Archive for the ‘CFPA’ Category

Sweet and Sour Sausage

Thursday, June 24th, 2010

There’s an old saying:  “There are two things you never want to see being made, legislation and sausage.”  Having watched almost every moment of the House and Senate conference committee coverage on Financial Reform live on C-Span, I have to concur.

I know what you must be thinking:  “Get a life,” right?  Fact is, financial reform legislation has been my life since it was first introduced in the House last summer.  Watching the men and women who hold all the cards in shaping the future of our industry and pretend to know something about the banking industry is comical.  Pretending that this bill will somehow prevent the next banking crisis is even more comical.  Not that it is really funny…because it is not.  It is sad.  But one has to laugh just a little bit to keep the senses from overloading with frustration and despair.

I am not even going to pretend that I know where things will finally end up for community banks when the final gavel is dropped and the bill is referred back to each respective chamber for a final vote.  At this writing, things are about as fluid as the BP oil gusher polluting our sacred Gulf.

This much I know is certain:  the final product will be encased with both sweet and sour ingredients for community banks, the consequences of which we will not really know for a very long time.

I have been at this game long enough to know that, as with any massive piece of legislation, it is unreasonable to expect that you can win on every issue in which you have a vested interest.  But IBAT is always in it to win.  After all, community bankers deserve to win, having entered the fray as innocent victims, not bad actors.  And we have won a share.  Of the 26 major issues we have been following, 15 have been resolved to our satisfaction, six have not and another five still hang in the balance.

Despite our important gains, it will be very difficult to stand up and support this final monstrosity with the souring smell lingering from the interchange debate…a debate where our elected officials have determined that the big box stores and other retailers should be given price consideration for riding along the payments railroad.  I can’t wait to get my rebate from Home Depot or Walmart, how about you?  The interchange issue is an issue that never received one hour of public hearings in the House or Senate until it was included in the Senate language.  I simply cannot remember a single federal issue that IBAT expended more time and money on, only to come up on the short end of the final resolution.

Consumers lose big time, too.  Just hide and watch as the industry has to reduce or eliminate lucrative rewards programs tied to debit card usage.  Just wait until such time the Starbucks down the street refuses to accept that debit card for that $3.95 cup of Joe because they have now set a $10.00 minimum purchase requirement.

I am certain that financial reform legislation will be passed in this Congress.  Chairmen Frank and Dodd have vowed to have a bill on the President’s desk before the first bottle rocket lifts off on July 4.

But the sausage making won’t stop there.  In many ways it will just be the beginning for us.  I remember the fallout from the infamous Gramm-Leach-Bliley bill passed many years ago.  We spent the last eight years cleaning up the intended and unintended consequences from that debacle, just as we will with this one.

I think I will stick with the ribs on the ol’ barbie this Independence Day.  I have had enough sausage for awhile.

Posted in CFPA, CFPB, community banks, Consumer Financial Protection Agency, Consumer Financial Protection Bureau, debit card, Dodd bill, Durbin amendment, Gramm-Leach-Bliley, IBAT, Independent Bankers Association of Texas, Interchange, Main Street, Texas Community Banking | No Comments »

The “Rest of the Story” on the Dodd Bill

Monday, May 17th, 2010

We’ve received a number of calls and emails from bankers regarding the present status of the financial reform bill in the Senate, and the strategies being pursued by various trade associations.  Guest blogger Steve Scurlock, IBAT Executive Vice President, provides his observations in this Missing Linc post.

As strange as this may sound, I’ve always been a fan of Kurt Vonnegut, with his bizarre sense of imagination and very unique writing style.  He refers in one of his books to “peepholes,” and how the same situation or event can be perceived differently based upon the perspective of those watching events unfold.

Consider the following observations on the current state of play with the Dodd bill, (S. 3217) as being through my “peepholes…”

The American public is mad at “banks”, and our industry has very much become a political target.  There has been plenty of bad behavior over the years, primarily among the largest banks, both commercial (or “traditional” or whatever) and investment, to incite this anger.  And this economic crisis is the latest in a long saga.  The only possible silver lining?  Community banks are finally being seen as the “good guys” by the lawmakers, the press and the public.  In this environment, we’re pretty happy not to be perceived as “one industry.”  Can’t really imagine how aligning with the giant banks (most of whom have substantial investment banking operations as well) and their ample baggage benefits community banks in the present environment.

