more and more convinced that downsizing and restructuring these behemoths is the only way to protect our financial system from existential risks, our community banks from suffocating regulation and our nation’s taxpayers from perpetual servitude to our Wall Street masters of the universe.

    Too Big to Ale: Megabank Anticompetitive Behavior Hard to Swallow

    Jul 25, 2013
    20130725-too-big-to-ale One of the many problems related to our nation’s proliferation of too-big-to-fail banks is that it distorts our otherwise market-based financial system. The largest financial firms are so big and risky that the federal government has no choice but to provide them a taxpayer-funded guarantee against failure. This isn’t hyperbole, it really happened, and those same banks have grown hundreds of billions of dollars bigger since they got their bailouts. The result—privatized gains and socialized losses—further incentivizes risky behavior and provides outsized competitive advantages to the megabank oligopoly.

    It’s a vicious cycle of high-risk behavior and government influence in the financial markets that would have Adam Smith spinning in his grave. Meanwhile, it leaves consumers and taxpayers increasingly at risk of another financial crisis.

    So recent news of anticompetitive Wall Street behavior in the commodities markets should surprise no one, though it is yet another illustration of the too-big-to-fail problem. The New York Times recently reported that megabank control over industrial warehouses—and a well-choreographed transfer of aluminum slabs to artificially drive up rents—has led to billions of dollars in Wall Street profits, literally out of the pocket of Joe Six-Pack.

    The anticompetitive practice amounts to a game of industrial keep-away played by Wall Street on companies such as MillerCoors and Coca-Cola. But the impact is not limited to beverage manufacturers. According to the report, Wall Street maneuvering in markets for oil, wheat, cotton and other commodities has led to billions in profits while forcing consumers to pay more every time they fill up their gas tank or turn on a light switch. In fact, JPMorgan Chase is on the verge of reaching a settlement in the neighborhood of half a billion dollars on charges that it rigged electricity prices. This comes a week after Barclays PLC paid a record fine to the Federal Energy Regulatory Commission. But don’t worry about them. These fines are just decimal dust, the cost of doing business in a financial behemoth that made $6.5 billion last quarter.

    The bottom line is that these huge financial firms have grown so large and become so interconnected in our economy that they are demonstrating classic signs of monopoly power: collusive and anticompetitive behavior that pushes prices up and reduces the social surplus provided by free markets. Not only are these institutions driving up consumer costs, they are doing so with the insurance of a taxpayer-funded backstop if their businesses ever sour. And make no mistake about it, the time will come again. As bank analyst Joshua Rosner said in sworn testimony before a Senate Banking subcommittee this week, Congress must put an end to this monopolistic power or “2008 will be the first financial crisis, but not the worst.

    This is why too-big-to-fail firms should be downsized and restructured to rekindle the free-market spirit of our financial system. We must support a system in which financial institutions compete for customers instead of manipulating markets, one that promotes free markets and consumer choice instead of monopoly power and government favorites. And we better do it quick. Hang on to your pocketbooks because JP Morgan Chase has quietly bought up $1.5 billion in copper, more than half of the available amount in all of the warehouses in the copper exchange. The price of your pennies is next.

    What do you think? Sound off by calling ICBA’s Too-Big-To-Fail Hotline at (202) 821-4348 or telling Congress to take action at www.endtbtf.com. To learn more, visit www.icba.org/tbtf.

    Basel III, Leverage Ratio Capitalize on Tiered Regulation

    Jul 10, 2013
    It’s been a long time coming, with a few delays and several thousand comment letters, but regulators have finalized their key Basel III capital rules. For community bankers, there’s some bad news and some good news.

    The bad news is that we didn’t get the full exemption we have been advocating since the Basel III proposal came out more than a year ago. As we’ve told anyone who will listen, and even those who won’t, Basel III was conceived to apply to the large and risky financial firms that caused the financial crisis, not highly capitalized community banks. So we’re disappointed that regulators did not grant a full exemption to financial institutions with $50 billion or less in consolidated assets.

    But make no mistake—there is good news as well.

    First of all, regulators listened to the concerns of ICBA and community bankers across the nation—and the more than 17,000 signatures on our Basel III petition—and made some much-needed changes to the original proposal. Allowing community banks to opt out of including accumulated other comprehensive income as part of regulatory capital, retaining Basel I risk weights for residential mortgages, and allowing grandfathered trust-preferred securities as Tier 1 capital are crucial for preserving community bank viability and lending. Further, community banks don’t have to begin complying with the rules until Jan. 1, 2015.

