Happy holidays, folks. In case you missed it, on the day before Thanksgiving, the FDIC released final guidance
on overdraft-protection programs that institutes new regulatory burdens and doesn’t include a single recommendation from the community banking industry. Further, by threatening to shutter overdraft programs that were created at the urging of consumers in the first place, the agency’s guidelines are against the best interests of community bank customers. Talk about the nanny state gone wild. This is an Orwellian nightmare.
Following the Federal Reserve’s enactment this year of overdraft rules for debit-card and ATM transactions, the FDIC guidance requires banks to monitor programs for excessive customer use and to contact in person or by telephone customers who have incurred six overdrafts over a rolling 12-month period to discuss other alternatives. Additionally, the guidance encourages financial institutions to allow consumers to opt out of coverage for checks and ACH transactions and to impose daily fee limits. Much to my chagrin, the guidance does not explicitly exempt ad hoc overdraft payment programs, a service provided by community banks nationwide, as requested by ICBA.
Two days after the guidance was out—and as most Americans hit their local shopping malls or recovered from too much turkey and stuffing—The Wall Street Journal
reported that three-quarters of bank customers are opting in to debit-card overdraft programs under the Federal Reserve guidelines. It is the latest study showing that consumers want overdraft protection.
Requiring recurring customer contact will be regarded by most of these customers as harassment: the first call may be appreciated, but repeated calls will be poorly received and may force some of the neediest customers back into the shadow banking world. And then there are the state laws that must be reconciled with the FDIC rules—what a mess. As usual, well-meaning community bankers and their customers are caught in the crossfire.
The bottom line is this: Banks began offering overdraft protection to meet customer demand. And now the government is getting in between a product the customer wants (and in many cases needs) and the bank.
As ICBA continues meeting with the FDIC on this issue, we will work to ensure the new rules do not overburden community banks and threaten a product their customers want and need.
A Sea Change
Acting Comptroller of the Currency John Walsh called it a “sea change.” He’s right. Today the FDIC board of directors voted to base assessments on assets minus tangible capital instead of domestic deposits, which will level the playing field and lower premiums for community banks. After years of prodding by ICBA and the nation’s community bankers, policymakers will ensure that the largest banks pay their fair share of deposit-insurance premiums.
Meanwhile, requiring these institutions to cover the risks they pose to the Deposit Insurance Fund will mean lower premiums for community banks for years to come—an estimated $4.5 billion over the next three years alone. That certainly isn’t pocket change.
With financial institutions across the nation on edge about what financial regulatory reforms will mean for them, community banks can take comfort that this change will have a positive impact on their bottom line. It will allow community banks to reinvest their savings in their neighborhoods, strengthening Main Street communities across the nation. This change will do all of us a lot of good.
We the People
We the People go to the polls today to engage in our sacred, inalienable right. The outcome of today’s midterm congressional elections will select the citizens who will come to Washington to lead our federal government for the next two years.
Of course, Congress and all of Washington, D.C., are bracing for yet another political sea change from today’s elections. The anger and anxiety over our country’s economic troubles and the memories of the Wall Street financial crisis and bailouts are as fresh as ever. And this bumpy political ride isn’t likely to end with this year’s elections. Governing on Capitol Hill could get harder before it gets easier. So hold on to your chads.
Does this landscape of shifting political power in Washington make it more difficult for ICBA to represent the nation’s community banks? No, it doesn’t.
ICBA will always engage and educate any public official, regardless of his or her party affiliation, on community banking issues. Whoever the American voters elect to office will be the people ICBA works with in good faith for community banks and for Main Street America.
That doesn’t mean ICBA will shy away from vigorously opposing proposals or ideas that are harmful to community banks. We won’t. Our longstanding advocacy record demonstrates that. Whatever judgments American voters make in this midterm election, or in any election for that matter, ICBA will work alongside our members, our leadership bankers and our state and regional association partners to advance and promote the community banking industry.
