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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 »

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 community banks, elections, IBAT, Independent Bankers Association of Texas | 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 community banks, IBAT, ICBA, Independent Bankers Association of Texas, TARP | 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 bank regulators, Barney Frank, community banks, Consumer Financial Protection Agency, FDIC, ICBA, Independent Bankers Association of Texas, special assessment, systemic regulator, Texas Community Banking, 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 bank regulators, community banks, comptroller of the currency, FDIC, federal reserve, IBAT, ICBA, Independent Bankers Association of Texas, office of thrift supervision, state bank charter, systemic regulator, systemically important, systemically unimportant, Texas Community Banking, Timothy Geithner, 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 bank insurance fund, community banks, FDIC, IBAT, Independent Bankers Association of Texas, special assessment, Texas Community Banking | No Comments »

Breaking Up The Behemoths

Thursday, April 23rd, 2009

“And David strikes Goliath in the head with a stone from his sling; the Philistine fell on his face to the ground. “

It was music to all community bankers ears this week to hear three respected economists, one a 2001 Nobel prize recipient, tell a Joint Economic committee of Congress to break up the too-big-to-fail institutions and disassemble the oligarchy they have created. I say Amen, too.

Breaking up the behemoth banks would mean recalibrating the disproportionate influence they have had on public policy. Translated for community bankers…a bifurcated banking regulatory system just might be within our reach. Community bankers are tired, and rightfully so, for paying for the sins of Wall Street in the form of higher FDIC insurance costs, and their owned tarnished credibility in the eyes of the general public and lawmakers.

There are obvious immediate benefits that will accrue to all community banks if Congress has the guts to set about a systematic plan to break up the big banks. Deposits will funnel back to local communities where they were extracted and rightfully belong into the hands of the more than 8,000 community banks to be put to work for the local folks. More money will be available for small business and consumers.

But perhaps the most significant benefit that could result from this is a reduction of the many hidden costs of regulatory burden…a burden that has most community institutions drowning in cesspool of paperwork.

Last month I heard one of the more sensible solutions to reducing the regulatory burden on community banks. It was sensible to me because it is precisely what my colleagues and I have been advocating for the past ten years. And, it came from a bank regulator no less. He advocated that two charter types should be created; one a commercial charter for those institutions that choose to venture out of traditional banking services into exotic and risky product lines, and a community bank charter for those institutions that wish to operate more on traditional banking product and service lines. Each would be subjected to different regulatory and examination specifications proportionate to risk.

We are a long way from realizing the dream that one day community bankers would be rescued from over regulation…regulation that has largely been created thanks to the greed and corruption of the mega banks. The testimony of the three economists this week however was a good start. It is nice to see that someone is hurling the stones precisely where they need to be hurled.

You never know when one just might bring the mighty behemoths down.

Posted in bank regulators, default category, FDIC, federal reserve, Independent Bankers Association of Texas, systemically important, systemically unimportant, TARP, taxpayer, treasury, wall street, zombie bank | 1 Comment »

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 business agriculture, community banks, federal reserve, IBAT, Independent Bankers Association of Texas, systemically important, systemically unimportant, Texas Community Banking, 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.

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