    But perhaps the most positive sign was that the regulators advanced a proposed rule to increase the supplementary leverage requirements for the largest banking institutions. The new rule would apply a 6 percent supplementary leverage ratio to the eight largest banking organizations and a 5 percent standard on their bank holding companies.

    ICBA firmly supports this proposal, which would help rein in our too-big-to-fail problem by targeting the risky financial instruments that the largest institutions keep off their balance sheets. Further, this plan bolsters ICBA’s decades-long fight for a tiered regulatory approach that distinguishes between common-sense community banks and the nation’s largest and riskiest institutions. Like the bipartisan Terminating Bailouts for Taxpayer Fairness (TBTF) Act of 2013 (S. 798), this measure uses higher leverage ratios to target risk without hamstringing low-risk institutions on Main Street.

    Here’s some more good news: I have no doubt that ICBA and community bank advocates nationwide have played a key role in this push. We have fought this battle time and again, and it is paying off. But we certainly aren’t going to stop now. ICBA and the nation’s community bankers will continue to support tiered regulations that target the true source of financial risk and allow highly capitalized institutions to support smart and sustainable economic growth. And that should be news to no one.

    Taking the Community Bank Message to Wall Street

    Jul 08, 2013
    It’s always a privilege for me to engage in honest discussion and debate about the top issues facing our nation’s Main Street community banks. So a recent opportunity to have that discussion on Wall Street’s turf was a special treat.

    During a recent trip from Washington to New York with ICBA’s media point person, Vice President of Media and Public Relations Aleis Stokes, I met with representatives from several news outlets on the community banking industry’s top priorities. The goal was simple: to improve our relationship with key reporters and editors—the kind who buy ink by the barrel and bandwidth by the terabyte. (I’m not quite sure what that second part means, but it sounds good.)

    The discussions were a learning process for both sides. The editors and reporters got to hear the community bank side of the story on issues from too-big-to-fail to regulatory burden. Meanwhile, I got a better understanding of the kinds of things top-flight media outlets are interested in reporting. For instance, The New York Times couldn’t get enough of the community bank perspective on too-big-to-fail, particularly on the kind of sheer power we’re up against here in Washington. Meanwhile, Bloomberg View wanted to hear as much as they could on what we think about potential reforms to Fannie Mae and Freddie Mac. And I even had a little fun talking Fed policy with Stuart Varney on his Fox Business show.

    Of course, the discussions weren’t all love-fests or walks on the beach. The Wall Street Journal doesn’t particularly care for my opinion on too-big-to-fail. And that’s fine, because I’m not wild about their views on the institutions that pose systemic threats to our financial system. Nevertheless, our meeting was mutually beneficial, and it reinforced the fundamental truth that community banks are an important asset to our financial system and that ICBA is a force to be reckoned with in the Washington Beltway.

    It’s an honor for me to spread the community bank message, especially to those who might tend to lean in a different direction, whether that’s in Washington or on Wall Street. I believe in community banks and what we represent, and that’s why I’m excited about this trip and looking forward to the next one.

    The Fair Lending Inquisition

    Jun 10, 2013
    There’s not much that Washington can do to surprise me. As a community banker for 25 years, and in my time here at ICBA, I’ve seen the good, the bad and the ugly of federal financial regulation and just about everything in between. But we might have reached a new low in the history of regulatory doublespeak with the potential clash of new rules on fair lending and qualified mortgages. Welcome to the Fair Lending Inquisition.

    The Department of Housing and Urban Development’s new fair lending rules make lenders liable for lending policies that have a disparate impact on a group of borrowers even in the absence of any intention to discriminate (you can't make this stuff up, folks). The theory here is to open the lending spigot to ensure access to credit in underserved communities. This is, of course, a worthy goal. Everyone who applies for credit should be treated equally and fairly. And credit decisions should be based on the merits of each borrower regardless of that person's station in life.

    Nevertheless, the HUD rules could directly conflict with the Consumer Financial Protection Bureau’s new “qualified mortgage” regulations. Recently, the CFPB took some positive steps to minimize the potential impact of the QM rule on Main Street borrowers and lenders. However, the rule will still shrink the credit box as community banks avoid straying from the legal protections of the safe harbor.

