By Karen Thomas, ICBA Executive Vice President of Government Relations

The 2009 ICBA Washington Policy Summit was one of the most successful in recent memory, with the nation’s leading policymakers voicing support for the nation’s community banks. Nearly 700 community bankers gathered in Washington to convey industry concerns to members of Congress and regulators.

Geithner Praises “Source of Strength”
On Wednesday, Treasury Secretary Timothy Geithner spoke at the summit and said he expects Congress to increase the FDIC’s borrowing authority with Treasury, which would allow the FDIC to reduce the planned 20-basis-point emergency special assessment. ICBA and community bankers across the nation have been leaders in raising awareness of the need to reduce the assessment and urging Congress to approve the pending legislation the FDIC said is necessary to do so. ICBA expects Congress to finalize the bill before it breaks for the Memorial Day recess.

Geithner also promoted community banks’ sound practices, which he said have allowed community banks to be better prepared for the current recession. He said lending by community banks held up better than larger institutions, and has been a critical source of credit for small businesses.

“You entered this crisis on average with strong capital positions, and that has allowed many of you to be a source of credit during a period of enormous challenge for businesses and families across America,” Geithner said. “Collectively, you are a source of strength and resilience for the U.S. financial system. And you will play a critical role in laying the foundation for economic recovery.”

Geithner said that strength is not lost on customers. He cited a recent Gallup poll that found 69 percent of customers have a lot of confidence in small to medium-size banks.

Geithner also complimented ICBA on its leadership on behalf of community banks. He said ICBA was a “formidable force” in Washington and noted that his first meeting with a trade association just three days after being sworn in as Treasury secretary was with ICBA President and CEO Cam Fine. He also thanked ICBA Immediate Past Chairman Cynthia Blankenship for joining him and President Obama earlier this spring to lead a White House press conference to unveil new small business lending initiatives.

Commitment to TARP, Systemic-Risk Reform
Geithner also announced that the administration will use TARP funds repaid to Treasury by the nation’s largest banks to extend more TARP Capital Purchase Program funding for community banks with less than $500 million in assets. Geithner said Treasury will re-open the TARP application window for these community banks and raise from 3 percent of risk-weighted assets to 5 percent the amount for which qualifying institutions can apply.

The updated program will apply to all term sheets, for public and private institutions, Subchapter S corporations and mutuals. Current CPP participants will be allowed to reapply and will have an expedited approval process. Further, Treasury will extend the deadline for community banks to form a holding company for the purposes of CPP.  Both the window to form a holding company and the window to apply or re-apply for CPP will be open for six months.

Responding to questions from ICBA Chairman Mike Menzies, Geithner also said he supports ICBA’s proposal to establish a systemic-risk fund, segregated from the Deposit Insurance Fund, to cover the losses of too-big-to-fail financial institutions. He said Treasury will propose that plan to Congress. He also said more conservative regulations on capital leverage at too-big-to-fail financial institutions are needed and that ICBA and the nation’s community banks will be included in discussions on financial regulatory restructuring. The administration plans to announce a financial regulatory overhaul in the coming weeks, he said.

Geithner’s appearance attracted national news coverage from premier media outlets, including CNBC, CNN, Bloomberg, ABC News, The Wall Street Journal, Reuters, the Associated Press and others.

Widespread Support for Community Banks
Geithner wasn’t the only leading national policymaker to voice support for community banks and ICBA. Comptroller of the Currency John Dugan spoke Tuesday at the policy summit and backed several ICBA-led initiatives, including proposals to establish a systemic-risk regulator and implement a system for resolving and winding down the nation’s largest financial institutions.

Dugan also emphasized the government will not extend stress tests on the nation’s largest financial institutions to community banks and said the government will not continue the practice of releasing this sort of sensitive information. He also called for improved regulation of non-bank mortgage lenders. “One of the things that got us into this mess was uneven mortgage regulation,” he said.

House Majority Leader Steny Hoyer (D-Md.) also spoke to community bankers gathered in Washington. While community banks did not start the current financial crisis, he added, they are critical to its recovery. “Whatever happened—whatever went wrong—it didn’t happen with community banks.”

While non-bank financial institutions engaged in irresponsible lending practices, Hoyer said, America is counting on community banks to help clean up the mess. “Community banks have an essential role to play in turning our economy around,” he said.

Summit Critical for Community Bank Advocacy
In addition to hearing from leading policymakers on the importance of the industry, community bankers met with members of Congress and regulators to communicate top industry priorities.

