Archive for the ‘IBAT’ Category

Election 2010 - Step One

Monday, March 8th, 2010

Election 2010 - Step One
(The Missing Linc is honored to feature the opinions and “color commentary” of guest blogger Steve Scurlock, Executive Vice President for Government Relations, the Independent Bankers Association of Texas)

Each election has its own unique characteristics, and the primary elections on Tuesday were certainly a great example.  Turnout in the Republican primary was roughly twice as high as in past non-presidential election cycles at 11.33% of registered voters, and even surpassed the 10.82% who turned out in the 2008 primaries.  This number was likely impacted by crossover voters attempting to impact the Democratic presidential nomination, but the numbers from yesterday are impressive.  Democrat turnout was substantially lower than 2008 numbers (22.49% of registered voters) at 5.19%.  The crossover vote no doubt had an impact here as well.

Governor Rick Perry and former Houston mayor Bill White cruised to victory - expected for Mr. White, but a significant tribute to the positioning and campaign put together by the Perry team to accomplish this feat.  Senator Hutchison, after leading by double digits in virtually all polling until roughly a year ago (as of November, 2008, a poll had her ahead of Perry by 58 - 30), watched her numbers steadily drop as time went by.  The big question at this juncture is “will she stay or will she go?”  Senator Cornyn laid the table last week with a public comment urging her to stay.  Her presence in the U.S. Senate is especially significant with the recent election of Scott Brown thus breaking the filibuster proof Democrat majority.  “Out of nowhere” TEA Party candidate Debra Medina pulled 18.54% on a shoestring budget and after several “rookie” press blunders.  Should be an interesting several months ahead.

In other statewides, I would be remiss not to mention incumbent Railroad Commissioner Victor Carrillo’s stunning defeat at the hands of David Porter by a 61% to 39% margin.  The IBAT PAC does not deal with the Railroad Commission, and thus did not contribute to these individuals, but we have come to know the members of the Commission through various political events.  Victor is a good man and a conservative, with the strong support of the party and those who work with him.  Mr. Porter may well be a very qualified and likable individual, however the prevailing ”buzz” is that the vast majority of Republican voters had no clue who either of these gentlemen were, most likely no clue as to what the Railroad Commission even does and voted based solely upon last name.  This is an issue for the Republicans, and they need to get it together to be competitive into the future.  Further, it would appear that if one doesn’t know anything about either candidate, the prudent course of action would be to just not vote in that particular contest.  Enough said on that.

In Congressional races, all 32 of our members of Congress are up for re-election, and 14 of those had primary opposition including a number of TEA Party candidates.  All were winners, most by very wide margins.

In the Texas Senate, Jose Rodriguez handily won, filling the seat vacated by Senator Eliot Shapleigh in El Paso.  Mr. Rodriguez won without a runoff, and will face a Republican challenger in November in this 65% Democratic district.  Also of note, incumbent Senator Kip Averitt (who dropped out of the race after the filing deadline due to health issues) in the Waco and northward District 22, still won with 60% of the vote.  The county party chairs will have the opportunity to name candidates for the general election in this 62% Republican district.  Losing soundly in an election is not an enjoyable experience.  Losing big to someone who isn’t actually running must be substantially worse.

All of the 150 members of the Texas House are up for election every two years.  A total of five incumbents were defeated - Betty Brown (R - Terrell, HD 4), Al Edwards (D - Houston, HD 146), Tommy Merritt (R - Longview, HD 7), Dora Olivo (D - Richmond, HD 27) and Tara Rios Ybarra (D - South Padre Island, HD 43).  Three incumbents  are involved in runoffs - Fred Brown (R - Bryan, HD 14), Norma Chavez (D - El Paso, HD 76) and Delwin Jones (R - Lubbock, HD 83).  There are runoffs in six other House races, all either open seats or “other party” challengers to sitting incumbents.

