NorthWesternFinancialReview.com Blog

Ed Yingling, president and CEO of the American Bankers Association, and Camden Fine, president and CEO of the Independent Community Bankers of American, along with other industry representatives, met with President Obama for about an hour at the White House today. Also involved in the meeting were Treasury Secretary Timothy Geithner and Larry Summers, director of the National Economic Council.

The president called the meeting with Yingling, Fine and CEOs of Fannie Mae, Freddie Mac and 15 large financial institutions to discuss trends in bank real estate and commercial lending; they also discussed the impact of the administration’s regulatory and economic recovery proposals on banks.

Here’s how Crain’s Chicago Business covered the meeting; the story includes the full list of attendees. Here’s how the Financial Times covered it.

An ABA publication published after the meeting reported:

“The discussion focused on the need for consistency in policy and the importance of setting the right tone in the debate surrounding economic recovery efforts,” said Yingling. “All agreed on the importance of working together to restore confidence in the banking system.”

Several bankers made a point of telling the president that their lending is up considerably and would remain strong even if and when they return their Capital Purchase Program funds.

ICBA issued a statement following the meeting that said:

Community banks did not participate in the activities that contributed to the current economic crisis, but by taking deposits and making loans on Main Street they are helping our nation recover,” Fine said. “ICBA will continue to work with the administration and Congress to implement policies to help community banks get America’s economy back on track while addressing the systemic risks posed by too-big-to-fail financial institutions.”

ICBA has been working with the administration and Congress to ensure economic recovery efforts address community bank concerns. ICBA is calling for systemic-risk premiums to be levied against too-big-to-fail financial institutions to reflect the risks they pose to the nation’s economy. ICBA also is urging policymakers to address overzealous field examination practices, the proposed Federal Deposit Insurance Corporation emergency special assessment and mark-to-market accounting rules that could prevent community banks from fully participating in the nation’s economic recovery.

The FDIC is creating an advisory committee that will work on issues unique to community banking. The FDIC made the announcement on March 16 when Paul Nash, a former counselor to Sen. Tim Johnson of South Dakota, was named FDIC deputy for external affairs. Chairman Sheila Bair mentioned the new advisory committee in her speech at the ICBA convention last Friday in Phoenix.

Back in 2002, under the leadership of Don Powell, the FDIC set up an Advisory Committee on Banking Policy. Bair, who was a professor at the University of Massachusetts at the time, was one of 12 people who served on the committee. Terry Jorde, president of CountryBank USA in Cando, N.D., also served on that committee. After Powell resigned from the FDIC in late 2005 to head up the government’s Gulf Coast Rebuilding effort, the Advisory Committee disbanded.

Soon after Bair was appointed FDIC chairman in June of 2006, she formed an Advisory Committee on Economic Inclussion. It is made up of 14 people. One of its members, Rev. Dr. Floyd H. Flake of Queens, N.Y., also served on Powell’s advisory committee. Now, Nash will put together a new committee focusing specifically on community banking issues.

One result of the financial crisis is that the difference between the industry’s largest players and its community players has become very obvious. For the first time in years, I get the sense that policy makers may actually make distinctions according to size as they draft new rules and regulations for banks. This new FDIC committee could play a key role in the surrounding discussion.

It is easy to understand why community bankers are so upset by the special assessment the FDIC has proposed to restore the Deposit Insurance Fund. Whether the assessment is 20 basis points or 10, it will be a major hit to earnings. Many community bankers feel they are being asked to clean up a problem they didn’t create.

Most community banks didn’t make any of the subprime loans that have crippled the economy. Some of the largest banks, which did fund subprime lending, are getting big infusions of capital from the government. Community bankers resent the notion that some of these large banks can pay a special assessment with newly infused government money while they will have to pay for it out of their own earnings.

My sense, also, is that community bankers are growing weary of all the indecision at the highest levels of government. Former Treasury Secretary Paulson would announce a new program, and then he would announce a revised program on practically the next day. Just as bankers would figure out how some new program was to work, a new set of rules would be announced. Treasury Secretary Geithner doesn’t seem to be fairing any better.

On Feb. 27, the FDIC announced a special assessment, only to say a few days later the assessment might be half as much as originally stated. Some may say the second announcement makes the FDIC look responsive to industry outcry, but it makes me suspicious. How is it possible the FDIC did not know what was going on in Congress with respect to legislation that would expand the FDIC’s borrowing authority? The FDIC must have known what was going on, which makes the announcement to lower the amount of the special assessment seem disingenuous.

In the latest development, the FDIC announced yesterday it would impose additional charges related to loan guarantees of a year or more issued after April 1 as it phases out its Temporary Liquidity Guarantee Program. The surcharges will fund the DIF, which the FDIC said may further reduce the need to assess the full 20-basis-point special assessment on deposits. That’s good news, but again, it’s hard to believe the FDIC didn’t anticipate this back on Feb. 27.