So let the voters decide. Let our great, tumultuous democracy reign. And after the ballots are counted, ICBA will be united and ready to move forward to achieve the best public policies that the American people want.
FDIC Long-Term Plan Offers Short-Term Relief
At a time when good news is hard to come by in the financial services industry, or anywhere for that matter, the FDIC’s recently proposed Deposit Insurance Fund management plan can be met with some relief. First of all, the FDIC plan would forgo the 3-basis-point increase in assessment rates scheduled for Jan. 1, 2011, which is expected to save the industry billions of dollars. Second, the agency said it is abandoning the increase largely because it has reduced its projected losses for the DIF. So far, so good.
These provisions are part of a long-term plan that significantly restructures how the FDIC funds the DIF, and this is where things get a little more complex. The FDIC will not provide dividends to banks when the reserve ratio tops 1.5 percent, as it is authorized to do. Instead, it plans to gradually lower assessments to keep the reserve ratio well above its statutory minimum.
In other words, community banks may never again see a DIF dividend, and they certainly will not experience a decade of not paying assessments, as the industry did from 1996 to 2006. However, with a positive fund balance and predictable assessment rates, community banks are less likely to face special assessments to replenish the fund when they can least afford it.
Short-term relief from scheduled assessments and a countercyclical approach to funding the DIF that will benefit banks during economic downturns is downright good news. Further, with the FDIC expected to release its rule on ICBA-advocated changes to the assessment base next month, we even have something to look forward to.
A Robo-Sign of the Times
The so-called Masters of the Universe are at it again. Some of the same large financial institutions that caused the financial crisis have engaged in practices that could ultimately stunt the economic recovery. Several mega-institutions’ questionable foreclosure practices, such as “robo-signing” foreclosure documents, have made front-page news and have led to foreclosure moratoriums at several firms and an investigation by all 50 state attorneys general.
However, the danger of the documentation flap is not likely to be to the borrowers involved, as there have been no reports of homeowners being wrongly foreclosed on because of paperwork errors. Rather, the true threat is the call from consumer activists for a national moratorium on foreclosures.
A mandatory moratorium could wreck the mortgage market and jeopardize the economic recovery. Fortunately, the White House, regulators, members of Congress and leading commentators on the right and left have voiced their opposition.
Community bankers do what the mortgage factories should have done all along—work directly with borrowers. Because of this, community banks generally haven’t experienced a spike in foreclosures. Nevertheless, we all would be negatively affected by a moratorium. Once again, the irresponsible practices of the nation’s largest financial firms are imperiling our financial and housing systems.
Credit Unions Having Their Cake and Eating it Too
It’s official: The nation’s credit unions get to have their tax-exempt cake and eat it too!
Federal regulators last Friday afternoon announced a multi-billion-dollar bailout of the credit union industry due to risky bets on subprime mortgages. Regulators will manage $50 billion in troubled assets and issue approximately $35 billion in taxpayer-backed bonds. In other words, a financial industry that has never paid a dime in federal taxes is enjoying a taxpayer-funded rescue because of their risky and overreaching lending practices.
Under the plan, regulators seized the three largest wholesale credit unions and introduced new restrictions to try to avoid risky practices at credit unions—the same regulators that were urging Congress to expand the lending powers of credit unions!! Well, that sure seems a day late and about $35 billion short.
ICBA has long called on Congress to reconsider the tax-exempt status of the nation’s credit unions. A 2005 Tax Foundation study found that the exemption is costing taxpayers more than $30 billion over 10 years. Last Friday afternoon, that tab just about doubled. With spiraling budget deficits, maybe this bailout is enough to get Congress to finally act to ensure that the rest of us don’t have to take a bite of what the credit union industry is cooking up.
The Big Short: Inside the Doomsday Machine
If you want to know who and what really triggered the financial chaos and calamity through which we all have just lived, a must read is The Big Short by Michael Lewis.