Several races of note.  Longtime friend and community bank director Chuck Hopson (R - Jacksonville) switched parties last Fall, and was not on the “most popular” list with a number of the Republican establishment in his district and they actively campaigned against him.  He soundly defeated two primary opponents (61.22% of the vote) and will go on to meet fellow pharmacist Richard Hackney (D - Bullard) in November in this almost 64% Republican district.

Finally, congratulations to IBAT’s own Curt Nelson, who was elected in a 68.36% landslide as the new Bexar County Republican Chairman!

Posted in IBAT, Independent Bankers Association of Texas, community banks, elections | No Comments »

Looking The Gift Horse In The Mouth

Wednesday, February 3rd, 2010

The New 30 Billion Community Bank/Small Business Initiative:  If you are like me, you shuddered last Wednesday night when you heard the President announce to joint session of Congress the desire for Congress to authorize and pass a new fund for community banks…some 30 billion dollars of repaid TARP to be made available to community banks under 10 billion in total assets for small business lending.  This week, the President laid out the specifics of the plan. 

My initial skepticism centered on three central issues:

 1.    Would the program look anything like the TARP of old and the onerous strings connected with acceptance and repayment?;

 2.    Do community banks really need more liquidity at a time when small business lending demand is lackluster; and,

 3.    What would be the public perception associated with accepting a government stimulus initiative, even one that is meant to benefit small business?

After a cursory review of the program, I must say it is a good start.  The program has no similarities to the troubled TARP program the American public has grown weary of.  We can all thank the Independent Community Bankers Association of America (ICBA) for the role they played in its final design.

 Unfortunately two central issues remain.  One, credit worthy borrowers are scarce and apprehensive to expand inventories and personnel until such time as economic conditions improve.  And second, community banks have deep reservations about accepting any perceived “government assistance.”  These two reasons alone will likely inhibit the program’s acceptance and success.

I am not one to look a gift horse in the mouth.  We should all be grateful that this Administration has come to realize that community financial institutions can play a significant role in America’s economic recovery and is willing to provide financial assistance.  The small business sector relies on the general well being of the local bank as a principal source for their credit needs and it is the small business that fuels job growth to the tune of three out of every four net new jobs created in this country.  And we learned in that same state of the union speech that jobs are priority one of this administration, at least in the short term.

But if the Administration is intent on really stimulating lending to small business via the community banks, two things must happen.  They must encourage the regulators to exercise some forbearance in commercial real estate concentrations and valuations, and relax policies that require these same institutions to increase core capital beyond what has traditionally been regarded as acceptable capital guidelines. A suitable alternative would also provide the legislative means for banks to grow capital.

The facts are these.  Community bankers are passing on good loans to long established credit worthy borrowers to avoid concentrations (and regulatory criticism or enforcement action) in the commercial real estate sector. And how are most small business loans secured?  Owner occupied commercial real estate.

There are too many legislative and regulatory roadblocks prohibiting community banks from growing core capital. Congress should take immediate steps to allow banks, particularly Subchapter S banks (which now number in the thousands nationwide) to increase capital by permitting these institutions to issue a second (preferred) class of stock.  In addition, C corp. banks and S corp. banks can both benefit by changing the onerous accounting rules which require banks to mark real estate to a temporarily impaired market value, thereby artificially depleting capital.

Finally, Congress should permanently change the deposit insurance assessment rules to an asset based formula which would transfer the burden of recapitalization and long term stability of the fund to the systemically important too big to fail banks commensurate with risk.  More capital could be retained by community financial institutions and be put to use in the small business lending sector.

IBAT has been among the leaders in advocating these changes for some time. We must continue our efforts to make our voices heard.  None of these solutions carry the stigma of another government/taxpayer bailout, and provide real stimulus.

I fear this gift horse will never leave the starting gate.  Let’s saddle up and advocate for positive legislative and regulatory change to ensure that many good small business entities will continue to have access to the credit they need and deserve.

