After I read the transcript and viewed the video clip of Mr. Lockhart's remarks on CNBC’s "Squawk Box" in which he said, and I quote: "What we need is about 50 strong regional banks in this country, not 8,000 small ones
," I was reminded of an old story that I am sure many of you have heard.
A man walks up to the attractive, well-dressed lady at the high-society ball and says, "Would you sleep with me for $1 million?" The lady blushes, hesitates and says quietly, "Well, for $1 million, yes, I would." The man beams and says, “Then would you sleep with me for $20?" The lady turns crimson and slaps the man hard and blurts out, "Certainly not. What do you think I am?" The man smiles and says, "Lady, we have established what you are; we are just haggling over price."
That story crossed my mind when I heard Mr. Lockhart speak. Of course we all know Mr. James Lockhart, the former Director of the Federal Housing Finance Agency. Days before the government seizure of the housing GSEs, Mr. Lockhart assured the community banks that the GSEs were adequately capitalized and that the markets should not be concerned about their preferred-stock investments. After the GSEs were seized on a Sunday, in a move that shocked the financial world, Mr. Lockhart expressed no regrets that the actions of Treasury and his agency wiped out billions of dollars in community bank equity and directly caused the failure of several community banks—wiping out families and investors and damaging entire communities. Now we see why. Mr. Lockhart apparently has no use for 8,000 community banks and believes a 50-bank system would be far superior. Superior for whom, Mr. Lockhart?
Yes, this is the same Mr. Lockhart who spoke at our annual gathering of community banker leaders. And he spoke in glowing terms about how vital community banks were to our nation’s financial and economic infrastructure. Now, Mr. Lockhart reveals himself— Shakespeare called it “mouth honor.” Honor given in words, but not felt. Mr. Lockhart is nothing more than an elite opportunist. Unfortunately, Washington seems to attract such people, and then they move on to their cushy Wall Street jobs.
Newsflash for Mr. Lockhart—ICBA and community banks are not for sale at any price, because we know the true meaning of integrity, honesty and loyalty. Long after Lockhart is gone, community banks will endure because community banks are the very embodiment of entrepreneurial spirit in the nation.
They are expressions of the self reliance that is engrained in our culture. Every community bank president, board member and customer should be enraged at Mr. Lockhart's public remarks.
See for yourself. Click here
to watch Mr. Lockhart’s appearance on CNBC’s “Squawk Box”.
Friday Night Lights Out
Last Friday night, the lights went out for four “too-small-to-save” banks. They faced the ultimate in resolution authority. I knew the bank presidents of two of the four banks. They were good people caught in miserable economic circumstances. Not only were their careers and reputations wiped out, their family income and equity, and that of their investors, were also wiped out. The 26 banks that have failed this year faced REAL "resolution authority." They were totally leveled—in the same way the Roman military would raze the entire city-state of an enemy—total devastation, nothing left.
In contrast, we have the Wall Street mega banks and financial firms—you know those firms that received hundreds of billions of taxpayer dollars so they would not fail as the result of the greed, mistakes and massive miscalculations of their managers and investors.
There was no Friday night “lights out” for Citibank, Bank of America or any of the 19 other reckless Wall Street mega firms that caused our nation to slip into the heart of financial darkness. In fact, far from having their managers and investors wiped out or even chastened, Wall Street has prospered as the result of taxpayer largesse, and the "too big to fail" have gotten even bigger and harder to fail.
Now come some well-meaning members of Congress who want to pass laws to make right a massive injustice—the injustice of good community banks being wiped out, and towns being shattered, while those firms that caused this financial catastrophe go skipping down the financial path—actually getting richer—WITH YOUR MONEY!! But these well-meaning members of Congress are having a very difficult time enacting real, meaningful resolution reform for the "too big to fail."
Why can't Congress fix "too big to fail," you ask? Because the massive Wall Street lobbying machines are convincing members of Congress that trying to impose a strict resolution authority (the kind community banks face every Friday night) can't be done on mega firms. They are too big and too complex, they protest. The Wall Street lobbying firms say Congress is too shallow to fathom the damage that could be done to mega financial firms if they are subjected to community-bank-like resolution authority. They throw up the specter of Lehman Brothers and say, "Do you want another Lehman?"
It sounds frightening until you peel back the mask of deception. When I hear the Wall Street lobbyists saying these things I want to retort: "Oh, you mean if your mega financial firm is subjected to a similar Friday night resolution that nearly 8,000 other banks in America are subject to, the people of this nation will suffer as a result? As if they did not suffer during the past three years keeping your failed firms open? As if millions of Americans have not been grievously hurt by the calamity your firms caused and will cause again if we just let Wall Street firms grow ever larger and too big to fail?”