If you are a true community banker, this book will make your blood boil. The arrogance and greed that Lewis exposes on the part of many “elites” on Wall Street will leave you shaking your head and fist. If nothing else, read the book’s epilogue. It will open your eyes, or, as the saying goes, “The truth will set you free.” And when you are done, you will know exactly why the community banking industry needs an independent, focused voice. Why we need ICBA.
Persistence Pays Off on Small Business Jobs Act
The long and winding road of passing legislation to stimulate the small-business sector came to a successful end this week as the House voted to send the Small Business Jobs Act (H.R. 5297) to the president. ICBA worked closely with Congress to pass the legislation since the introduction of the $30 billion Small Business Lending Fund. With the help of the nation’s community banks and ICBA’s affiliated state and regional community banking associations, we succeeded in seeing this thing through.
While the $30 billion fund dedicated to expanding small-business lending has been the most high-profile provision in this bill, there are other important measures as well. The law extends Recovery Act provisions that increase government guarantees on Small Business Administration loans and reduce borrower fees, permanently increases loan limits on SBA loans and expands the SBA’s trade and export finance programs. It also provides $12 billion in targeted tax cuts for the nation’s small businesses.
After a series of fits and starts and continued partisan wrangling threatened to derail this common-sense legislation, it was the persistence of ICBA and the nation’s community banks that made the difference. Even as Congress has its eyes on November, with many incumbents fearing for their political lives, lawmakers were able to rally around Main Street thanks in no small part to the reputation and resilience of the nation’s community banks.
Ben Franklin said that energy and persistence conquer all things. Fortunately for the small-business sector and our economic recovery, ICBA and community bankers don’t quit.
What do the opportunities offered by this legislation mean for your community bank?
Wanted: Sanity in the Exam Environment
Albert Einstein defined insanity as doing the same thing over and over again and expecting a different result. Given that definition, to many observers ICBA’s constant calls for more reasonable and balanced field examinations for community banks might appear insane. After numerous and repeated private meetings and public testimony in Washington on this crucial issue over the past three years, community bankers continue to face an overly stringent regulatory environment even as policymakers plead with community banks to boost lending to consumers and businesses.
The current environment hinders the ability of community banks to make loans, which ties up funding that could stimulate the economy. While bank regulators in Washington keep assuring us that they are working to have examiners take a reasonable and consistent approach, community bankers are experiencing something very different in the field and are feeling the consequences of unreasonably harsh exams. With mixed messages such as these, community bankers should be excused for questioning the regulators’ sanity.
All of Washington needs to listen up on this issue—and quickly. As policymakers grapple with a sputtering economic recovery, rigid examiner practices are contributing to a contraction of credit. Einstein also said that the only things that are infinite are the universe and human stupidity, and he wasn’t so sure about the universe. We need a smarter approach to bank exams if we want to keep the fragile economic recovery from reversing course. It doesn’t take an Einstein to figure that out. In a fair exam environment, community banks can give small businesses the loans they need and help America get back to work.
Reputations Intact: Proud To Be a Community Banker
One of the sad facts of this modern world in which we live is that we are bombarded with "messaging" nearly 24 hours a day. Our senses are overwhelmed with information. We’re on overload—and our memories are very short. And so it is with this most recent financial meltdown.
In the fall of 2007, as the credit markets on Wall Street were going into vapor lock and mortgage-backed securities and the subprime loans that backed them were cratering, the politicians, policymakers and consumer advocates in Washington and around the nation were all screaming that everyday Americans and the economy were suffering because of the "greed" and “overreach” of the “bankers.” All fingers were pointing at “bankers.” It was the bankers’ fault, they said. All bankers were equally culpable in the eyes of the nation.
During those very dark days, I got scores and scores of e-mails (some days several hundred) from community bankers nationwide imploring ICBA to draw a bright line of distinction between community banks and the nonbank financial firms and the mega Wall Street financial firms with their off-balance-sheet assets and so-called structured investment vehicles.
