Finer Points Blog

    Regulatory Burden, Community Banks, and Voices

    Sep 08, 2011
    There is no doubt that community banks are suffering under a plethora of stifling and, in many cases, unnecessary regulations. For several decades ICBA has been a loud and persistent voice for regulatory restraint and proportional or tiered regulation for community banks—whose very banking models are based on one-on-one customer relationships.

    Late last week the FHFA sued the nation’s 17 largest financial firms for misrepresenting the quality of assets sold to the GSEs. Two weeks ago JP Morgan Chase agreed to pay $88.3 million to settle Treasury allegations that it violated U.S. sanctions against Cuba, Iran, Sudan and Liberia. Today many of those same financial firms are being investigated for allegedly taking kickbacks to the tune of $6 billion from reinsurance companies on mortgages. The case has been referred to the Department of Justice. And not long ago Goldman Sachs settled a fraud lawsuit for $500 million dating from 2007. And of course Bank of America faces multiple lawsuits, both class action and individual, stemming from the systemic misrepresentation of Countrywide Mortgage, which BofA acquired in 2008. And how many of you recall the headlines in September 2004, when the nation of Japan actually kicked the private banking arm of Citibank out of the country for gross violations of its banking laws? Sadly, I could cite many more examples of egregious behavior by shadow financial firms, subsidiaries of mega-firms and several of the largest financial firms themselves, but the point is made.

    Community banks need look no further than the headlines of wrongdoing and misrepresentation by the nation’s largest financial firms to answer the question of why community banks stagger under mountains of regulatory burden. Financial regulations are enacted to correct and prohibit bad practices in the marketplace. And as the headlines above and many more attest, the vast majority of bad practices are perpetrated by lightly regulated shadow financial firms and/or arms of the nation’s largest financial firms.

    Why? Well the flip answer would be “because they can,” but it is much more complex than that. Greed certainly plays a big role, investor and stock pressures another, and the arrogance that comes with simply being “too big to fail.” Moral hazard breaks down when managers know that they can bet other people’s money, and if they win (and don’t get caught skirting the law) they win big. If they lose, they will be propped up by the government and likely suffer no personal consequences. So why not take a chance?

    And of course it is the community banks that suffer the real consequences of greed and misconduct at large and shadow financial firms in the form of staggering regulations to correct these misdeeds. There are those who say community banks should join as one voice with the largest financial firms in the nation. Well, as a lifelong community banker, I think I will keep my own voice, thank you very much, and continue to make the case that regulations should be applied to those who engage in bad acts or practices and should not be foisted on those who play by the rules.


    Jackson Hole, Bernanke and Lagarde

    Aug 31, 2011
    I returned from the Jackson Hole Federal Reserve Economic Symposium having listened to Federal Reserve Board Chairman Bernanke and International Monetary Fund Managing Director Christine Lagarde make very different speeches.

    I thought Chairman Bernanke’s speech was brilliant for two reasons. First, he expressed long-term optimism in the American economy. While he acknowledged strong headwinds and a fragile economic recovery, he left no doubt that the chairman of the Federal Reserve was confident in the long-run strength of the American economic engine. In other words, we will prevail. 

    Second, he expressed his long-range confidence by not announcing any new extraordinary steps to further stimulate the economy. While leaving the door open to further monetary policy steps to aid the recovery, the chairman made it clear that it is primarily fiscal policy that needs to be addressed to aid the long-term economic recovery. I applaud the chairman for delivering a speech that set just the right tone and expectations. And I commend him for expressing confidence in the American economy and its people.

    Managing Director Lagarde closed the conference with her speech. It was a stark contrast to the speech delivered by Chairman Bernanke. Ms. Lagarde’s speech was a call to action for the European nations to take immediate and bold steps to shore up their banking systems, address their sovereign debt problems head on and commit the continent to not allowing the European Union-member nations to again slip into a 2008-type calamity. Her speech was bold and very frank in its views. It garnered worldwide attention and triggered responses from the president of the European Central Bank and other financial officials in Europe.

