Archive for the ‘financial regulatory reform’ Category

The Good and Bad of a Fully Functional CFPB

Tuesday, January 17th, 2012

Over the past two weeks, copious amounts of ink have been spilled about President Obama’s “recess” appointment of Richard Cordray, the Director of the Consumer Financial Protection Bureau (CFPB).  Although the Justice Department has issued a statement alleging the constitutionality of the appointment, it is inevitable that legal challenges will soon be filed and drag on for the foreseeable future. 

Since the Dodd-Frank financial reform law was passed more than a year and a half ago, I’ve heard from a number of community bankers who identify the creation of the CFPB as their single greatest concern arising from the law.  To be sure, their concerns have merit.  The CFPB’s power will not be limited to the biggest financial institutions. The rules they write have the potential to stifle product innovation and increase regulatory costs on community banks.  All of this without any oversight from Congress.

But, as in almost every story, there is some potential for good.  The naming of a Director for the CFPB means that the most abusive and unregulated entities providing financial services to consumers are now subject to the bureau’s rulemaking authority.  Payday lenders, private student lenders and other financial intermediaries who have been preying on the poor, unadvised and unsuspecting of our society will soon be reined in by the CFPB’s authority. 

The unscrupulous behavior of these entities has done more harm than good in the name of providing “service” to consumers.  If the CFPB can provide any assistance in ending or limiting the abuses they perpetuate then I believe we all have reason to celebrate.

As this takes shape community banks have an opportunity to distinguish themselves.   We know what it means to serve customers, understanding their financial needs and seeking solutions to help them meet their goals.  Community banks are built on the bedrock of long-term relationships, not short –terms profits.   

Only time will tell what the future holds for the CFPB and how the agency intends to implement “tiered regulation” and resist  the temptation to promulgate rules to fit all institutions as Director Cordray has promised. But as the banking industry looks to the uncertain future, we have the power to influence our lawmakers and the CFPB itself to enhance the bureau’s potential to do good. 

The recent appointment of Robert Cordray is the subject of a recent Op Ed IBAT is currently distributing to publications around the state.

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Posted in bank regulators, Barney Frank, CFPB, community banks, Consumer Financial Protection Bureau, Dodd bill, financial regulatory reform, IBAT, Independent Bankers Association of Texas | No Comments »

Getting the ‘Right People on the Bus’ Means Throwing Big Banks Off

Tuesday, January 3rd, 2012

In his December 20, 2011, American Banker editorial, “Community Banks Should Ask for a Divorce,” Robert H. Smith summarizes the growing frustrations of community bankers today in this way:

Unfortunately the community banks of this country are thrown under the bus by just being a bank.  They have been unable to disassociate themselves from extra costs and lost credibility resulting from the scarred reputation of the bigger banks. Today the community banks are subject to the same increased regulatory burden, increasing capital and general public disdain as the larger bank. It’s time for community banks to disassociate themselves from the big banks in the eyes of the public, the legislatures and the regulatory community. They must seek regulation under a different set of expectations, consistent with their size, capabilities and ability to compete consistent with community opportunities.

Smith, a former Chairman and CEO of Security Pacific Corp., now founder and director of a community bank in Newport Beach, California, “gets it.” Having made a living in a “too big to fail” bank and now having to survive and compete with Security Pacific’s acquiring institution, Bank of America, Smith conveys the mounting uncertainty of the future of community banks in a post Dodd-Frank era.

What’s perplexing to me is the inability of so many of Smith’s community banker comrades to recognize the reality of the financial service marketplace today. For more than 100 years, community banks and big banks have coexisted serving different market segments with virtually the same product mix.  Community banks relied on the larger banks for traditional correspondent relationships seeking help with loan participations and clearing needs. And while some of these relationships still exist today, most have gone by the wayside with the emergence of community “bankers banks” and other larger community bank correspondent relationships. Today, the systemically important to big to fail institutions have come to rely on community banks for one thing and one thing only…their credibility and grassroots relationships with lawmakers.

Make no mistake; the big banks are taking a ride on the community bank advocacy bus in Washington and throughout state legislatures all across the country. They hide like thieves in the night behind the goodwill and unified message of the community banks proclaiming “one industry voice” as the only means to a successful legislative and regulatory end. And look where that has gotten us…a “one size fits all,” over-regulated world and a growing public perception that a bank is a bank, all of us out for personal enrichment and public deception.

