NorthWesternFinancialReview.com Blog

Charles Stones, president of the Kansas Bankers Association, used strong language to communicate his concern for the banking industry in light of additional regulations coming into effect. Stones was one of several people to testify at a field hearing August 23 in Kansas City, conducted by U.S. Rep. Dennis Moore (D-Kan.) chairman of the subcommittee on oversight and investigations for the House Financial Services Committee. Stones said a preponderance of new rules is going to drive many banks out of business:

Traditional banks feel the burden of regulation. For the typical small bank, more than one out of every four dollars of operating expense goes to pay the costs of government regulation. The passage of the recent financial reform legislation, which includes a new consumer financial protection bureau, will certainly add to the regulatory burden now faced by banks. In addition, the past year has seen a multitude of new regulations, from RESPA to Reg E. These new regs are taking a toll on banks, especially traditional community banks. For instance, the new RESPA rules are causing many banks, especially in rural areas to reconsider their participation in residential real estate lending. The question is: who will pick up the slack in these areas if the local community bank exits that market?…

These new regulations and laws are putting, and will continue to put, a huge amount of pressure on the earnings of banks. From exponential increases in FDIC premiums to the new laws and regs mentioned above, one consultant put it very succinctly, “Banks will have a harder time making money in the future.” This will inevitably drive banks to consolidate. Again, who will fill the void in small town Kansas if the current local bank decides it can no longer make a fair profit, and closes? It is time for Washington to realize that traditional banks have economic value in this country. It is not enough to say the words, it is time that policies, laws, rules and regulations begin to demonstrate that fact. Actions speak louder than words.”

Stone took particular aim at the Consumer Financial Protection Bureau and Reg E:

We believe that the CFPB will actually hurt consumers. A study by David Evans and Joshua Wright showed that “Under plausible yet conservative assumptions the CFPB would increase the interest rates consumer pay by at least 160 basis points, reduce consumer borrowing by at least 2.1 percent, and reduce the net new jobs created in the economy by 4.3 percent. The unintended consequences will hurt everybody while only protecting a very small few.

Evans is Lecturer, University of Chicago Law School; executive director, Jevons Institute for Competition, Law and Economics; and visiting professor, University College London. Wright is assistant professor, George Mason University Law School and Department of Economics.

And this is only the start… the unintended consequence of new very strict RESPA rules will likely be the departure of many small banks in rural areas from the residential real estate market. The result will be that many consumers will be unable to secure credit purchasing a home in rural areas of Kansas from a local bank. They will be forced to go out of market, if they can. Most non-bank lenders are unfamiliar with rural area and the low volume makes rural areas unattractive to those types of lenders.

 

Yesterday, I noted a comment by ICBA President/CEO Cam Fine aimed at Iowa Bankers Association Chairman Roger Claypool, who is president and CEO of First National Bank in LeMars, Sioux Center and Sioux City, Iowa. When I read John Sorensen’s column in the July 30 Exchange, I wondered whether he wasn’t defending Claypool by taking his own little shot at Fine. Sorensen is the IBA President and CEO, and the Exchange is the IBA newsletter.

Writing about the ceremony where President Obama signed the recently passed Dodd-Frank Act, Sorensen wrote: “The President’s signature was followed by a healthy applause from the exclusive guest list in attendance. I hope any financial services representatives present went no further than a polite golf clap. They should save their strength for the regulatory work to be come.”

Fine attended the July 21 ceremony, while ABA President/CEO Ed Yingling stayed away. Here’s the press release ICBA published about Fine’s attendance. And, here are Yingling’s comments about why he wasn’t at the signing ceremony. Clearly, Sorensen is referring to Fine. Too bad there’s nothing in the ICBA press release about how vigorously Fine clapped!

ICBA President/CEO Cam Fine took exception to something Iowa Bankers Association Chairman Roger Claypool wrote in his column that appeared in the July 16 edition of the IBA Exchange (it appeared earlier on line). The column was mostly a reprint of this ABA memo to community bankers. Fine was “irked” by point No. 11, in which it says that raising the Deposit Insurance Fund minimum ratio to 1.35 from 1.15 sets a “precedent to use premiums as a revenue raiser to support other government spending programs.”

Fine, who spoke to members of the Community Bankers of Iowa via speaker phone on July 15, said: “That’s a lie. I don’t know if they don’t know their history or if they were intentionally trying to mislead you. But the FDIC premiums have been on the unified federal budget since 1967… In 1967, President Lyndon Johnson placed the FDIC on the unified federal budget to reduce the deficit so he could hide the cost of the Vietnam War. That’s a true story, that’s fact. Look it up.”