    What a contrast, optimism in the long-run prospects of the American economy from Chairman Bernanke and an urgent call to action from the managing director of the IMF. It was a remarkable conference, and I was privileged to have been asked to attend. It was also Tom Hoenig’s last Economic Symposium as president of the Kansas City Federal Reserve Bank. And he is a pretty remarkable fellow in his own right. Godspeed Tom Hoenig, and thank you for your nearly four decades of service to the 10th Federal Reserve District, to the Federal Reserve itself and to the people of the United States. Job well done, sir.

    Backdoor Bailout for Wall Street, Back of the Hand for Main Street

    Aug 15, 2011
    After nearly a decade of living inside the beltway, not much happens in Washington that surprises me anymore. But I was astounded when I heard the Fed say that it would keep target interest rates at exceptionally low levels until at least the middle of 2013. That’s right—two full years! They actually put a date on it! Unprecedented!

    To me, the Fed’s policy is nothing more than a backdoor bailout for the Wall Street mega-institutions and the back of the hand for our nation’s community banks.

    Unlike the Wall Street institutions that make their money based on volume and transaction fees, community banks do business the old-fashioned way. They pay their customers interest on their savings, lend those deposits back into their communities to create jobs, and price those deposits and loans at a rate that lets them stay in business.

    But with the Fed setting rates at nearly zero percent and slack credit demand, how are community banks supposed to make a viable spread on their funds?

    Most community banks are swimming in liquidity. Meanwhile, they’re holding short-term investments (encouraged by their field examiners, by the way) under the assumption that rates would begin to rise within the next year or so. Now they are faced with at least two more years of zero interest in a struggling economy.

    The Wall Street money houses are basically getting free money out of this deal that they can arbitrage and hedge worldwide. What about the community banks that are trying to turn this economy around? They are stuck with deposits that cost more than the federal funds rate, slack demand and a 2.15 percent 10-year Treasury.

    Once again, Wall Street gets a bailout on the backs of Main Street’s community banks, small businesses and hard-working Americans. It is a slap in the face.

    ICBA Looking Ahead at One-Year Mark

    Jul 22, 2011
    It’s hard to believe, but one year ago President Obama signed into law perhaps the most significant financial reform bill in my lifetime. A year later, the Dodd-Frank Act is just now getting off the ground. But instead of looking back, ICBA continues moving ahead to advocate policies that will allow community banks to keep serving their customers.

    Yesterday, the House approved legislation to reform the new Consumer Financial Protection Bureau so that it is governed by a five-member commission and is subject to greater oversight by prudential regulators. These changes would go a long way toward keeping the new regulator in check.

    We’ve also made good progress on a slew of bills to reduce the regulatory and exam burdens community bankers have to face on a daily basis. One that requires regulators to study the effect of their policies on the exam environment passed in committee just this week.

    Meanwhile, we continue working with regulators on new mortgage and debit card interchange rules to maximize protections for community banks.

    Dodd-Frank might still be in its infancy, but ICBA has been fighting on behalf of community banks for more than 80 years. We look forward to continuing that fight in the weeks, months and years to come.

    ICBA: Celebrating Independence Every Day

    Jul 12, 2011
    Like many of you, I got to enjoy our recent July 4th holiday with the essential ingredients for celebrating our Independence Day: family, friends, food and fireworks.

    But recognizing the birth of our great nation is of course about more than cooking out and enjoying ourselves. It also offers us a moment to reflect on the self-evident rights laid out by our founders—liberty, equality and independence from tyranny.

    And I think these values are particularly relevant to us as community bankers, because we act on them every day.

    At ICBA—the Independent Community Bankers of America—we believe in local decision making and accessibility, not financial empires headquartered thousands of miles from their customers. We believe in fair and equitable competition instead of favorable treatment for monopolistic institutions, whether they are the East India Company or contemporary too-big-to-fail megabanks.

    ICBA is committed to upholding a system of independent, community-based institutions that has served our nation from its earliest days and that represents what makes our nation great. God bless America, and God bless our nation’s community banks.

    The Genius of General Grant and Community Banks

    Jun 17, 2011
    General Grant did not win one single battle against General Lee’s vaunted Army of Northern Virginia until the last nine days of the Civil War—but he won the war. How, you ask? Two reasons: 1) He understood that he could outlast Lee no matter how many battles he lost, and 2) He had a nearly pathological determination and persistence.

