I highly encourage community bankers to read this week’s report from Bloomberg Markets Magazine
on the financial assistance provided by federal regulators to the nation’s largest and riskiest financial institutions at the height of the recent financial crisis.
The report uncovers trillions of dollars in secret Federal Reserve Board “no strings attached” loans that allowed these too-big-to-fail institutions to net $13 billion in profits—at exactly the same time they were bringing our economy to the brink of collapse. Meanwhile, the American people—many of whom saw their life savings wiped out—were footing the bill.
And Wall Street wonders why there is an Occupy Wall Street movement? Duh!
The Bloomberg report reads like a horror story, or more accurately a crime novel, for community bankers and taxpayers in general. It reveals the special, secret and duplicitous world of Wall Street.
It also demonstrates why community banks need a strong, independent voice in Washington. ICBA—the only national trade association exclusively representing the nation’s community banks—consistently advocates a level regulatory playing field. As highlighted by this report, we have good reason. Community banks do not receive the kind of favorable regulatory treatment made available to the nation’s largest financial institutions.
The report also notes what ICBA has long argued—that too-big-to-fail financial institutions have a direct and adverse impact on community banks. The implicit government guarantee for these mega-institutions allows them to access funds at a lower cost than is available for community banks. This is, in part, why ICBA fought so hard to reform the FDIC assessment base to save community banks billions in assessment premiums. It’s also why ICBA has supported breaking up too-big-to-fail financial institutions to reduce their risks to the financial system and to the American taxpayer.
ICBA is routinely criticized for speaking out forcefully on behalf of the nation’s community banks. Or worse, we’re criticized by other trade groups for introducing community bank–focused legislation, such as the Communities First Act (H.R. 1697 / S. 1600). The Bloomberg report is further evidence of why we will not waiver in our support of fair and proportional regulations that distinguish Main Street community banks’ business model from Wall Street’s.
Community banks enjoy a sterling reputation with policymakers and the public, and we should not be lumped together with the too-big-to-fail crowd, whose irresponsibility and greed caused the financial crisis (as headlines trumpet almost daily).
ICBA and the community banking industry will continue to fight for regulatory parity, for even-handed treatment, and for downsizing the systemically riskiest financial firms. Community banks and taxpayers should never have to read horror stories like these again.
Is this Justice?
A recent New York Times article
exposes the double standard in regard to enforcement actions between community banks and too-big-to-fail institutions. The article finds that nearly all of the largest Wall Street financial firms have repeatedly settled fraud cases by promising to never again violate the antifraud laws, only to do so over and over again. According to evidence revealed in the article, there were at least 51 violations in just the past 15 years, with several of the largest banks in the United States having violated fraud laws multiple times in just the past five years alone!
Any community banker or director reading the article should be outraged. There are no consequences for senior officers and boards of these systemically dangerous financial firms. However, community bankers and directors who, in good faith, sat on the boards of failed community banks are routinely pursued individually and collectively by bank regulators both civilly and, in some cases, criminally.
What is that all about? Certainly not equal justice, I will guarantee you that. It is justice by size and influence—sometimes called crony capitalism. Whatever you call it, don’t call it equal application of the laws.
Underdog Champs as Gritty as ICBA
Anyone who knows me knows that I am a fanatic St. Louis Cardinals fan. So I was in baseball heaven last Friday night. And it got me to thinking about the Cardinals and ICBA and how much our organizations are alike.
The underdog Cardinals became the World Champions of Major League Baseball. How? Well, they stuck to the fundamentals of baseball, they did not get out ahead of themselves, and they knew exactly what their goals were. They were never conflicted—they honored their traditions and knew their purpose. Mathematically the Cardinals had a 1 percent chance of making the playoffs on Aug. 24, let alone winning the World Series.
In the fall of 2009, other state and national bank trade groups and Wall Street gave ICBA the same 1 percent chance of pushing through Congress a change in the FDIC premium assessment formula that would bring long-overdue parity in assessment fees between community banks and the mega Wall Street banks. And I think all those other state and national bank trade groups were just as astonished at ICBA's achievement in passing the formula change through Congress as the nation was when the underdog Cardinals won it all.
This 2011 Cardinals crew is a gritty, never-say-die underdog of a team that just won't quit, no matter the odds. ICBA has those same traits. Despite the odds, ICBA alone went up against mighty Wal-Mart and won a nasty two-year fight to keep them from gaining an FDIC-insured charter. Despite the odds, ICBA pushed through the FDIC formula change. Despite the odds, ICBA got the $250,000 insurance limit made permanent.
I could go on and on. The point is that ICBA is almost always the underdog—we are used to that role. We are used to being scoffed at and being the only association to give a clear and uncompromised voice for our thousands of community bank members. But that is ok because it is never wrong to do the right thing. Like the 2011 Cardinals, we will find a way to win, or go down swinging in the effort. What we will never do is quit trying.
One Size Does Not Fit All
The community bank business model is nothing like the Wall Street business model. So why would we want Wall Street firms or mortgage banks to speak for us any more than they want us to speak for them? Therefore, I beg to differ with a recent op-ed about how “one size fits all.”
With all due respect, one size does not fit all—it never has, nor should it.
Let’s all be honest here, Main Street community banks aren’t internationally active, worldwide, multi-trillion-dollar Wall Street banks and investment houses, and vice versa. Community banks have a unique business model; they deserve a unique voice and regulatory treatment, just as other financial stakeholders do. And while at times our issues and concerns may and do intersect, many times they do not. In fact, many times they are in direct conflict, and it is at those times that the nation's 7,400 community banks need a clear, uncompromised and forceful voice in Washington. That is when they need ICBA. If nothing else, it keeps the other guys honest.
Remember, I sat behind a community bank desk for over 20 years. I saw how government and regulatory polices favored the mega-banks up close and personal. I had senior officials from the largest banks confide in me the advantages they enjoyed in everything from the cutoff amounts of examination "pull lists" to not ever facing a CRA examination in their scores of branch banks, some of which were just down the street from my bank. So, while my staff of 12 worked for weeks to prepare for the CRA and compliance exam, the branch bank down the street never saw an examiner.
And yet there are those that begrudge the community banks for wanting a fair premium assessment formula, or for not wanting another examination team flooding into their banks (we already have at least three examinations a year with nearly as many examiners as the bank has employees), or for wanting proportional regulations based on size and risk to the system.
On Main Street, we know one size does not fit all. So don’t try to convince us otherwise.
Assessment Savings a Testament to Community Bank Resilience
For years we made the case that the deposit-insurance assessment base is unfair for community banks. And for years no one seemed to listen. To some of us community bankers, it may have even seemed like a pipe dream.
But the savings that community banks are seeing this month on their second-quarter assessment premiums aren’t a dream. They are the real thing, and these savings will continue for years to come.
Community bankers have been reporting savings of upwards of 50 percent on their premiums—that money can be reinvested in our communities to promote our economic recovery. The years of campaigning for deposit-insurance parity are paying off.
And let’s not forget, basing deposit-insurance assessments on total assets minus tangible capital instead of domestic deposits was a priority for ICBA and community banks. No one else moved a muscle on this issue.
It was our battle. It was an uphill slog, and we prevailed. It just goes to show that community banks can accomplish anything—that some pipe dreams can come true.