    Thus the conundrum: the HUD rules could potentially expose community banks to disparate impact legal actions if they choose to only make CFPB-approved QM loans. In a recent letter to the CFPB and HUD, ICBA and several other trade groups requested guidance to avoid this problem—to ensure our members do not violate one regulation while trying to comply with another, or, as I call it, a regulatory Catch-22.

    Now, I understand the motivations of each of these regulators (HUD and CFPB). The problem is they are completely at odds with one another. In effect, these regulatory agencies are saying we want community banks and other financial institutions to lend freely to promote growth (HUD), but we also want them to lend prudently to prevent risk both to banks and borrowers (CFPB). Anyone who has ever sat behind a desk as a loan officer knows that both objectives cannot be satisfied simultaneously.

    Regulators must make clear that if a bank chooses to make only QM loans, it will not be slapped with a disparate impact violation. Otherwise lenders stuck in the middle will have about as many options as heretics had in the Spanish Inquisition. Even the most faithful lenders could be in a no-win situation. They could feel the wrath of one regulator if they lend freely, or feel the wrath from the other if they tighten up their credit.

    Government policymakers want to guard against the kind of risky lending that drove the housing bubble and financial crisis. Meanwhile, they want credit to be widely available to promote growth throughout our communities. That’s great—community bankers want that too. In fact, successful lending is a pretty big part of the community bank business model. Here’s the difference: while community banks work day in and day out to thread this needle, policymakers think they can implement the perfect marketplace from their offices inside the Washington Beltway. It’s not too dissimilar from the Spanish Court's attempts to dictate the thoughts and beliefs of its subjects through the Inquisition.

    So what’s the answer? How can we promote lending decisions that are not excessively risky but also support loans to homebuyers who aren’t perfect on paper? Well, just off the top of my head, maybe we should support the relationship lenders out there who meet face-to-face with borrowers to determine their qualifications and potential risks. Instead of sending community banks through the wringer with overwhelming and contradictory regulations, let’s encourage their symbiotic relationships with customers and communities. Rather than putting them in a no-win position, let’s make lending a win-win for lender and borrower alike. In other words, how about a little dose of common sense?

    Doing the Right Thing

    May 15, 2013
    shutterstock_86067238 My upbringing at home, at the military college I attended, as an officer in the Army and during my banking career infused in me the values I hold dear today—duty, honor, integrity, ethics. By following the meaning of those four simple words one cannot help but do what is right no matter the consequences or how difficult the path might be. The values upon which I base my life and career have always guided me through the most difficult times. Heroes whom I admire—such as Churchill, Lincoln, Jackson, Lee, Truman and Jefferson—all, at one time or another in their careers, chose the right thing, even though it was the difficult path, and in nearly every case they suffered personally for those decisions though history has proved them true.

    In a letter to his son, General Robert E. Lee wrote, “Duty then is the sublimest word in the English language. You should do your duty in all things. You can never do more, you should never wish to do less.” Churchill famously said, “You have enemies, good! It means you stood for something, sometime in your life.”

    Reasonable persons can legitimately disagree on issues and on different paths to resolutions of those issues, and in fact they should. That is the beauty of a democracy into which I was fortunate to be born. Our nation’s forefathers in their infinite wisdom wisely laid out a process for debate, robust conversation, checks and balances, and separation of power. But there was never disagreement over honor, integrity and ethics. I will never violate those codes, nor assume others whose views may differ from mine are acting in any way less than honorably.

    Sadly, we live in a time where such assumptions can be naïve and perhaps dangerous. Personal attacks over public policy disagreements have no place in professional discourse. It is such personal attacks that are paralyzing Washington, D.C. Rather than having civil discourse on very tough issues, many now engage in the politics of personal destruction. And where that stops, God only knows. But it is hurting our ability to engage in meaningful discussion.

    As long as those bankers who lead ICBA entrust me to represent the nation's community banks, my staff and I will strive always to do the right thing for those for whom we are responsible. I will give my best effort to represent their interests as expressed by those volunteer bankers who govern this great association, no matter how difficult the path and no matter what attacks are made against the association or me personally. As my parents, my educators, my faith and most of all my community bank colleagues for whom I have the utmost respect have taught me over my lifetime and my career—it is never wrong to do the right thing. But it is almost always the most difficult path to take.