Posted in IBAT, ICBA, Independent Bankers Association of Texas, TARP, community banks | No Comments »

Preserving the Dual Banking System

Thursday, May 28th, 2009

Early this month I had the opportunity to hear Treasury Secretary Tim Geithner speak to the ICBA Washington Policy Summit. He was clear in his intent at that time that this administration was in the final planning stages in releasing their recommendations for reconstituting the bank regulatory system.

Yesterday’s Wall Street Journal article by Paletta writes “the new bank regulatory agency could prove controversial because it would consolidate the Office of the Comptroller of the Currency and the Office of Thrift Supervision and strip supervisory powers from the FDIC and the Federal Reserve.” The Federal Reserve would likely be deemed “the systemic regulator” and the FDIC would be relegated to receivership and insurance.

Another set of eyes?

Paletta goes on to report that the Administration has no intent to eliminate the dual banking system and stir controversy among the more than 5,000 state chartered banks. State charters and state regulators would be preserved but a single federal regulatory agency would have jurisdiction rights to examine the state banks and provide what the administration calls “another set of eyes. This approach would also prohibit “financial institutions from “shopping” for the best regulator.

Wait a minute. What would be the point of having a state charter and a state regulator if you also have to open your doors to the new OCC? Our dual banking system has served this country well for decades. One has to ask if this isn’t a back handed approach to create one super regulator for all banks who are systemically unimportant. Charter choice is not about “shopping” for the best regulator. It is about personal choice.

The Administration instead should be focusing on is preserving the existing regulatory structure as we know it and establishing a bifurcated regulatory system by establishing a community bank state or national charter and a commercial state or national charter along permissible banking power activities. Regulatory structure should be commensurate with risk depending on which charter choice you choose. Our current financial crisis was not caused by community financial institutions sticking to basic banking principles. It was caused by large commercial banks that expanded their reach into risky commercial enterprises.

A single federal regulator with jurisdiction over all systemically unimportant national and state banks would destroy, in this bloggers eyes, the dual banking system as we know it. It is not the current system that is broken, just the current one size fits all application of bank regulation.

Let’s all hope the Administration goes back to the drawing board, or in the event they advocate this new plan, Congress will see fit to ensure community banks are not further penalized for the sins of others.

Posted in FDIC, IBAT, ICBA, Independent Bankers Association of Texas, Texas Community Banking, Timothy Geithner, bank regulators, community banks, comptroller of the currency, federal reserve, office of thrift supervision, state bank charter, systemic regulator, systemically important, systemically unimportant, too big to fail, treasury | No Comments »

Battle Won. War May Have Just Begun

Monday, May 25th, 2009

Friday, May 22 was a historic day for the community banking industry.

A collective sigh of relief was heard when word came down shortly after lunch time of the FDIC board action to reduce the proposed special assessment premium to restore the Bank Insurance Fund to 5 bp.  The original proposal was to impose a one time special assessment of 20 bp on insured deposits.

Since late February when the interim rule was put out for comment, the industry has worked vigorously to suggest alternatives to mitigate the countercyclical effect the assessment would have on all insured financial institutions in these challenging economic times.  The industry weighed in with over 14,000 comment letters.

Perhaps most significant for community banks, the Board adopted an asset minus Tier 1 capital basis for the assessment, which would benefit 8,141 community banks and transfer the “lion’s sare” cost of recapitalization to the large mega too big to fail banks who have for far too long escaped paying on certain liabilities. Only 165 banks will pay more under the new assessment base, the vast majority of those are in excess of 20 billion in assets.

Clearly, a great victory for the industry.  But closer examination of the final rule has us all wondering if the war has just begun.  The FDIC board left open the option to assess another 5bp at the end of each of the third and fourth quarters without further public comment.  Further assessments can be levied at the discretion of the FDIC board if they determine that public confidence in the fund is eroding or the fund balance approaches zero.   A bitter pill to be sure.