    That first point, which just seems logical and about as simple as “1, 2, 3” to us today, was out-of-the-box thinking at the time. That was not even a concept in military doctrine in the 1860s. That could be a blog in itself, but I want to focus briefly on the second point.

    What separated General Grant from the five commanding generals that preceded him was that rather than retreat and lick his wounds after getting beaten by General Lee—he kept advancing! Grant kept moving forward or around General Lee, forcing yet another battle, and another, and another. He would not disengage. In 1864 that was a radical idea for many reasons that I will not enumerate, but suffice it to say that it wore down Lee’s army to the point where, regardless of the fact that Lee won over a dozen battles against Grant, by April 1865 it could no longer effectively resist. Grant won because of sheer determination and persistence.

    Grant’s campaign against Lee reminds me of community banks and ICBA. The core nature of community bankers and community banks is determination and persistence. Everything that can be thrown at a community banker has been thrown, not just recently but for decades now, yet community bankers and ICBA will not disengage. We will not quit. We know we will eventually prevail on our issues because there is no “give up” in ICBA. We keep tight hold of the issue, just like a bulldog on a bone, and won’t let go. And whether it takes a month, a year or years—we will eventually win out on the major challenges that face us.

    ICBA and community banks and bankers are a tough bunch. We are not, in the words of Thomas Paine, “sunshine soldiers or summer patriots.” We are community bankers who will fight today and tomorrow for our industry and our right to determine our own futures.

    So like General Grant, we will persist with dogged determination, regardless of the number of battles we lose, and eventually we will win the war.

    Strike Zones, 60 Votes and the Interchange Amendment

    Jun 13, 2011
    When I was young I was a baseball player—a southpaw pitcher. I learned early on that each umpire had a slightly different variation on the strike zone. As a player and pitcher, there was nothing I could do about that. You could not complain, you could not whine, you either adjusted to it or you lost. It’s that simple. The only thing I hoped was that regardless of where each umpire set his strike zone, he would be consistent.

    No one can say that the Senate is not consistent when it comes to the 60-vote rule. Once used only on the highest-profile votes, a 60-vote threshold for winning legislative measures has been the norm for more than a decade now. We all know that—we all know where the “strike zone” is. In the case of the interchange issue, we were not able to get the 60 votes we needed to win.

    So now is not the time to whine or complain that the strike zone changed. It was consistent with the Senate’s modern idea of a majority. We just were not able to get the “strike out.” We came close, but in baseball and politics, close does not get it done.

    So rather than complain about strike zones and supermajorities, ICBA will move forward—not back. We will find other ways to win this issue for our community banks—and ultimately we will prevail. Just like a good pitcher, you learn from your setbacks and you keep your eyes focused on the next batter. Because the object is to win the game.

    Big-Box Stores Selling Smoke and Mirrors on Interchange

    Jun 07, 2011
    A recent Washington Post op-ed suggests that small businesses should be wary of the promises of big-box retailers. A study conducted by David Merriman and Joseph J. Persky found that a new Wal-Mart in a Chicago neighborhood contributed to the closure of up to 82 nearby independent businesses.

    So it certainly seems odd that big-box retailers such as Wal-Mart are teaming up with small businesses to impose government price fixing on debit card interchange. While large retailers claim that government interference will help small businesses compete, their internal communications show other motivations. For example, a recent e-mail from a top official at Sears Holdings lamented efforts to delay debit interchange price fixing because it would mean $1 billion a month in lost revenue for merchants.

    As the Merriman/Persky study demonstrates, this additional cash for mega-retailers won’t do small businesses a whole lot of good. What’s good for “big box” isn’t good for “mom and pop.”

    Community banks, which are small businesses themselves, aren’t fooled by the claims on behalf of government interference in the debit card marketplace. The plan is simply bad news for community banks, small businesses and consumers, whether they are in Chicago or Main Street communities across the nation.

    Merchants Having it Both Ways on Interchange and Fraud

    Jun 01, 2011
    A recent security breach helps demonstrate that when it comes to fraud and interchange price fixing, merchants apparently are looking to have it both ways.