    Wall Street Lobbyists and Cicadas

    May 09, 2013
    20130509-cicadas I have been in Washington for 10 years as CEO of ICBA, and I have seen everything from the Wal-Mart bank charter fight to the financial crisis and Wall Street bailouts of 2007-09 and everything in between. I have seen some nasty battles inside the Beltway, and I’ve even engaged in a few myself.

    But with the momentum building for legislation to take on the too-big-to-fail problem once and for all, I don’t think I’ve ever seen so many lobbyists in this town. In fact, there are more Wall Street lobbyists swarming Capitol Hill than there will be cicadas buzzing around the Washington metro area this summer. With the weather warming up, it’s almost as if the blue suits and power ties are sprouting right up out of the ground.

    I, for one, can’t blame them. The Terminating Bailouts for Taxpayer Fairness Act (S. 798), introduced by Sens. Sherrod Brown (D-Ohio) and David Vitter (R-La.), has reignited the debate over the too-big-to-fail problem. The bipartisan legislation would implement higher capital levels on large financial institutions to address their government guarantee against failure—one of our nation’s most outrageous distortions of the free market system.

    To limit taxpayer vulnerabilities, protect against future crises and level the playing field for community banks, the TBTF Act would set capital standards based on an institution’s size and complexity. The bigger the bank, the greater its systemic risk, the higher its capital rate. It’s as simple as that. Additionally, the legislation includes a variety of regulatory relief measures for community banks. These much-needed reforms, which range from expanding mortgage-lending opportunities under new regulations to supporting greater accountability in bank exams, will help offset some of the red tape that has bound Main Street because of the misdeeds on Wall Street.

    But let’s not forget, the TBTF Act isn’t the only game in town. Several other members of Congress, from House Financial Services Monetary Policy Subcommittee Chairman John Campbell (R-Calif.) on the right to Sen. Bernie Sanders (I-Vt.) on the left, have introduced separate bills to take on the too-big-to-fail problem. Regulators such as FDIC Vice Chairman Thomas Hoenig and Federal Reserve Bank of Dallas President and CEO Richard Fisher have introduced their own plans, while newsmakers such as MIT economist Simon Johnson have identified too-big-to-fail as one of our nation’s greatest threats.

    So with ICBA, community bankers, regulators, members of Congress, economists, consumer advocates and the American public supporting new measures to deal with the too-big-to-fail risk to our financial and economic system, there’s no wonder why Wall Street lobbyists are out in full force.

    Like the cicadas that burrow out of the ground every 17 years, the lobbyists are beginning to swarm as Washington heats up. The problem is that the lobbyists are louder and make an even bigger mess. So I encourage community bankers everywhere to make sure their voices are heard in Washington so Congress will not let the Wall Street hired guns once again maintain the too-big-to-fail status quo. With so much at stake, it’s time for Main Street to grab the flyswatters. Are you ready to join us?

    Surprise, They’re At It Again

    May 07, 2013
    20130507-surprise-jp In the latest news from the “color me unsurprised” department, JPMorgan Chase is reportedly under investigation for manipulating energy prices and lying under oath about the scheme. According to The New York Times, the Federal Energy Regulatory Commission is considering whether to pursue regulatory actions against JPM for charging California and Michigan $83 million in excessive payments that had a harmful impact on energy markets, not to mention the taxpayers of these states. Further, a top executive at the megabank is believed to have lied to investigators about her knowledge of the shady transactions.

    I don’t know about anyone else, but I’m about as shocked as Claude Rains was to find gambling at Rick’s Café in Casablanca. The only difference is that the rest of us aren’t picking up any winnings—we’re all losers on this deal. The only winners here—the high-stakes gamblers at JPMorgan—are the same people who brought us the financial crisis and Great Recession just a few short years ago. And I mean literally—these are the same exact people. The executive accused of lying to investigators helped develop the credit default swaps that played a role in tanking the markets back in 2007 and 2008.