“We are not those guys,” community bankers pointed out. “Make them understand,” they wrote. Community bankers raged about how it was not the little community banks that engaged in the avarice and recklessness that caused our nation's financial system and economy to melt down. Please, please, please, ICBA members pleaded, make the policymakers understand how and why community banks are different.
ICBA did just that. And we were highly successful in doing so in several ways—from knocking back the FDIC’s 20-cent special assessment to leveling the playing field on deposit insurance premiums, to raising the insured deposit level by two and a half times, to bringing “too-big-to-fail” to heel. Most importantly, for the first time in financial history, ICBA convinced policymakers to create a legal bright line distinction between the business model of a community bank and the business model of a "systemically dangerous" Wall Street bank or nonbank financial firm.
These are historic achievements. No longer will smaller, local community banks be saddled with the same regulatory regime as international behemoths such as Citi or Bank of America. For the first time in financial history policymakers recognize and have acted to affirm that “one size fits all” financial regulation is not appropriate and that regulators should calibrate the country’s banking rules to accommodate for complexity, risk and size.
ICBA heard our members’ pleas for equity and to keep their hometown reputations intact, and ICBA responded with all our energy and achieved historic results for the community banking industry.
Calm Before the Storm
Lawmakers are often a raucous bunch when they’re together, but Capitol Hill remains unusually quiet after the Labor Day holiday. Most members of Congress are still back in their home districts this week.
Look for the quiet to end abruptly when the Senate and House are gaveled back in session next week.
While every representative in the House and one-third of our senators are intensely focused on their own individual reelection campaigns, Congress faces a whopping agenda for such a short period before the November elections. On tap for lawmakers to tackle are the enactment of the U.S. federal government’s next budget; several competing measures to fashion a jobs-creation bill; extension (or not) of the Bush tax cuts; enactment of a small business tax-incentive package; and passage of the ICBA-supported $30 billion Small Business Lending Fund.
All these measures have enormous campaign repercussions. And these are just the big items!!
The formal congressional schedule has the Senate and House adjourning in early October—that is probably optimistic. Look for both chambers to be wrestling with legislation after the election in a “lame duck” session at least until Thanksgiving—and probably beyond. Between now and the election lawmakers are likely to bounce back and forth between Washington and campaign events in their home districts.
Washington’s summer quiet season is nearly over. Get ready for another historic and contentious legislative session and campaign season.
Real Facts, and Beer
Lots of Washington, D.C., "pundits" and some association executives are sending out messages and summaries opining on the Dodd/Frank Wall Street Reform and Consumer Protection Act signed by the president last week. Each of these opinions is written more like an op-ed expressing each author's point of view and particular biases. This blizzard of opinions is the ultimate "spin zone" (O'Reilly is going crazy).
Those messages and summaries that express dark, foreboding predictions of ultimate doom typically are written by those who lobbied on behalf of certain financial services constituencies that did not do so well in the bill. Therefore, someone or something must be blamed (rule one in Washington is that it is never the advocate’s fault). Those messages that express a brighter view are typically issued by those who lobbied on behalf of constituencies that did better than expected in the bill. And so the beat goes on. Is there a "no spin zone" for this bill? Eventually, when the raw emotion and posturing subsides, there will be; and then just plain old boring facts will come out—both good and bad.
In the meantime, I tend to endorse old honest Abe, our 16th president, who made what is to me the ultimate no-spin-zone statement.
"I am a firm believer in the people. If given the truth, they can be depended upon to meet any national crisis. The great point is to bring them the real facts, and beer. "
What’s There to Like?
The Wall Street Journal, The New York Times, The Washington Post
and just about every other newspaper in the country are calling the “Wall Street Reform Bill” a win for community banks.
So why am I receiving e-mails, calls and letters from community bankers worried that the world as we know it is coming to an end?
Did all those newspapers get it wrong?