In his bestselling book, “Good to Great,” Jim Collins says this about the philosophy of great companies:

They start by getting the right people on the bus, the wrong people off the bus, and the right people in the right seats. And they stick with that discipline—first the people, then the direction—no matter how dire the circumstances.

The same rings true for industry success. It is time community bankers to throw the “too big to fail” off our bus. Community bankers should finally unite as one and support only those organizations whose philosophies and advocacy match precisely their needs and is not conflicted by having to serve two masters. Or as Smith concludes:

The community banks should work to convey a message that they should and must stand alone if they are to remain. They must be divorced from the larger banks both in reputation and regulation if not name.

It only took Kim Kardashian 72 days to realize that her union with Kris Humphries was not a marriage made in heaven. As we begin this New Year, let’s resolve that we have tied the knot with the too big to fail for far too long and vow instead to pull our own wagon by bifurcating and advancing our own legislative and regulatory agenda and pursuing and preserving our own good name.

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Posted in bank regulators, community banks, Compliance, financial regulatory reform, Independent Bankers Association of Texas, Texas Community Banking, too big to fail, wall street | 3 Comments »

Time To Stop Over Regulating the Innocent

Monday, August 15th, 2011

Well, I have had just about enough of “the banks aren’t lending money” crap.  Everywhere I turn I read about the so-called credit crunch and small business just can’t get the resources it needs for expansion.

Let me see if I can help out the media with this “problem.”  First, if you have a true creditworthy borrower who is seeking funds to expand their established, cash flowing profitable business, call me.  I can put him or her in touch with about 6000 independent community banks that would love to have a good earning asset on their books.

Second, call Christopher “I am now a lobbyist for the motion picture industry” Dodd and Barney Frank.  They, by virtue of their so called Financial Reform legislation, have created such trepidation and doubt and red tape that many community banks are hesitant to lend to marginal customers.  Their Dodd-Frank legislation has so empowered the federal regulatory agencies (including new ones) to conduct “witch hunts” on the industry.  In this economic environment, Congress has blamed the regulators for the financial crisis for not being “tough” enough.  The regulators in turn have unleashed their wrath on the industry with a “we’re going to getcha” mentality.  Community bankers are scared to death to lend.  You would be too if you had already been judged guilty until you could prove yourself innocent.

Hell, even the Department of Justice has gotten into the game.  Examiners looking at hundreds of loans on the books might discover a fair lending discrepancy in a rate charged one borrower vs. another for almost identical loans.  Forget about the fact that one of the borrowers might have a lower FICO score than the other…Justice Department referral.

Want to solve the so-called credit crunch and get this country moving again?  Find a few members of Congress with the backbone to reverse the horrible trend of over regulating the innocent and set their sights on the big bank abusers.  It is ludicrous to think that the same regulatory rules should apply to a 100 mm community bank and a 100 billion mega bank. 

If something is not done soon to reverse this horrible regulatory overkill trend, I’ll show you a real credit crunch when all the independent community banks throw in the towel and sell, leaving all the small business and consumer credit decisions to the big banks.

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Posted in community banks, Dodd bill, financial regulatory reform, IBAT, Independent Bankers Association of Texas, Lending, Loans, Small Business Lending, Texas Community Banking | 3 Comments »

IBAT’s July Vlog

Wednesday, July 6th, 2011


Featured this month:

Posted in bank regulators, community banks, financial regulatory reform, IBAT, Independent Bankers Association of Texas, Leadership Division, Texas Community Banking | No Comments »

The Certainty of Uncertainty

Friday, September 3rd, 2010

 Congressional recesses are a godsend.  But this one is particularly special.

 Having been on the forefront of the financial reform debate in Congress for the past sixteen months, this August has been a welcome reprieve from the many trips to our Nation’s Capital and hours spent on the phone with Texas Congressmen and staffers.  It is also gratifying to know that it is more difficult for Congress to do more harm when not in session.  But more important than that, the lull has provided time to step back and reflect on recent legislative events, retool for future sessions and reconnect with IBAT members all across Texas.

There is a recurring theme that I hear from community bankers when asked about their thoughts on the recently passed Dodd/Frank Act.  That is, they don’t know what they don’t know.  Most all can see both the immediate benefits and the detrimental impact the Act will have on non-interest income and expense.  Almost all gird for what they can already see…more and more government regulation and intrusion to serve their customers and communities in ways they are accustomed.  Perhaps most disconcerting of all, they question the relevance of their institution once an onslaught of new consumer rules are promulgated by an empowered oversight agency that is yet to be created.