    The data breach at Michaels Stores affected stores in at least 20 states after fraudsters replaced PIN pads with fraudulent “skimming” devices. Of course, as I noted in an American Banker op-ed, while Michaels is responsible for the security failure, community banks and other financial institutions have to take the actual financial hit.

    Thankfully, debit interchange revenue helps community banks quickly reissue debit and credit cards to customers to protect them against these types of fraud. Unfortunately, once the Federal Reserve’s proposed rule cuts debit interchange revenue to below the cost of providing the service, future fraud costs will be borne by consumers and the community banks that serve them—not interchange revenue or the retailers who fail to protect customer card data.

    While merchants clamor for government price fixing of debit card interchange to boost their bottom line, they also count on financial institutions to provide fraud protection that is funded by interchange revenue when their stores are compromised.

    Do you get my drift? This is yet another reason why ICBA is fighting for legislation to delay the Fed rule and study the interchange issue, so policymakers can catch on as well.

    Cockroaches and Community Banks

    May 12, 2011
    The exterminators are at it again. Another “pundit” is spraying around the latest prediction on the demise of the community banking industry. This particular exterminator predicts the number of banks in the United States will drop from nearly 8,000 today to less than 2,500 in the next 10 years. Of course, the vast majority of those institutions would be community banks.

    Now, some of you might be familiar with one of my nicknames for community banks. To the inexperienced ear, it might sound like an insult. But after decades in this industry, I am proud to call community banks the “cockroaches” of the financial services industry. This isn’t a slur, but a term of endearment.

    No matter how hard the banking “experts,” consultants and those hired by special interests dedicated to the demise of community banking try, they will never be able to kill off the nation’s community banks. Community banking is synonymous with the American spirit of independence, self reliance and entrepreneurship. And no person or interest group will ever kill the American spirit. We’re survivors, and we’ll be serving our Main Street communities well after other financial sectors are exterminated.

    To paraphrase my fellow Missourian Mark Twain, reports on the death of the community banking industry have—once again—been greatly exaggerated. Community banks will continue filling their crucial role in cities and towns across America, and ICBA won’t quit fighting on their behalf.

    How You See the Glass Sets Your Future

    May 09, 2011
    Experience has convinced me that Norman Vincent Peal was right! How you think of the future will determine it. If you always see half-empty glasses, that is your future; half-full, likewise. At ICBA we believe in the future of community banks and the community banking industry. And because that is our vision we will work every day to shape it, and we will achieve it. The glass is never half empty at ICBA.

    Every organization (and person for that matter) has two choices—whine, moan, damn the present and the future as being hopeless and take whatever is dished out, or plow through the present and take the future head on to shape it to the vision of the world in which you want to live.

    “Dandy” Don Meredith got it right. When things were not going well for the team on the field and his fellow commentators began to make excuses, he would say “if ‘ifs’ and ‘buts’ were candy and nuts, oh what a party we’d have.” We can whine or we can do something about it.

    Rather than moan about the past, whining about the “ifs” and “buts” and what “could’ve been,” ICBA chooses to focus on making a better future for our community banks. ICBA chooses to engage and shape our destiny. We will not wallow in the “ifs” and “buts.” There are plenty of others in Washington that do that. At ICBA we will fight for the future of community banks, not take it as it comes.

    Community Bankers Take to the Hill

    May 04, 2011
    It’s been a great week in Washington. While there is still a long row to hoe on a number of issues facing community banks, we made great progress this week as community bankers gathered in the nation’s capital for the 2011 ICBA Washington Policy Summit.

    Nearly 1,000 members of the community banking industry were in town to discuss the industry’s most pressing issues in meetings with members of Congress and federal banking regulators. Community bankers swarmed Capitol Hill to advocate delaying the debit card interchange rule, implementing regulatory relief for our industry and reining in the Farm Credit System, among other issues.

    Not only that, but even community bankers not in Washington had a chance to join the action. With ICBA’s new Virtual Policy Summit, anyone with Internet access could tell their members of Congress to act on these initiatives.

    This week marked yet another solid advance by the community banking industry in its ongoing campaign for common-sense regulations.

    Drawing Parallels to a Nation at War With Itself

    Apr 18, 2011
    I just got back from an Executive Committee meeting in the great state of New Mexico.