Fine further went on to explain that Congress puts things on budget or holds them off budget all the time to achieve their desired political purposes. Putting the FDIC on the unified federal budget makes the deficit look smaller, and keeping Fannie and Freddie off the budget, he noted for further example, keeps the deficit looking smaller. “It’s all politics, folks,” he summarized.

Fine, of course, is right, but ABA also has a point. The precident is not that the DIF balance will count toward the budget, but that its statutory minimum is being increased by Congress for purposes other than protecting bank deposits.

The integrity of the Deposit Insurance Fund is something to be concerned about. Although the FDIC always has existed in a political environment, deposit insurance has enjoyed overwhelming public support; the public views the FDIC as a credible, reliable agency. The more politicians play with the fund, the greater risk they run that the public will wonder about the integrity of the fund.

Moving the minimum ratio up is actually one of two moves in the Dodd-Frank Act which further politicize the DIF. The other is the move toward the asset-based formula on premiums. Proponents of the switch often say “deposits don’t fail, assets do.” But the fund doesn’t protect assets. It would be more pure to keep the formula centered on deposits. Nonetheless, I understand the reasons for going to an asset-based formula and I think an asset-based formula can be credible also, but it definitely is more political.

I am sure the public trusts the government on these two counts and will continue to respect deposit insurance for what it is, but how far can you push the public? I think that is a question worth contemplating. Further politicization of the deposit insurance system may erode the credibility behind the system, and that would be bad for everyone.

Congratulations to Tom Olson, president of the Lisco State Bank in the Western Nebraska community of about 100 people, who will be honored with the American Banker’s Association’s Bruning Award at the annual North American Agricultural Lenders Conference Nov. 7-10 in Omaha.

The award recognizes a banker who who has made significant contributions to agricultural banking over the course of their career and lifetime. That certainly describes Olson, who began working in 1960 at the bank his father started. Today, Olson still works at that bank, in addition to other banks he operates in Nebraska and Colorado. If you drive by the bank in Lisco anytime between 6:30 in the morning and 7 at night, you are likely to catch him in the office.

We featured Tom Olson on the cover of NorthWestern Financial Review in 1987, when he became president of the Independent Community Bankers of America. He has long been active in the industry, always advocating for community banks, particularly those located in rural areas. Mr. Olson is very very wise and I always look forward to visiting with him whenever I go to one of the industry meetings in Nebraska. I am always impressed by bankers who remain engaged in the industry long after they could have retired. The industry needs experienced elders, and Mr. Olson is among a select group of bankers who is filling that role.

The Dodd-Frank bill will be signed into law and there is an interesting debate about whether that is a good thing or a bad thing for the industry. The point of view I pick up from people affiliated with the ABA is that it is a bad thing. The feeling is we could have done better. Sure, there was going to be legislation, that was certain. But the legislation could have been a lot better for banks.

The point of view I pick up from people affiliated with the ICBA is that it is a good thing. The feeling is this bill is as good as we could have done. There are a lot of carve-outs and exceptions for smaller banks which make the legislation palatable.

Cam Fine, ICBA President/CEO, spoke by telephone to bankers in Iowa on Thursday. He told them that if Congress failed to pass a bill this time around and had to take up financial reform legislation in the future, he highly doubts it would be willing to grant many of the things that make the current bill tolerable — things like the continued supervisory role of the Federal Reserve, the continued ability to count trust preferred securities as Tier 1 capital, the carve-out on CFPA exams for banks with less than $10 billion in assets, and the new asset-based formula on FDIC premiums.

As the Senate was taking its vote on Thursday morning, the ABA opposed the bill and ICBA was neutral. Jim MacPhee, ICBA chairman, explained that his organization could not support the bill because of its negative provisions, particularly its impact on interchange fees. However, the ICBA did not want to oppose the bill because it didn’t want to disregard the help it got from other interested parties that helped it achieve many of the positive provisions in the bill. “If you oppose it, you throw everyone under the bus,” MacPhee, a Michigan banker, told about 125 bankers in Okoboji.

If you read the statements both groups published on Thursday afternoon, you see they both expect a lot of work in the coming months and years in the rule-making process where much of the about-to-be-signed bill will be articulated.