The number one strategic issue facing community bank CEO’s today is compliance.  That has been supported in survey after survey IBAT has conducted over the past six years.  When asked what circumstances might likely lead to the sale of their bank, the price offered is always listed first.  Sadly, the cost and burden of compliance is number two.  Not competitive or capital pressures, but the cost and certainty of compliance today and the uncertainty of additional compliance tomorrow.

Community banks today already spend nearly twenty five cents on every dollar on compliance costs.  It is estimated that the industry will spend nearly 50 billion dollars in 2010 on such compliance.  Every dollar spent on compliance not only raises the cost of lending and services rendered to the very people such rules are designed to protect, but diverts precious capital that can be used for credit availability.  All the while government bureaucrats wonder why this economy is slow to recover.

I am not confused about what we must do if we are to sustain community banking as we know it today and to create an environment that will attract shareholders to invest more capital in existing institutions or new investors to charter community based financial institutions.  First and foremost we must bifurcate this industry to create by legislation different rules and regulations for bona fide community banks vis a vis the large non traditional institutions.  Second, we must engage and be uncompromising in communicating our concerns as new consumer rules are being created.  And finally, we must provide new tools and assistance to our member institutions that will help all cope and reduce the overall cost of compliance.

In other words, we must create certainty in this uncertain financial world; certainty that someone is available to help with real solutions so community bankers can continue doing what they do best…serving local communities by helping local folks realize their dreams rather than the uncertainty of acquiring more resources and generating more paperwork to serve the government.

This is our challenge.  The future of community banking is dependent upon our leadership and action.

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Posted in community banks, Compliance, Dodd bill, financial regulatory reform, IBAT, Independent Bankers Association of Texas | 1 Comment »

A House Divided

Friday, August 20th, 2010

I read with interest the perspectives offered to the membership of the Texas Bankers Association by its chief paid executive, “Someone has to be lying!”, and 2010 volunteer Chairman, “Did you get a carve out?”, in the current issue of Texas Banking magazine (August 2010).  Both offered rather dramatic observations of the recently passed Dodd/Frank bill and its likely effect on community banks and the industry as a whole.  More specifically, the authors elected to confuse bankers with the notion that the Independent Community Bankers Association of America (ICBA) and (by inference) its state affiliates (including IBAT) were to blame for the bill’s harmful provisions by engaging and negotiating in the political process rather than standing with TBA in total opposition to the bill.

Assertions were made that the final bill was made worse by the industry being divided relative to positions important to community banks, and had the industry only spoken clearly with “one voice” a far better outcome would have likely been achieved.  To both I say, “hogwash.”

Big banks and community banks aren’t a house divided; they are two different houses.  However, when placed under the same roof, they do become the proverbial house divided.

No one would argue the fact that the final bill that passed contained many harmful provisions to banks both large and small.  But to suggest that the best strategy for the entire industry was to disengage and oppose does a disservice to the very bank members they purportedly represent, and hides the true issue of the very real dilemma that any conflicted membership trade association has today…that is, it is impossible to serve two masters.  The truth is that many community bank friendly provisions of the measure could not be supported by these organizations lest they be seen as favoring one contingency of their membership over another.

This industry conflict was not newly discovered with the introduction of the Dodd/Frank financial reform bill.  It was recognized some thirty-six years ago when 254 forward looking, progressive community bankers organized the Independent Bankers Association of Texas.  They realized that, as the industry continued to evolve, the political and regulatory interests of the community banker would not be fairly represented, yielding instead to policy positions of the large national and regional banks.  After all, they concluded, the day would come when some large dues paying financial institution votes would be more equal than others.

And boy, were they spot on.  It has been played out hundreds of times in the halls of the Texas Legislature and United States Congress since that time and it will again.

I for one am proud to work for an organization where black is black and white is white.  We don’t have to second-guess positions on important pieces of legislation.  We do not have to look over our shoulder and wonder if we are picking winners and losers in our own ranks or disengage from the process because of conflicted interests.  We do speak forcefully with a single voice…the community bank voice.

IBAT’s founding fathers did not create this organization to sit idly by and watch the community bank franchise erode over time.  That commitment is shared by the many IBAT volunteer leaders who give selflessly of their time and talents and it is the cornerstone of the principles we embrace today and tomorrow.

I am not one to tear down someone else’s house to make mine look bigger.  I don’t have to.  A house divided cannot sustain itself over time.  It will collapse on its own.

Posted in Barney Frank, community banks, Dodd bill, financial regulatory reform, IBAT, ICBA, Independent Bankers Association of Texas | 10 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 »