For now, we will celebrate the action of the FDIC board.  But it is no time to lay down our shields or swords.  Something tells me this is far from over and the added uncertainty only confounds community bank management who are already confounded by having to bear the burden for any of this mess in the first place.

Posted in FDIC, IBAT, Independent Bankers Association of Texas, Texas Community Banking, bank insurance fund, community banks, special assessment | No Comments »

Systemically Unimportant?

Thursday, April 2nd, 2009

It’s like drinking from a fire hose.

Everyday there seems to be a new announcement from Treasury on the latest initiative to restore the financial system. Last week we learned that the Treasury and Administration would like to have visitation rights and new regulations imposed on “systemically” important non-bank institutions.

Soon, the Treasury will announce their plan for regulatory reform of the banking system. They are expected to announce that the Federal Reserve will be the regulator to oversee “systemically important” financial institutions.

I resent the constant reference to systemically important and systemically unimportant financial institutions. I recognize that the government has replaced too big to fail with too big to close or systemically risky to close.

In my way of thinking there is no such thing as a systemically unimportant financial institution, regardless of its size. Community banks after all are systemically important to their communities. Just see what happens to small business agriculture and consumer lending if the local banks goes down. It has a chilling affect on the economic well being of the community for years to come.  Community banks after all, are nothing more than a mirror image of the markets they serve.

Just ask any of the local folks who have seen their dreams realized thanks to their local community bank.

Posted in IBAT, Independent Bankers Association of Texas, Texas Community Banking, business agriculture, community banks, federal reserve, systemically important, systemically unimportant, too big to fail, treasury | 1 Comment »

Rearranging the Deck Chairs

Monday, March 23rd, 2009

By now, I should quit being surprised… surprised at anything the Treasury and the Administration might try to get this country moving again, and their attempt to restore troubled too-big to close (they have failed) financial institutions.  Today’s Treasury announcement of a new private/public partnership to package and auction  their problem assets is case in point.

I am struck by the irony of this announcement.  Is this not exactly what Treasury originally intended to do by creating the Troubled Asset Relief Program (TARP) late last year to clear the balance sheets of the too big to close?  That plan was abandoned almost immediately after its development for fear that purchasing troubled assets from banks would expose the Treasury and taxpayers to paying too low a price for their acquisition.  Instead they opted for direct investments in the banks themselves.

Now they design an almost identical plan with one exception…private investors will have skin in the game alongside the government and they have guaranteed a market price  by allowing for competitive bids by pension and hedge funds and other would be investors.

I commend the Treasury and Geithner for this initiative… in my view it was precisely what was needed all along, the way TARP was originally intended.  Apparently the Street likes it too.  Markets are wildly up in heavy trading today following the announcement.

Finally, we have an action by the Treasury that just might save (at least for now) the sinking ships.  And all along, all they needed to do was simply rearrange the deck chairs.

It is clear that Treasury will do everything in its power to save the too big too close banks.  And once it is evident that they have, let’s hope a future initiative will be to break those suckers up so they can never be too big to close again.

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Posted in IBAT, Independent Bankers Association of Texas, TARP, Texas Community Banking, taxpayer, treasury, wall street | No Comments »

Zombie Banks

Tuesday, March 10th, 2009

The early morning flights always creep me out somehow. There is an eerie quiet about them…businessmen lost in their morning papers; half the plane pretending they can sleep on airplanes. Others like me, working on laptops or looking busy.

This morning I boarded a flight in Austin at 6:00 am en route to DC with several of IBAT’s executive committee members. There has been a lot of talk about zombie banks.  Those are the banks that have already failed but are too big to close. You know, banks like Citicorp. Why is it so hard for bank regulators and politicians to be honest?  To say that ‘Citi has failed, but we just can’t close them because of the “systemic risk” they would pose to the financial system?’ Systemic risk is a fancy phrase for hand grenade…pull the pin on that sucker and watch all  around it to go down. But I digress.