The Dodd-Frank Wall Street Reform bill awaits the president’s signature now that the Senate has passed the historic legislation. Here is some of the reaction:

From ABA’s Ed Yingling:

“The American Bankers Association is very disappointed with the regulatory reform bill that is now headed for enactment.  While its core provisions provide needed reform, it is overloaded with new rules and restrictions on traditional banks that did not cause the financial crisis.  The result will be over 5,000 pages of new regulations on traditional banks and years of uncertainty as to what the massive new rules will mean.

“Its impact will be felt not only by the banking industry itself, but by the millions of consumers and businesses that rely on financial services every day to meet their saving, borrowing and financing needs.  It will also, by extension, have a considerable impact on the broader economy and the capability of traditional banks to provide the credit needed to create jobs and drive economic growth.

“The Dodd-Frank Wall Street Reform and Consumer Protection Act does contain some key reform provisions that bankers have long supported, including creation of a new systemic regulatory body, a new process for ending the concept of too-big-to-fail, better consumer protections, and provisions designed to rein in the shadow banking system. 

“Implementation of this legislation will be challenging for regulators, and we stand ready to work with them to ensure that they have the information they need to make certain that the regulatory process is carried out as effectively and efficiently as possible.”

From the ICBA:

Independent Community Bankers of America (ICBA) Chairman Jim MacPhee, CEO of Kalamazoo County State Bank in Schoolcraft, Mich., and Camden R. Fine, ICBA president and CEO, issued this statement today following Senate passage of the financial reform bill.

“This financial and economic crisis clearly demonstrates that reform of Wall Street is needed to prevent this kind of catastrophe from ever again harming our nation’s taxpayers and our communities. While ICBA still vigorously disagrees with some sections of the final bill, the Dodd/Frank Act does create an important precedent that recognizes two distinct sectors within the financial services spectrum-Main Street community banks and Wall Street megabanks. 

“Important ICBA-advocated wins in the bill such as changes in the FDIC assessment base, stricter oversight of too-big-to-fail institutions, and the inclusion of non-bank financial firms under consumer compliance regulations will save community banks money and allow them to better compete, serve their communities and promote economic growth in their markets. Also, the bill contains important concessions for community banks, including protection for trust preferred securities and an exemption from paying higher FDIC premiums to increase the minimum size of the deposit insurance fund.  These and several other concessions establish the congressional policy for tiered regulation that recognize Main Street community banks as having a different banking model from large and internationally active institutions.    

“After the President signs this bill into law, ICBA will work to fix problem provisions in the legislation and minimize any additional burdens on community banks as regulations are written and implemented so community banks can continue to serve the needs of their local customers and do not continue to pay the price for an economic debacle they did not cause.” 

From Neil Milner of the the Conference of State Bank Supervisors:

The passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act reaffirms the importance of the dual-banking system-a system that has existed for nearly 150 years.  Just as in previous reform efforts, the dual-banking system has emerged from the debate wholly intact, refuting the claim that the structure of our financial regulatory system somehow came about by accident.  Congress once again made the deliberate decision to reject proposals that threatened to do away with the dual-banking system by creating a single federal regulator.  The consensus remains: the state supervisory structure is vital to our country’s financial system, and it is here to stay.

Congress today passed a bill that preserves the dual-banking system and all that it entails:  a system of checks and balances between state and federal regulators that prevents consolidation of regulatory authority in Washington, D.C. and influence into a handful of money-center banks; a diverse and competitive industry marked by charter choice and innovation; and access to credit for individuals and businesses in every corner of the country.  By acknowledging the essential role of state regulators and state-chartered banks in our financial system, this historic bill recalibrates the balance of power between state and federal regulators and ushers in a new era of collaboration and cooperation between the two entities-in safety and soundness as well as consumer protection regulation.

As regulators and policymakers move to implementing the Dodd-Frank law, state and federal regulators all have an obligation to set aside institutional preferences and biases and to commit to a regulatory approach that strengthens our financial institutions while ensuring that the flow of credit is not halted.  Credit must continue to flow or the bill will not have achieved one of its most important goals:  facilitating economic recovery.

An important part of accomplishing this goal is ensuring that no lender has an institutionalized competitive advantage over another.  This disparate treatment among institutions can be seen in the funding advantage systemic banks enjoy over other institutions.  Until this differential between institutions is eliminated, then the implications of having “too big to fail” banks will be a financial system driven not by market forces, but by the unequal application of an implied government guarantee of a handful of banks.

CSBS appreciates Congress’s acknowledgement of the integral role of the dual-banking system and we look forward to working with our federal counterparts to implement these monumental reforms.