Community bankers were briefed on key issues before their lobby visits on Capitol Hill, during which they called for tighter regulations on too-big-to-fail financial institutions, systemic-risk premiums and other important issues. Groups of community bankers also discussed key regulatory issues with top officials with the FDIC, the Federal Reserve and the Office of the Comptroller of the Currency. They offered community bank perspectives on the FDIC’s special assessment, overly restrictive bank examinations and other key issues.

ICBA President and CEO Cam Fine told community bankers that the ICBA Washington Policy Summit and ICBA’s advocacy efforts are critical for community banks because ICBA is the only national trade association dedicated exclusively to the community banking industry. Fine said ICBA is focused on Main Street and will not carry water for Wall Street. “ICBA doesn’t have members on Wall Street,” he said. “You know where we stand.” Read ICBA’s Spring 2009 Legislative Priorities. Read Geithner’s Speech. View Question-and-Answer Session. Read ICBA Release. 

By Karen Thomas, ICBA Executive Vice President of Government Relations

ICBA has taken the lead in calling for major regulatory restructuring reforms to address the risks too-big-to-fail financial institutions place on our nation’s financial system. ICBA is proposing a systemic-risk regulator that would implement higher capital standards and more rigorous regulatory requirements for both “systemically important” banks and non-bank financial institutions. Too-big-to-fail financial institutions also should pay a systemic-risk premium to protect taxpayers and be subject to a receivership and resolution process, ICBA is advocating. These funds should be kept separate from the Deposit Insurance Fund to cover the losses to the fund too-big-to-fail financial institutions create.

With leading administration officials and members of Congress declaring support for many of ICBA’s proposals, the community banking industry is driving the policy agenda on regulatory restructuring that policymakers are considering. Treasury Secretary Timothy Geithner was a vocal proponent of ICBA goals in his speech at this week’s ICBA Washington Policy Summit and Comptroller of the Currency John Dugan also voiced support for ICBA policy goals regarding systemic-risk regulation (see previous story).

This wasn’t the first time Geithner expressed support for ICBA regulatory reform proposals. In a meeting last Friday with Geithner and other senior officials at the White House, ICBA called for a strong systemic-risk regulator that would establish capital standards on the largest financial firms. At the meeting, Geithner indicated he prefers establishing a single regulator to supervise financial institutions that create systemic risks.

Geithner isn’t the only White House official to express support for ICBA positions. President Obama recently told The New York Times that his administration’s proposed systemic-risk regulations would restore confidence in the U.S. financial system by staunching the “massive leveraging” and “massive risk-taking” that had become common on Wall Street.

ICBA also received support for its systemic-risk proposals at last week’s Senate Banking Committee hearing on too-big-to-fail. Chairman Christopher Dodd (D-Conn.) said the FDIC should have the power to unwind large firms and to impose stricter capital rules. Also at the hearing, FDIC Chairman Sheila Bair suggested creating a systemic-risk council to monitor large financial institutions, rather than giving that responsibility to a single agency. Previously, Bair said the too-big-to-fail concept “ought to be tossed into the dustbin.”

At a Joint Economic Committee hearing in April, top economists reiterated ICBA’s call to downsize the nation’s largest banks that create systemic risks. Columbia University professor and Nobel Prize winner Joseph Stiglitz said the largest financial institutions “are not just too big to fail, but also too big to save and too big to manage.”

MIT professor Simon Johnson said the government should reform antitrust laws to prevent the development of too-big-to-fail financial institutions and proposed breaking up the megabanks and selling them in pieces to avoid excess concentration. Federal Reserve Bank of Kansas City President Thomas Hoenig said the government’s response to the economic crisis has focused too much on injecting funds in the largest financial institutions.

In April, ICBA endorsed Treasury’s proposal to vest the FDIC with resolution authority for too-big-to-fail non-bank financial firms. ICBA said the Deposit Insurance Fund should not be used to pay the costs of resolving systemic risk firms that fail and called for a separate, segregated reserve fund. Financial firms that pose systemic risk should be assessed and pay the costs related to properly maintaining the fund.

It should be no surprise that ICBA’s proposals on systemic-risk have become so highly regarded. Besides the public outcry over the damage the megabanks have done to the nation’s economy, ICBA has led public relations and advertising campaigns calling for the downsizing of too-big-to-fail financial institutions, distinguishing between the megabanks and community banks and promoting the safety and soundness of community banks. ICBA encourages community banks to use resources on the association’s Safety of Community Bank Deposits and Community Bank Common Sense Lenders public relations campaigns to promote community banking in their communities and continue spreading ICBA’s positive message.

ICBA will continue working on behalf of the community banking industry to implement these key systemic-risk policies and rally public support for this important cause. ICBA has one mission: community banks. Read ICBA Release on Systemic-Risk. Read ICBA Letter to Treasury.

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