    Of course, these are just the latest revelations of underhanded dealings at the nation’s too-big-to-fail firms. The Times reports that regulators also are investigating JPMorgan’s use of faulty documents in pursuing lawsuits against delinquent credit card customers, while separate investigations are focusing on the megabank’s role in the Bernie Madoff Ponzi scheme. Meanwhile, regulators continue investigating whether global megabanks colluded to rig Libor interest rates to maximize profits.

    And let’s not forget the Senate Permanent Subcommittee on Investigations report that found that JPM used federally insured deposits to fund a portfolio of complex financial instruments used for risky trades that resulted in billions of dollars in losses. The report also found that JPM misinformed investors, regulators, lawmakers and taxpayers about the “London Whale” trades and actually hid $600 million in losses.

    In other words, there is no lack of evidence that the too-big-to-fail financial firms pose fundamental risks to our global financial system. These institutions, which enjoy a taxpayer-subsidized funding advantage over community banks, are not only incentivized to take outsized risks with the understanding that taxpayers are there to bail them out if their gambles don’t pay off. They also know that the worst thing that will happen to them is the acceleration of an enormous severance package.

    I was a community banker for 25 years. If even one of these transgressions had happened on my watch I would have been stripped clean of everything I owned and publicly hung out to dry on Main Street just before they hauled me off to the state penitentiary. Too-big-to-fail institutions are making a mockery of our nation's lawmakers and regulators. It is time to restore discipline to our financial system. This is the United States of America, a nation founded on laws, principles and equality.

    No wonder lawmakers are pushing the TBTF Act (S. 798) to implement higher capital levels on the largest megabanks to address their too-big-to-fail market distortions and to ensure they can pay off their own debts if they go bust. Taking on the too-big-to-fail problem head on is the only way to end this relentless string of arrogant abuse by our nation’s largest financial firms. And we need to do it now before we get it wrong again, because next time will be too late.

    Main Street Heroes

    Apr 30, 2013
    20130501 Last week, Sens. Sherrod Brown (D-Ohio) and David Vitter (R-La.) showed that they stand with Main Street America by filing a bill that does something real and meaningful about the anti-free-market government policies that have taken root in this nation in the form of "too big to fail" and "too big to jail." And standing right with them is Sen. Jeff Sessions (R-Ala.), another Main Street hero who is standing up for true free market capitalism, a free market economy, and this nation's Main Street banks and small businesses.

    By cosponsoring S. 798, the TBTF Act, these senators are making a statement that they will not be bullied or intimidated by those whose interests are to keep our nation’s free markets anything but free. Like Teddy Roosevelt, who busted up the power of the trusts a century ago, these senators understand that markets run by oligopolies are not really free. So when others were intimidated, they stood up to the big money oligarchs and demanded that they put their own capital at risk, not the taxpayers. Capitalism is about capital—not taxpayer subsidies.

    Sen. Sessions stood tall last week with Main Street heroes Sens. Brown and Vitter to say enough is enough. ICBA and the 7,000 community banks we represent nationwide witnessed who the true Main Street heroes are in the U.S. Senate. We urge all senators to stand with Main Street America and support S. 798.

    Help Community Bank Voice Blossom in Washington

    Apr 26, 2013
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    Spring is just about my favorite time of year in Washington. The weather warms and puts an end to the winter chill. The cherry blossoms bloom and bring new life to the city. And hundreds of community bankers swarm Capitol Hill for ICBA Washington Policy Summit meetings with lawmakers to secure a future for our beloved industry.

    Serene, isn’t it? While meeting with members of Congress and regulators about financial policy is not exactly a springtime stroll through the park, it is absolutely critical to our industry’s survival. Any one of the challenges we community bankers face would have any industry reeling. Collectively, they are a mortal threat.

    Our government-supported competitors—including too-big-to-fail financial institutions, credit unions and the Farm Credit System—enjoy taxpayer-funded subsidies and advantages. Meanwhile, community banks face increasing and unnecessary regulatory burdens as well as the prospect of draconian Basel III capital guidelines. Only by directly engaging policymakers can we effect needed changes to our financial and regulatory systems. That’s why we’re in Washington, today and every day—to ensure community banks can continue serving their communities as they have for generations.

    This week’s summit in Washington has been a huge success, particularly with the introduction of the Brown-Vitter TBTF Act (S. 798) to combat both too-big-to-fail and community bank regulatory burdens. But community bankers do not have to be in the nation’s capital to make a difference. ICBA makes it easy for those back home to make their voices heard in Washington—all you have to do is go to our “Be Heard” grassroots website. From there, it’s easy to send an email message, make a phone call, or even tweet your member of Congress on some of the community banking industry’s top policy priorities.