From former Comptroller of the Currency Eugene Ludwig:

“With today’s Senate vote, a sweeping and well intentioned financial reform bill is on the verge of becoming the law of the land. Although the impact on banks will undoubtedly be profound, we won’t know how profound for some time. We can now see the contours of the ‘new normal’-a tougher, more prescriptive regulatory environment for all. However, it is up to financial regulators to fill in the details. They have a massive task ahead of them, as they set about crafting and implementing literally hundreds of new regulations. This process will take at least a year, and it will certainly be painful at times.”

From Don Childears, president of the Colorado Bankers Association:

“The Colorado Bankers Association is deeply disappointed that Congress filled this bill with unnecessary and harmful provisions instead of focusing on the reform our country needed. The unfortunate reality is that this bill will raise the costs of credit and stifle credit availability - two things that don’t help us recover from this recession - while placing new burdens on our local regulated banks - burdens from which Wall Street is enforceability exempt.”  

“Colorado bankers have advocated for smart, needed financial reform that would help protect our communities, our mortgage markets and our businesses from the threats of another financial meltdown. CBA has advocated that Congress take action to implement a systemic oversight council, responsibly improve consumer protections, create a system that allows appropriate bodies to step in and stop companies that are too big to fail, and create a system of regulation that places nonbank financial institutions on a similar level of regulation as our country’s regulated banking industry.”

“The Dodd-Frank bill does contain some needed reforms, however, Congress’ enormous 2,300 page bill contains so many additional unrelated proposals that we believe there is no way to implement this bill without having an overall negative impact on credit availability and financial services our Colorado banks supply to consumers, communities and businesses.”  

“The reality is that the Congress’ bill will require regulators to write 500+ new rules, 5,000+ new pages of regulations, create a massive new government bureau to oversee consumer protection, keep the unregulated nonbanks out of the reach of enforcement of these rules, and implement special interest price fixing for big retailers, like Wal-Mart, that bank customers will have to swallow. ”

Larry Winum, president of the Glenwood State Bank in Glenwood, Iowa, was honored with the Robert D. Dixon Founders Award by the Community Bankers of Iowa at the association’s annual convention, which kicked off last night in Okoboji. The award is given to a banker who has devoted his or her life and livelihood to community banking. Dixon, who passed away in November 2005, started the organization in 1971.

Winum recently completed a term as treasurer for the Independent Community Bankers of America. “I would always go to bat for everyone in this room,” he told the audience at the Arnold’s Park Pavilion as he accepted the award.

The CBI also honored Tina Smith Fritz of Bankers Trust, Des Moines, with its Up and Coming Banker of the Year award. The award is presented by the association’s Leaders of Tomorrow division. This year, Bankers Trust announced it would give $2,500 to the Leaders of Tomorrow bankers in Smith Fritz’s name. The bank said it is giving the funds to “honor your accomplishments and provide an investment in other bright and capable young people to follow in your banking footsteps.”

In addition, CBI also awarded scholarships to help two high school graduates attend college this fall. Selected to receive $500 scholarships were Madison Boswell, sponsored by Bank Iowa in Humboldt, Iowa, and Emily Pappas, sponsored by First Citizens National Bank in Mason City, Iowa.

The CBI convention, taking place at the Arrowwood Resort in Okoboji, runs through Friday.

The American Bankers Association announced its president and CEO, Ed Yingling, will retire at the end of the year. Click here for the press release.

Mr. Yingling is one of the giants of the industry. He has participated in many Capitol Hill debates, and remarkably, can recall the littlest details about each battle. He is a top strategist and he certainly has left an imprint on the industry in decades of service to the banking industry.

The American Banker writes about the announcement in today’s edition. The article includes words of praise for Yingling from Cam Fine and Ken Guenther, the current and former ICBA leaders.

The newspaper notes the obvious successor candidate, Diane Casey-Landry, the ABA’s chief operating officer. She was the head of America’s Community Banks until it merged with ABA about three years ago. Prior to that, she worked for Grant Thornton, and prior to that she worked for Guenther at ICBA.

Casey-Landry would be a natural to step into the president/CEO role, although another possible internal candidate is former U.S. Treasury official Wayne Abernathy, who joined the ABA staff in 2005. Abernathy was the staff director of the Senate Banking Committee before joining Treasury.

External candidates might include former ABA chairmen Mark Olson or Betsy Duke. Olson was a governor on the Federal Reserve Board and Duke is currently a Fed governor. Olson also ran the Public Company Accounting Oversight Board for a while.  

Or what about one of the state association execs, a guy like John Sorensen who runs the Iowa Bankers Association? Or how about former Iowa Congressman Jim Nussle, who headed the Office of Management and Budget in the final months of the Bush administration? Or maybe Skip Hove, the former FDIC Chairman from Nebraska.