DC is not my favorite place in the world. Oh, I love the hustle and bustle of the city, but trying to get work done in this town is difficult at best. Whoever said “if you need a friend in Washington DC, get a dog,” got it right. This is no place to search for people that care about your problems or your industry’s problems, because solving your problem will likely create problems for someone else. But still, we plug along believing in what we know and have proof of…that government is run by the people that show up.

All community bankers throughout the country are still numb from the events of the past eight months. We watch as the Treasury and the Administration search for answers to the financial crisis, and hope that there is still a place for local community banks when all is said and done.

This latest tremor is one of seismic proportions, and the future of our community banks is at the epicenter. The Federal Deposit Insurance Corporation (FDIC) announced that the insurance fund was running out of money and it would need to tap all banks with an increase to 20 cents for every $100 of insured deposits to replenish. It didn’t take bankers long to do the math…  and for most it would hit their earnings this year anywhere from one-third to one-half. How smart is that at a time when we are trying to get banks to lend again? It is pretty hard to lend money when you have to cough it up to the government so they can bail out the very banks that have depleted the fund.

We’re wondering just how much thought was put into this interim ruling by the FDIC. There are so many other ways to replenish the fund without causing unfair hardship on the only banks that didn’t create this mess in the first place. Sure, bankers, not taxpayers should accept responsibility for replenishing the fund. And we shall. But let’s look at the dozens of alternatives that have already been suggested.  These alternatives would soften the earnings blow to our community banks, the only banks still lending money.  Our community banks played by the rules and made nice while the zombies succumbed to distortion and greed.  Makes us all wonder if there is some sinister plot to make all community banks zombie-like too.

So we shall walk the halls of the Congress spreading the word to anyone who will listen. Our message will be a simple one…yes we have a crisis, but don’t make the community banks irrelevant in the efforts to restore and rebuild the financial system. Small business and agriculture need community banks. Today our country needs them like never before.

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Posted in FDIC, IBAT, Independent Bankers Association of Texas, TARP, Texas Community Banking, bank regulators, zombie bank | No Comments »

Must We Bear the Burden?

Tuesday, March 3rd, 2009

Hello Friends

I have received tons of e-mails and phone calls from you about the FDIC’s announcement last week to increase the assessment on insured deposits by 20 BP… and I totally understand.  What I am hearing is that too many of you are projecting that this assessment would impact somewhere from 30% to 50% of your bank earnings forecasted in 09.

On Monday afternoon, I participated in a conference call with FDIC Chairman Sheila Bair.  The ICBA Board of Directors and other state association directors also sat in.  Chairman Bair told us the FDIC rationale of the assessment, with some detail, and also explained all the other options that were available to the FDIC Board before they took that vote.  I found this session very productive with a lot of questions answered.

This week I am meeting with the IBAT Board of Directors in Dallas to consider options for mitigating the negative earnings impact on our member banks.  And I must reiterate here, what upsets me the most is our banks are not the banks that caused or in any way contributed to the irresponsible practices of the Wall Street banks.  I think we all can agree that our banks, the Texas community banks, should not be penalized by this unbearable FDIC assessment.

I still need your imput too.  I’m asking for your suggestions.  We need collective action options for the IBAT Board to consider.  And please share with me what you have determined to be the potential financial impact of this 20 BP assessment on your bank.  You may do so by simply commenting to this blog or by emailing me at cwilliston@ibat.org.

Remember that the FDIC vote take last Friday was an interim decision that has been left open for comment for the next thirty days.  I am moving quickly, with your IBAT Board, to determine appropriate steps on behalf of all of you.  So please post your feedback and let me know what you have determined the impact to your bank will be from this decision.  If you have already taken the time to e-mail me, then don’t post a comment here.

