Archive for the ‘ICBA’ Category

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 »

One Voice - A Community Banking Voice

Friday, July 31st, 2009

There are some bankers that believe our industry would be better off politically with a single, unified voice.  One does not have to venture any farther than the halls of Congress to dismiss that belief as a tired old myth.

Who, after all, wants to shackle their hands and ankles to the “too big to fail” banks and their unregulated affiliates and subsidiaries and jump off the 14th Street Bridge into the Potomac?  But that’s precisely what some bankers and their trade associations would have you do; dismissing the efforts of the community banking lobby as nothing more than a “distraction” and chastising us for our divide and conquer mentality to protect our unique interests. They would go as far as making claims that a unified industry with a unified message is the only true way to move a political football.

Tell that to Barney Frank, Chairman of the House Financial Services Committee.  In a recent Washington Post article describing how community banks are central to the current regulatory reform proposal, Chairman Frank describes the big bank lobby this way:  “The larger financial institutions have the opposite of political clout today.  They’re radioactive. The only way the big banks can win is if they get the community banks to be their troops.”  And the Chairman is not unique in his views.  Texas’ Congressional delegation understands it too.  I know because I hear it in every office we visited in Washington this week and every time we make calls in the wake of this whole economic mess.  “You guys are the good guys in the industry,” they tell us.  “We would like to find a way to make sure we don’t disenfranchise the community banks as we debate this.”

The current Obama regulatory reform proposal is enough to scare the crap out of any of us.  All we need is another regulator to get a broad legislative mandate to regulate products and services in the name of consumer protection, relegating us to “cookie cutter” and “plain vanilla” products and services.  That proposal, courtesy of the unregulated “shadow” banking industry would translate into nothing more than socialized banking designed to eliminate customer convenience and choice while raising costs. That’s not how the greatest economic system in the world has evolved, nor how it will be strengthened in the future.  You can bet if we can carve community banks out from under this Consumer Financial Protection Agency, we damn sure will do it.

So don’t tell us to get in line and leave the lobbying to groups that have divided interests and hope that somehow you will fairly represent the interests of community banks.  We didn’t cause this mess and we are tired of helping the big banks clean it up in the form of higher regular and special FDIC assessments, suffocating new regulations and bad industry public relations.

We will continue speaking with one voice…a community banking voice.

Posted in Barney Frank, Consumer Financial Protection Agency, FDIC, ICBA, Independent Bankers Association of Texas, Texas Community Banking, bank regulators, community banks, special assessment, systemic regulator, too big to fail, wall street | 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 »