    So whether you are in Washington, D.C., Washington, Mo., Washington state or anywhere else in this great nation of ours, I strongly encourage you to engage in the discussions that will determine your future. This is your industry, your franchise and your responsibility. The season is here, and the outcome is in your hands.

    Senate Letter on Too-Big-To-Fail, Basel a Solid Step Forward

    Apr 15, 2013
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    Community bankers received a double dose of good news this week with a letter from a bipartisan group of U.S. senators to financial regulators on too-big-to-fail and Basel III. The lawmakers called on regulators to help address the too-big-to-fail problem by advancing Basel III capital guidelines on large institutions while recognizing that a stricter capital regime is not necessary for community banks. It’s not the answer to community bankers’ prayers, but it’s a good start.

    Sens. Bob Corker (R-Tenn.), Sherrod Brown (D-Ohio), Elizabeth Warren (D-Mass.), David Vitter (R-La.) and Susan Collins (R-Maine) wrote that strengthening capital requirements will help protect the public against financial instability and too-big-to-fail. “The Basel III capital standards were designed for large, internationally active banks, as was appropriate,” they wrote. “We urge you to complete work on capital standards for the largest banks before turning to the smaller institutions.”

    Well, hallelujah, I couldn’t agree more. The tangible capital levels at the most systemically risky banks must fully reflect the risk embedded within their balance sheets. We would go further—much higher tangible capital levels should be required against the hundreds of billions of dollars of off-balance-sheet risk held at these institutions. Over-reliance on “risk-weighted assets” contributed to the financial collapse of these firms. As an example, several types of securitized mortgage-backed securities were judged to be almost riskless before the crisis, and we all know what happened there.

    ICBA and community bankers nationwide have been screaming bloody murder about these issues because of the fundamental inequities and threats they pose to our financial system. While too-big-to-fail creates systemic risks and inhibits free market competition, imposing Basel III capital standards across the board would penalize community banks and Main Street communities for Wall Street’s sins. As I’ve written here before, if the federal banking regulators want to reduce the nation’s commercial banking system to a handful of banks, imposing Basel III on community banks is the way to do it.

    So this bipartisan letter is a step in the right direction on both issues—toward targeting new capital guidelines on the largest financial firms to help remove their taxpayer-funded backstop. While they aren’t the end-all, be-all fix to our too-big-to-fail problem, stronger capital rules for the largest and most systemically risky financial firms will help remove this unfair competitive advantage over smaller institutions and protect the U.S. taxpayer.

    In other words, increasing the megabanks’ capital requirements helps restore the line between private risk and socialized losses. Let’s hope that our banking regulators take heed of these senators’ warnings, which ICBA and community bankers have been raising for years. We must end too-big-to-fail today and restore a free market for tomorrow.

    Public Growing Increasingly Sick of Too-Big-To-Fail Disease

    Mar 22, 2013
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    Well, it’s official: the community banking industry’s push to end the too-big-to-fail plague once and for all has gained momentum. From regulators and industry advocates to members of Congress and the news media, it’s evident that Washington is abuzz yet again on the controversial topic of too-big-to-fail. And it’s not only Washington that has opinions on the issue. A recent study shows widespread support for ICBA’s campaign to break up the largest megabanks to address this scourge and put the word “free” back in front of “markets” once again.

    The Rasmussen Reports survey found that half of all U.S. adults favor breaking up the 12 largest megabanks, which control nearly 70 percent of the banking industry, while only 23 percent were opposed. This is up from an October 2009 poll, in which 43 percent of Americans said that banks considered too big to fail should be broken up into a series of smaller companies. In addition, 55 percent said the government should let too-big-to-fail banks go out of business if they can no longer meet their financial obligations.

    This tells me one thing: the American public is getting fed up. For community bankers who live and breathe financial news and policy on a daily basis, the too-big-to-fail epidemic is top of mind. We see the impact on our financial system day in and day out—in our regulatory workload, in our cost of funds relative to the megabanks, and in the inequitable treatment of Main Street and Wall Street. Now it appears the average Joe and Joanne have had their fair share of it too—and they are just as sick of it as is their community banker down the street.