    On April 12, 1861, guns in Charleston harbor opened up on Fort Sumter, and 150 years ago the nation was at war with itself. I cannot help but draw the parallel to the deep divisions in our nation today. But for the sophistication of communications and the fact that our population today is so mobile, I fear that our nation would be headed for Civil War today—only this time the divide would be much more complex.

    One hundred and fifty years ago our nation had no idea of the horrible carnage that lay ahead. An entire generation of American men was lost, and it took the Southern states 50 years just to regain their 1860 GDP level. One in three Southern men of military age had either been killed or maimed. The “limb”-making business thrived for years after the war ended.

    I have thought a lot about the war lately and how Main Street’s community banks are locked in a war with the Wall Street financial services titans for the very soul of this nation’s financial services sector. It will be a long and intense struggle as well. May the community banking sector never give up its independence and its soul to the forces of overconcentration and unbridled reach. May community bankers never allow themselves to be used as pawns in the struggle for this nation’s financial soul. Main Street made this nation the greatest nation on earth with the most enduring values—may we always stay true to that course.

    Cramdown: A Bad Idea That Continues to Smolder

    Apr 13, 2011
    Sometimes bad ideas are like grease fires—they can be hard to extinguish for good. In fact, one bad idea that ICBA has repeatedly doused with common sense has flared up yet again.

    The state attorneys general have reportedly proposed a settlement with large mortgage servicers that would open a backdoor to mortgage “cramdowns.” Meanwhile, the Senate Judiciary Committee passed legislation that would allow individual bankruptcy courts to effectively place a moratorium on foreclosures until lenders agree to reduce principal balances.

    While the public is justifiably upset with the “robo-signing” foreclosure controversy at the large institutions, there is no justification for continuing efforts to impose mortgage cramdown. Haven’t we had enough bad policies that hurt community banks when we should be focused on the misdeeds of those who created the financial crisis? As ICBA has repeatedly told policymakers, arbitrarily requiring lenders to reduce principal and modify terms on mortgage loans would set a terrible precedent, increase interest rates and actually make the foreclosure problem and housing recovery worse.

    And we’re not alone in our opposition. In a recent report, economists from the Federal Reserve banks of Atlanta and Boston wrote that principal-reduction schemes would incentivize all borrowers to seek loan forgiveness, even those who don’t need it. Amen!

    Interchange Legislation—A Reason to Dig Deep

    Apr 06, 2011
    The will of the nation’s community bankers to make their voices heard in Congress has never ceased to amaze me. Once again, it is time for community bankers to stand up, fight, scream and be heard on the terribly misguided and dangerous interchange rules that threaten our ability to continue to serve Main Street customers.

    Bipartisan legislation is pending in both the House and Senate to delay the draconian Federal Reserve proposed rule on debit card interchange. The legislation also would require federal banking regulators to study the rule’s impact on community banks and their customers. I can tell you without a study that the impact will be severe indeed—and the consumer will be the biggest loser—and I am not talking about a TV reality show—I am talking real life!!

    ICBA has fought tooth and nail against debit card interchange price fixing from the moment Sen. Durbin announced his intentions to offer his misguided amendment, and now we have legislation we can get behind to slow this lethal financial virus of a rule. That’s why I am asking every community banker in the nation to rattle your member of Congress’s cage—House and Senate—to co-sponsor these critical measures. MAKE YOUR VOICE HEARD ON THIS ISSUE! DO NOT WAIT FOR THE OTHER GUY—YOU ARE THE OTHER GUY—DO IT!

    With a positive reputation among lawmakers, community bankers are effective advocates. This effort on interchange is as important as any in my memory to ensure that community banks and their customers are not harmed and that our nation’s Main Street communities continue to thrive. Dig deep and leave no doubt in any member of Congress of where we stand.

    ICBA Convention Recognizes America’s Financial Foundation

    Mar 29, 2011
    Last week several thousand community bankers met in San Diego at the national convention of the Independent Community Bankers of America. It is always a reminder to me of the honor and privilege it is to represent the interests of these fine people here in Washington, D.C. They never forget who they are or the relationship banking model they follow. They are the financial foundation of our great country, because they lay that foundation, brick by brick, community by community every day. We here at ICBA are proud to say we represent community bankers exclusively.