Perhaps the "resolution" of a Wall Street financial firm will cause our nation to suffer financially, but at least we will all be in the same financial ship—the taxpayers, the failed managers and the reckless investors. At least the only losers won't be the American taxpayer, as we watch the Wall Street managers and investors prosper with OUR money.
Wall Street financial firms should face resolution authority in the same way that America's 8,000 other banks must face it every Friday night.
Who's on First?
In just a 12-hour period on Monday, March 1, at least four proposals for where to house the consumer-protection function of the larger financial-reform bill were floated on Capitol Hill. E-mails were flying back and forth, and the most robust industry in Washington—the rumor mill—was in full gear. The second largest industry in Washington—the selective leak—was also fully engaged. What this all adds up to is reminiscent of the classic Abbot and Costello skit “Who’s on First?” As you will recall, Who is on first; What is on second; and I Don’t Know is on third.
Third base is very much the center of attention because as things stand this Tuesday morning “I Don’t Know” is firmly in control of the game. How the Consumer Financial Protection Agency plays out will be one of the most fascinating games to watch in years. Powerful senators are on at least five sides of a three-sided question. If this weren’t so critically important to the future health of community bank franchises, it would be time to break out the hotdogs and beer and watch it all unfold.
However, this is no time to be a spectator. This is a franchise issue, and ICBA is working feverishly to ensure that community banks are not put at a disadvantage regardless of how the ball game ends. Our goal is to minimize the consumer-regulatory burden on community banks in whatever way we can. We will be swinging hard to achieve that goal and will not rest until the final out.
Setting the Tone in Washington
For decades Wall Street mega firms and their Washington, D.C. trade group allies have set the financial policy tone in the nation’s capitol. But beginning in early 2008, the 8,000 community banks of this nation and their national trade group ICBA sent Wall Street and America a message: This ICBA will NOT yield to Wall Street – not this time. Not on our watch.
We will touch every community bank in the country and ask them to unite and fight for the rich financial diversity of this nation. Community bankers everywhere are standing up and telling Washington, D.C. policy makers that this is OUR financial system too. And we will fight to preserve our place in it.
Decades of letting Wall Street set the policy tone in Washington, D.C. are over because ICBA, our state community banking associations and community banks nationwide will never again allow themselves to be treated as second class citizens in the financial world.
Standing Like a Rock
Thomas Jefferson once said, “In matters of style, swim with the current; in matters of principle, stand like a rock.”
ICBA has long had the reputation of standing on principle while others swim with the current. It is a Jeffersonian ideal of which we are proud.
There are some folks who want to cling to the status quo just like a dog that gets a great bone and doesn’t want to let it go. Those intent on opposing financial reform in any form for any reason are willing to ignore several landmark community bank successes in order to howl over a single shinbone. What they really want is to hold on to the status quo—to maintain the current advantages given to megabanks and nonbank financial firms. And we’ve all seen too clearly where the status quo has led us.
But what really gets me worked up is that these “status quo” seekers aren’t telling the whole story. Any landmark financial reform legislation that passes Congress will be huge, complex and, ultimately, imperfect to one degree or another. Does ICBA think that the House financial-regulatory-reform bill (H.R. 4173) is a perfect bill? No, we don’t—and we never did. H.R. 4173 will not be the final financial reform bill that is eventually signed into law, and everyone in Washington knows that and has known that for months.
So ICBA is fighting to keep the considerable gains we earned in the House bill while blocking provisions in any final reform bill that would be burdensome or harmful to community banks.
Remember H.R. 2897, better known as the Gutierrez bill? H.R. 2897, formally titled “The Bank Accountability and Risk Assessment Act of 2009,” was introduced in the House last spring. It was a pure community bank-friendly bill that would bring fairness and parity to the FDIC assessment system for more than 99 percent of the nation’s community banks by shifting hundreds of millions of dollars in FDIC assessment fees off of community banks.
ICBA worked closely with Rep. Luis Gutierrez (D-Ill.), the bill’s principal sponsor. ICBA was the ONLY national trade association to embrace H.R. 2897. All other national (and some state) financial trade groups either worked hard against it or sat mute (quietly cautioning Congress not to embrace it). In fact, those representing megabanks said Gutierrez was dead and would go nowhere.
Well, guess what. Good old H.R. 2897 was rolled into H.R. 4173, along with eight other stand-alone bills, to become part of the financial-reform bill that the House passed in December. (H.R. 4173 was created as an omnibus bill just days before the final vote as a way to pass several stand-alone bills simultaneously.) So H.R. 2897 lives on with several very powerful pro-community bank provisions that will save or earn thousands of community banks bottom-line dollars.
And as that bill reminds us, this once-in-a-generation financial-reform legislation is not and will not be about any one single issue, and it does not consist of one piece or provision. It’s a massive bill with many components.
ICBA has not endorsed any final financial reform bill. But remember that ICBA is the only national voice in Washington fighting exclusively for community banks. That’s important.