Case in point is the Durbin amendment on interchange.  We, along with every other banking trade group, fought this thing as hard as we could.  We spoke with “one voice” . . . community banks, big banks and yes, even credit unions.  I would submit that the abuses of some in the industry no doubt contributed to the passage of this awful amendment, the latest example being the rush by some of the large issuers to raise interest rates and change terms on credit card agreements prior to effective dates of the CARD Act.  The $10 billion exemption is obviously an unworkable scenario and really no exemption at all, but the promise that these provisions wouldn’t impact small institutions was apparently enough to persuade a number of Senators to jump on and support this horribly misguided “consumer” amendment.  Once again, community banks are caught up in the backwash of a “fix” for a problem we neither created nor in which we participated.

By all indications from a wide array of insiders and experts, financial reform legislation is going to pass in some form.  There are Democratic majorities in both Houses of Congress and a Democratic President.  We are in an election year.  The Republicans cannot afford to be painted as the party of Wall Street going into the November elections.

The public and the politicians aren’t mad at Main Street and community banks.  But they’re plenty upset with the antics of Wall Street and the biggest banks in the country.  The Dodd bill went to the Senate floor by unanimous consent (there were no objections) not because of a particular position on the part of any trade association, but because of a political reality that something had to be done, especially in light of the (coincidentally timed?) Goldman charges, the hyper-charged political climate and clamoring by the press and constituents.

We have a choice.  First, we can recognize reality and work to make a bill as good as it can be.  There are some very positive provisions for community banking in the bill, and they didn’t happen by accident.  The change in insurance assessments is a huge win for community banks.  Not for the big banks, who will soon begin to pay their fair share, but for community banks.  Finally addressing too-big-to-fail is a huge win for community banks, who have dealt with an unlevel playing field for way too long in so many areas.  IBAT remains strongly in support of both of these provisions and can do so because we represent our members and only our members.

Or in the alternative, we can just be against moving forward at all.  It’s infinitely easier and sells well to “just say no.”  But in the end, if “no” isn’t a viable option, what exactly has been accomplished?

There is plenty to hate in this bill for everyone.  Please know that the large institutions have substantially more to hate, as is evidenced by recent rhetoric and attacks seeking to lay blame on community banking organizations.

IBAT is on record as being opposed to the passage of the House version, and have made our serious concerns very clear to both our Senators as well.  We have maintained throughout the process, however, that there are some significant changes that need to be made to present law, especially as it relates to community bank competitiveness and fair treatment.  The too-big-to-fail keep getting bigger, the investment banks keep doing what they’ve always done and the community banks get MOUs and C&Ds . . . and more and more regulations and burdens to deal with.

We have great apprehension regarding a number of provisions in both bills, with the CFPA/B at the top of the list.  Unless otherwise directed by the IBAT Board, I don’t see a position other than continued opposition without some very meaningful changes.  We will continue to work with our national association, which has done a remarkable job representing their only constituency, community banks, and others who share our passion to protect community banking interests in this very messy process.

Posted in CARD act, CFPA, CFPB, community banks, Consumer Financial Protection Agency, Consumer Financial Protection Bureau, Dodd bill, Durbin amendment, financial regulatory reform, Goldman Sachs, IBAT, ICBA, Independent Bankers Association of Texas, Main Street, S3217, Texas Community Banking, too big to fail, wall street | No Comments »

It’s Time for Real Financial Reform

Tuesday, April 13th, 2010

Yesterday, the 111th Congress returned from its spring recess, undoubtedly rested and re-energized following the tumultuous and bruising year-long battle over health care reform.  With less than seven months remaining before the mid-term elections in November, the Democrat-led Congress is putting everything on the table, forging ahead with an aggressive agenda that includes financial regulatory reform, a third stimulus “jobs” bill, immigration reform and confirmation of a new Supreme Court justice.

The weeks and months ahead will be trying ones for those of us who care deeply about the banking industry.  Politicians and talking heads will cast aspersions about bankers, painting us all with the same brush and labeling us as “greedy fat cats.”  And yet, if the economic meltdown has proven anything, it’s that two classes of financial institutions exist in this nation; one, the community banks that sustain and encourage growth in Main Street America and, two, the “too big to fail” banks that pose a substantial risk to us all through unscrupulous and unsafe business practices.