    Community bankers are the men and women of Main Street America. We are the backbone of this nation’s entrepreneurial spirit. We are the engines of change, prosperity and jobs in America. We are the fabric of which the American Dream is made. We are community banks. We are ICBA.

    Love is in the Air for Community Banks

    Mar 08, 2011
    I’m not one for schmaltzy dramas. For those of you who don’t know, I’m more likely to take in a movie with scenes from Gettysburg or Omaha Beach. But this past Valentine’s Day, ICBA got downright sentimental with a marketing campaign that allows community bank customers to express why they love their community bank.

    ICBA’s “I Love My Community Bank” campaign allows customers and small businesses to share their experiences with their community banks. On the “I Love My Community Bank” website, consumers can post comments, photos and video testimonials about their community banking experiences. A special Twitter handle (@iLuvMyCB) will highlight the entries.

    The nation’s community bankers have earned a sterling reputation for outstanding customer service, smart banking policies and commitment to their communities. At ICBA, we’re just happy to help community bank customers spread the love.

    ICBA Convention on Pace for Banner Year

    Feb 23, 2011
    When I was still running my community bank in Missouri, it was always important to me to find a way to get away for a week in March to attend ICBA’s National Convention and Techworld. The annual convention offers community bankers an opportunity to come together for the largest community banking event in the world.

    This year, on the heels of a crippling financial crisis, a relentless battle over Wall Street reform and now new regulatory battles, it is more important than ever for community bankers to gather among their own to network, gain perspective and just enjoy the camaraderie of their fellow community bankers. Everyone needs to get away and among “family” from time to time. And ICBA is a family.

    The 2011 ICBA National Convention and Techworld is on pace to break registration records. Scheduled for March 20-24 in San Diego, this year’s convention will again feature top industry speakers, nationally known leaders and valuable educational workshops. The number of registrations to date is a testament to the value of ICBA’s convention and the resilience and spirit of community bankers.

    This industry has been through a lot these past few years, and I look forward to seeing as many community bankers as possible in what promises to be a great week in San Diego.

    Will you be there? I certainly hope so.

    Stop Punishing Main Street Banks and Their Customers

    Feb 17, 2011
    Hey, here’s an idea. Let’s punish the thousands of small community banks that played by the rules and stuck by their customers during the financial crisis by making it impossible for them to issue debit cards to their customers!

    The terribly flawed and misguided debit interchange rule proposed by the Federal Reserve to implement the Durbin interchange amendment to the Dodd-Frank Act will do just that. Millions of good Main Street customers of community banks will see their debit transaction costs rise. Or worse, they will not even be able to get a debit card from their local bank if this boneheaded rule, which will line the pockets of the big-box retail stores with billions in profits, is implemented. Write the Federal Reserve and your congressional delegation and tell them that Main Street community banks and their customers should not have to pay to pump up the profits of the big-box retailers. Make your voice heard—don’t subsidize the profits of the mega-retailers!

    If Congress and the Fed thought they could get this harmful interchange plan through without a fight, they should think again.

    “Wall Street: Money Never Sleeps,” and Neither Does ICBA

    Feb 09, 2011
    Usually the time I spend on a plane is a way to lose myself in a book, reflect, catch up on work or perhaps enjoy a movie. On a recent trip, the in-flight movie was Wall Street: Money Never Sleeps.

    Watching this movie was like reliving the past few years of my life dealing with the financial crisis. I lived through several of those meetings referred to or shown in the movie. I knew those players from Wall Street and the government officials (formerly from Wall Street) portrayed in the movie—and I remember what I was doing during the meetings and who said what.

    I am proud to say that ICBA made a strong and positive difference for community banks during the darkest days of the crisis. And I agree with the movie's "Godfather," the now-wrinkled prophet of Wall Street, Gordon Gekko, when he says in a speech to business students that the greed of Wall Street leading up to the crisis was the “greatest transfer of money from Main Street to Wall Street [in the nation's history], and it’s going to happen again.”

    Another observation Gekko makes is that “right now it’s ugly times ugly, and that's when the ugly get going.”

    We can all learn from the observations of Mr. Gekko. See the movie and learn what really happened and how and who really triggered the worst financial crisis in generations.