Who ever the select is, it will be interesting to note whether the person’s background aligns him or her more with the industry’s largest banks or its community banks. If there is a discernible distinction, it may say something about the ABA’s future direction.

W. Dennie Emmans, who has been executive director of the Bank Holding Company Association since January 1994, announced in the group’s second quarter newsletter that he will retire at the end of this year.

In a column appearing in the newsletter, which was mailed last week, Emmans said he was diagnosed with cancer in 2005 and is receiving on-going treatment. “I have reached the stage where I need to devote my interests to other priorities and turn over my position to a new leader,” he said.

The BHCA has formed a search committee to find a successor. The group is seeking a leader with a college degree, 10-plus years of business and financial management experience, and experience in association management and government relations. Communications and team-building skills also are required. The advertisement running in the newsletter says banking experience is highly desirable.

The Bank Holding Company Association is a unique organization for the leadership of bank holding companies throughout the Upper Midwest. It was formed in 1981, with Bob Barsness of Prior Lake State Bank, Prior Lake, Minn., serving as its first president. Back then, it was a Minnesota-only group and the focus was resistance to branch banking. It’s office was in a bowling alley. At the time, there was a similar, unrelated, group operating in Arkansas, but it has since disbanded. In 1993, the Bank Holding Company Association of Minnesota, as it was called then, began attracting members from as many as 12 states and it dropped “of Minnesota” from its legal name.

Today, with offices in a Twin Cities office building, the focus of the BHCA is education. It hosts seminars every May and October. On occassion it hosts other meetings. On July 20, it is teaming with the Independent Community Bankers of Minnesota to host a regulatory panel in Prior Lake, Minn.,

Congratulations to Tim Meininger, who won the Minnesota Bankers Association’s “Bank Champion” award two weeks ago. The annual honor is presented at the MBA’s convention, this year conducted in Duluth.

Meininger is president of the Beacon Bank office in Duluth. Beacon Bank, based in Shorewood, Minn., is run by its founder, Bob Weiss. Bob came to know Tim through the Minnesota Bankers Association. Both had served as president’s (now called chairman) of the association, Bob in 1998-99 and Tim in 2000-2001. In 2002, when Tim separated from Republic Bank in Duluth, where he had worked for years, he and Weiss began talking about opening a new shop in Duluth. In December 2002, Beacon Bank Duluth opened with Meininger at the helm.

Here are excerpts from the MBA press release announcing Meininger’s selection:

The MBA Bank Champion award recognizes a banker who has been an outstanding champion of banking by demonstrating proactive leadership that supports the best interests of Minnesota’s banking community through lobbying, education and community service.

 The judges evaluating Tim’s application were especially impressed by the support letters that were submitted by community leaders and bank staff. Quotes from just a few of the letters included:

 Duluth Area Chamber of Commerce President, David Ross, wrote:

“Tim Meininger has been the most influential volunteer leader I have had the good fortune of working with in my thirteen years as president of the Duluth Area Chamber of Commerce. What sets Tim apart from other community leaders is his sincere commitment to his leadership responsibilities, his humor, his empathy, and the kindness and genuineness he exhibits in every interaction.”

 Duluth Greater Downtown Council President, Kristi Stokes wrote:

“One of the key components of community leadership is utilizing your social capital.

Tim’s network of friends and colleagues is far-reaching. He has tapped into this network to help the ODC accomplish many successful initiatives, from membership recruitment to creating a Special Service District which further enhances and strengthens the central core of our community.”

 Letter from Beacon Bank President & CEO, Bob Weiss:

Tim has been an extraordinary Community Banker for over 36 years. During that time, Tim has served as a community leader in every community he has served.

 I have always known that Tim is a pillar of the Duluth community, but this became more apparent to me when Tim joined Beacon Bank as the President of the Duluth market. I was amazed at his level of community involvement, his knowledge of the Duluth market and his interest in its future. Community leaders listen to what Tim has to say, are interested in his insight and respect his involvement.

 A Letter from Beacon Bank Staff:

The “door is always open” to Tim’s office. He is always ready with an encouraging word, finds satisfaction in the accomplishments of employees and customers and values the success they achieve and whatever role he played in that success.

 Tim is a role model and mentor to all of us. He knows all our customers by name and takes time to visit with them when they come into the bank. He knows their businesses. He empowers us, his employees, to make our own decisions and then stands behind us. Tim Meininger is our ‘beacon.’