With this disparity in mind, we must speak out against “one size fits all” efforts at financial regulatory reform and encourage members of Congress to enact real reform that addresses the sectors of the industry that pose the biggest threat to the American economy.   In order for real financial regulatory reform to be realized, there are four criteria that should be included in any bill sent to the President for signature:

1) End “Too Big to Fail” -  “Too big to fail” is a reality.  We believed, perhaps naively, that businesses succeeded or failed based on the merits of their business practices.  But not the so-called “systemically important” banks.

The bailout of financial institutions deemed “too big to fail” has created a competitive disparity in the marketplace, with the federal government ultimately choosing the winners and the losers.  Meanwhile, 197 smaller community banks have been allowed to fail since the fourth quarter of 2008.  It would take just more than $22 billion to bring all of the currently undercapitalized banks up to minimum capital standards as defined by regulators, contrasted with the $45 billion needed to bail out a single “systemically important” bank, Citibank. 

2) Rethinking how we deal with risk – When a bank fails, it costs millions, perhaps even billions of dollars to untangle that bank’s business dealings and to wind down the operations of that bank.  Under the current system, other banks pick up that cost through the Federal Deposit Insurance Corporation (FDIC).  At this time, community banks account for approximately 70% of the money that goes into the FDIC fund, while multi-billion banks account for just 30% because the assessments on banks are not based on actual systemic risk, just balance sheet objects.  This disparity must be addressed through real deposit insurance reform.  Future assessments should be assessed on assets, not deposits.  After all, it is the assets (loans) that go bad, not deposits!

Further, real reform would involve the creation of a systemic risk fund for the largest financial institutions with more than $50 billion in assets.  Just as you buy life insurance before you actually die, the systemic risk fund would be capitalized by fees charged to every bank over $50 billion, thus making those banks liable for their own systemic risk rather than transferring that risk to all other financial institutions.

3) Totally exempt banks with under $10 billion in assets from the oversight of the Consumer Financial Protection Agency (CFPA)
The CFPA is a classic overreaction by lawmakers who have little understanding of the way that financial regulation works in the first place.  The current economic collapse was not caused by sound business practices used by community banks, but rather by the employment of unscrupulous and unsafe practices in the interaction between large banks and the so-called “shadow banking” industry, which simply over-leveraged its debts to its assets until their house of cards came tumbling down.

The banks that should fall under the oversight of the CFPA are those that pose the biggest threat to consumers and the economy because of their large systemic risk.  These are the banks that did the harm in the first place and those that can most easily threaten the economy if left unchecked in the future.  Subjecting community banks to even greater levels of regulation will do nothing but stifle innovation in the marketplace and increase more red tape and costs to the consumers.

4) Preserve regulator choice
Under the current system, banks have the choice of whether they want to be regulated at the state or federal level.  This choice preserves health in the regulatory arena by providing a checks and balances system as state and federal regulators strive to be fair, equitable and, most importantly, consistent in their oversight of banks.

Despite the recent challenges in the economy, the United States continues to have the world’s strongest banking system, in large part because the system of regulator choice works so well.  Preserving a strong banking system is in the best interest of the consumer and the economy and any attempt to centralize authority of the banking system under the federal government should be recognized for the significant threat it poses to the strength of the industry.

The failures of the banking system cannot be allowed to be repeated.  However, there is a right way and a wrong way to go about creating strong system. The key to getting it right lies in recognizing the essential differences between financial institutions in the United States.

Congress has an opportunity to make it right.  The question is, will they do so, or allow themselves to become mired in partisan battles rather than solving the issues at hand?  They must ensure that the mistakes which led to the current financial crisis are never repeated.  Reform efforts must focus on the area of the industry that is sick, leaving community banks out of the reform rhetoric and allowing them to continue working for real citizens and small businesses in every community.

Posted in bank regulators, CFPA, community banks, Consumer Financial Protection Agency, FDIC, financial regulatory reform, IBAT, Independent Bankers Association of Texas, systemic regulator, systemic risk, systemically important, systemically unimportant, too big to fail | 2 Comments »