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Posted in FDIC, IBAT, Independent Bankers Association of Texas, TARP, Texas Community Banking, bank regulators | No Comments »

Real Hope For A Change

Wednesday, February 25th, 2009

Hi friends:

There is nothing like getting out in the real world to gain real perspective relative to what is really going on in with the economy across Texas.

I am in Day two of the second round of regional meetings with chief executive officers and other senior personnel of community banks.  IBAT Chairman Milton McGee and I will see over 625 bankers in Austin, Shiner, Corpus Christi, Houston, the Rio Grande Valley, Longview, Sulphur Springs and Dallas this week.

I have to tell you I sense an incredible spirit of optimism about the financial events of the day despite the constant media battering that continues to spread a word of doom and gloom and pessimism.  True, it is not all Pollyanna… but community bankers have seen this all before having lived the hard times of late 1980’s which fell disproportionately on our great State.

What’s different this time is the diversification of the Texas economy.  We are not reeling from hyper-inflated real estate values and energy prices, and agriculture meltdowns. There is clearly a softening of credit demand, but community banks in Texas are liquid and ready to lend and help their customers through these challenging times.  We don’t need the government to tell us to lend.  Community bankers do it intuitively as they know they must do to leverage their resources and generate a decent return for their shareholders.

Everyone acknowledges that there will be bumps along the way.  But community bankers have always had one strategic competitive advantage over their mega bank competition…they know their customers and their communities.  If there is pessimism and anxiousness, community bankers fear the backlash of bad laws and government overreaction to fix everything by imposing new levels of regulation that will do nothing but stifle their ability to do what they do best…serve the customer.

I’m confident that community bankers will lead the recovery if government will just get out of their way.  That’s the message we are hearing and so it is our responsibility to spread the good word of optimism and hope.

And so we shall.

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Posted in FDIC, IBAT, Independent Bankers Association of Texas, TARP, Texas Community Banking | No Comments »

Jumping on the Bandwagon

Monday, February 23rd, 2009

Hi friends.  Welcome to my inaugural blog, The Missing Linc.

The name was chosen to honor my Dad, a journalism major at the University of Illinois who penned a daily sports column by the same name for the The Daily Illini newspaper.

I have yet to determine the frequency of this missive.  I have determined the content, however.  I will focus on observations and opinions of the U.S. financial system, and of course, implications for community banks.  And so we begin.

I’m a talking head TV  junkie.  Call me strange, but I get jazzed by listening to opinion news programs that weigh in on the events of the day.  Few are “fair and balanced” as they claim to be so often I opt for PBS or National Public Radio. At least they don’t talk over their guests and actually allow them to answer a question or two.   But lately, I have about had it with all of them.

They would have us all believe that this country is going to hell in a handbasket and that all banks are in trouble and in need of a bailout.  True, some are…the too big to fail banks that started all this mess with their risky and greedy subprime tendencies.  But all banks are not created equal.

The nation’s 8,000 community banks for the most part are alive and well and doing what they have always done…lending to small business and agriculture and hometown folks that they know.  And while some community banks (about 400 to date)  have taken government money made available to all banks, they did so to put back to work in their local communities, not because they needed it to survive. Spurring lending activity was precisely what the Treasury, the Administration and the Congress were hoping they would do.

Now I am not blind or naive to believe that this nation has not fallen on tough times.  Nor do I believe that all community banks will survive in this financial environment.  But I am confident that most community banks are healthy and better positioned to withstand the current storm.  The community banks will lead us out of this crisis so long as they are not painted with the same brush by bank regulators, news media and lawmakers.

All of us just need to keep perspective, and interject some optimism about the future of this country and putting our faith and trust back into our local communities and local financial institutions on Main Street.

But mostly, we all need to stay off  the media bandwagon of doubt and despair and  trust the American Spirit and the American Free Enterprise system….the greatest economic engine in the world.

Posted in IBAT, Independent Bankers Association of Texas, Texas Community Banking, bank regulators | 6 Comments »