    Americans don’t typically spend their days pondering things like financial services policy, systemic risk and moral hazard. At least, not until these things begin to have a noticeable impact on their day-to-day lives. And I think that’s what is starting to happen.

    After the worst financial outbreak since the Great Depression was headed off by trillions of dollars in taxpayer assistance to the institutions that caused it, Americans began to take notice. After reports that JPMorgan Chase hid from regulators $600 million in what would balloon to $6.2 billion in losses on high-risk trades funded in part by federally insured deposits, the public began to wonder. After the U.S. attorney general flat-out told Congress that the largest financial institutions are above the law because of their size, the American public began to demand action to address what is an obvious and fundamental distortion of our financial markets. The public has begun to realize that our “free” markets are anything but free.

    This should come as no surprise to anyone, even the “untouchables” on Wall Street. The too-big-to-fail disease touches each one of us because it represents a taxpayer-funded interference in the free market that increases financial risks. This affects our jobs, our communities and our future. There is also the issue of judicial fairness, of Main Street community bankers rolling up their sleeves to disinfect the mess while Wall Street titans are rewarded for their ruinous practices.

    At any rate, the Rasmussen poll shows that Americans are sick and tired of our too-big-to-fail problem. They are witnessing the impact first-hand and want a cure. And they are beginning to understand that only by restructuring these institutions can we eliminate their taxpayer-funded backstop against failure, restore our free market–based financial system and inoculate our economy from its too-big-to-fail problem for the long term.

    Guest Blog: As the Wall Street World Spins

    Mar 19, 2013
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    By Terry J. Jorde

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    With too-big-to-fail financial firms getting soaked by bad press over their risky practices and preferential treatment, it should come as no surprise that they and their supporters have turned the spin machine on high to divert attention. The latest effort came in an op-ed posted on the American Banker website that appears to completely divorce the benefits of being too big to fail from their cause: the size and systemic risks posed by these financial giants.

    In the op-ed, attorney George Sutton concludes that three things are driving the growth of large banks: market demand, access to capital and regulatory burden. He is right, but for all the wrong reasons. I would suggest that what is driving the growth of megabanks is market demand because they are too big to fail, access to capital because they are too big to fail, and regulatory burden resulting from the egregious sins of those same banks that are (wait for it) too big to fail.

    Sutton writes that the megabanks have advantages over their competitors because the market demands their services and because smaller institutions are hamstrung by regulations. I couldn’t agree more. The problem is the cause of these phenomena. First of all, markets seek out the largest financial firms because they enjoy a government guarantee against failure. We’ve already seen the guarantee in action, and who wouldn’t want to put their money in an institution where risk is virtually eliminated? And why do community banks have this crushing regulatory burden anyway? These burdens are the direct result of the greed of large financial institutions and financial crises they’ve spawned on Wall Street.

    Meanwhile, if “diversification is the cardinal rule in investing,” as the author writes, then what justifies a financial system in which a handful of banks control 80 percent of our nation’s economy? That certainly didn’t work well for us in the recent economic meltdown, and the biggest banks have grown 20 percent larger since the crisis. Further, Citi and Chase were not the “source of strength” that helped their banks grow their way out of the crisis. Instead, they collapsed under their own weight, and the American taxpayer was the source of strength that bailed them out.

    Finally, the op-ed suggests that if too-big-to-fail financial firms are downsized, financial services will be driven from the regulated banking sector to the unregulated shadow banking industry. Yet Sutton neglects to mention that the five largest bank holding companies controlled 19,654 nonbank subsidiaries as of the second quarter of 2012. Much of the shadow banking world is housed within the very financial conglomerates that seek to blame community banks for suggesting that taxpayer subsidies should not prop up too-big-to-fail institutions.

    Let’s get out of the spin cycle. The fact is that the too-big-to-fail banks are too big to manage and too big to regulate. And despite attempts by Wall Street and its apologists to muddy the waters, the crystal-clear truth is that too-big-to-fail distorts the financial markets, puts taxpayers at risk and leads to stricter regulations on the entire banking system. Megabanks must be downsized and restructured so the nation’s community banks and the communities they serve are not hung out to dry.

    Terry J. Jorde is ICBA senior executive vice president and chief of staff.