Well, within the context of this bill, not really. In addition to all the evil and terrible things we’ve all heard so much about, there are actually some good elements in the bill—if you are a community bank, that is. If you’re a Wall Street mega-bank, not so much.
What’s there to like?
The list is longer than this blog permits, so let me touch on just three provisions; you can read about the rest online
- First there’s the change to the FDIC assessment base that will save community banks $4.5 billion over three years. And these assessment savings will only compound over time now that banks are paying regular assessments.
- Then there’s too-big-to-fail.
ICBA has been leading the fight to end too-big-to-fail long before the current crisis erupted. Safely unwinding those behemoths is crucial to our nation’s economic well-being.
This bill will go a long way toward reining in the mega-banks, leveling the playing field and focusing systemic-risk regulations and Systemic Risk Council efforts on the mega-institutions.
Yes. The pre-funded dissolution fund was dropped from the final bill, but the FDIC is authorized to impose fees on the mega-firms to help fund their failures.
- And we won exemptions for banks under $10 billion from the examination and enforcement authority of the Consumer Financial Protection Bureau. Hey, that beats CFPB examiners marching into your banks on a fixed schedule.
But more important is the major national policy shift in how community banks are regarded in Washington. This legislation sets a precedent in recognizing that community banking is a distinct banking model from the Wall Street financial model and thus should not be treated in the same way. That is a huge policy shift and bodes well for community banks in future financial legislation and regulatory treatment.
It means that, going forward, community banks have gained the right to be treated differently, to be held to our own measure, not Wall Street’s. To finally be regarded as equals with Wall Street in the financial services sector – priceless!
Taking Responsibility and Standing Tall
Last week, as the great financial reform debate went into extra innings, temperatures were rising and everyone was tense and tired. When the conference finally adjourned, one senior Wall Street analyst told me, “Well, you guys (community banks) did great in this bill—we got our butts kicked. They should fire all the lobbyists that represented Wall Street." That’s a quote; I’m not making it up.
But that’s how it is in Washington. When one drama ends, another unfolds. Let the finger pointing begin; it is a time-honored Washington, D.C., tradition.
The temptation on the part of some to finger point is understandable in a way. It’s what we used to do when we were children. Now that the financial reform conference is over and the result is known, those who did not do so well will give in to the temptation to cast blame on others to deflect their own shortcomings.
But ICBA is a stand-up organization representing stand-up community banking institutions. That is why I love the community banking industry and have spent most of my adult life in it. The plain and simple truth is that we won more than we lost, but lose we did on some important issues. Our response to that is not to point fingers and cast blame, our response is to get up and engage and fight another day and fix what we need to fix. And that is what ICBA will do, not because it is expedient, but because it is the right thing to do. It is the culture of community bankers. We will make no excuses. We gave it all we had; we left nothing on the field.
So, let others cast blame wherever they will. At ICBA we will take pride in our accomplishments, and we will continue to work for the best interests of community banks as this landmark legislation moves into the regulatory arena.
Do You Ever Wonder What It Is All About?
Ever wonder about the millions, nay hundreds of millions, in Wall Street and megabank dollars spent on countless legions of lobbyists? For Wall Street and the megabanks, lobbying the financial reform bill is all about protecting billions of dollars in profits. It is about keeping their too-big-to-fail status and the market advantages and perks such status gives them. It is about preserving the privileged place in the financial services sector they have gained through legislation and regulations over the past 30 years.
But what about Main Street and ICBA? Main Street and ICBA are all about preserving our nation’s unique heritage of a diverse and multi-faceted community banking system. Unique because there is nothing else like it on earth. It is precious and must be preserved.
Our community banking system is responsible for creating the culture that built the greatest nation on earth. So while community banks and ICBA do not have hundreds of millions of dollars to spend on hired lobbyists and marketing “spin” machines, we do have the hearts of thousands of community bankers on Main Streets across America to tell our side of the story. And when you have heart, you have it all. And that is what it is all about on Main Street!