Nonetheless, bankers have until April 2 to file comment letters on the proposed special assessment. There are at least two things the FDIC could do to make the special assessment more palatable. First, it could pose a larger assessment against banks deemed “systemically important.” Too-big-to-fail is an inherently unfair system; it would be easier to accept such a system if the banks that benefit from it had to pay at a higher rate than the banks that are too small to save.

Furthermore, if a special assessment must be made, the FDIC could ease the pain by giving banks the option of expensing the assessment over several years instead of all at once. Mark-to-market rules have made bank earning volatile enough without adding assessments against earnings.

Community banks are dependent upon deposit insurance and bankers want a dependable Deposit Insurance Fund. Ultimately, bankers will do their part and a lot more. In return, bankers expect — at a minimum — sincere and decisive leadership at the FDIC, in addition to a certain measure of fairness.

The stimulus bill that President Obama signed in February contained several provisions meant to spur Small Business Administration activity. The administration is trying to stop the sputtering in America’s engine of job growth. We cover the new SBA provisions in depth, with analysis from several Midwest small business lenders, in our April 1 print edition of NorthWestern Financial Review, but here, via Politico, is an overview of the administration’s efforts.

Key quote from Obama’s economic adviser Austan Goolsbee: “This has been one of the most devastating aspects for job growth — is that small businesses, which previous to this crisis had the funding they needed to grow jobs, have completely lost that. And so we’re trying to reignite through direct intervention the small business credit market so that they can — so that they can expand.”

Last time I wrote, I said the FDIC needs to do a better job getting out its message that deposits are safe in an insured bank. Well, 60 Minutes really helped the FDIC get that message out with this segment, that ran on Sunday. It is a very well done piece. CBS did a good job telling the story of bank closing in Illinois.

The most interesting portion of the story, however, may be in the last 90 seconds where FDIC Chairman Sheila Bair suggests that banks should be capped at a certain size, so that no single bank ever poses a systemic risk to the economy. That is an idea worth developing and I hope a lot of smart people give that serious consideration over the coming months.

Have you heard those ads on the radio promoting peanuts? They say something along the lines of “You’ve heard of a couch potato, but never a couch peanut. That’s because peanuts give you energy and are good for you…” The peanut industry is running the ads in order to restore public confidence in their product after the nationwide salmonella scare connected to peanut butter.

Maybe the FDIC could take a lesson from the peanut industry. The public must not have complete confidence in FDIC insurance. Certainly, stories like this one don’t help. Remember when IndyMac Bank failed last summer and TV gave us those images of customers lined up for blocks outside the bank waiting to withdraw their money? That was a completely irrational customer response. Everyone’s money was safe. The bank had FDIC insurance and everyone with less than $100,000 in the bank were safe. But apparently they didn’t understand that.

Today, of course, the safety net of the FDIC is even bigger. Accounts are insured up to $250,000 and some accounts have no coverage limit at all. The FDIC should be out there, touting the security Americans get with an FDIC-insured bank account.

To be sure, the FDIC does a lot of promotion. I have seen Chairman Sheila Bair on many news programs touting the strength of the banking industry and the security of savings accounts protected by FDIC insurance. In addition, I really like the FDIC channel on YouTube, where the agency uses Suze Orman as a spokesperson for the value of FDIC insurance. Here is an example of one of their promotional messages.  

These messages are great as far as they go, but clearly much more needs to be done. The public doesn’t seem to be getting the message. Ads should be running in major newspapers and on television stations all over the country. Perhaps the agency could even strike up some sort of a cost-sharing arrangement with the industry trade groups. Perhaps fines extracted from people guilty of mortgage fraud could help fund the ads. Perhaps more could be done with public service announcements.

In the news, I am increasingly hearing comments made about the current economy resembling the Great Depression. That is bunk for a lot of reasons, but one of the main reasons is we didn’t have the FDIC in the early years of the Great Depression. Back then, people really did lose their money in the bank. Well, today, that simply is not happening. Today, people can be assured their money is safe. We need to make a bigger effort to drive that message home with consumers everywhere.

Today is the 17th anniversary of NFR Communications, the company that publishes NorthWestern Financial Review.I remember March 4, 1992 well. Bob Cronin and I signed several documents in a meeting with Paul Blackburn and a couple of attending attorneys. Paul had owned NorthWestern Financial Review magazine for five years. When he bought it, the magazine was called Commercial West, a weekly magazine that had been around since 1901. Paul bought Commercial West from Spencer Dean, who was my first boss at the magazine, which I joined in 1985.

Shortly after buying Commercial West, Paul purchased its rival, The Northwestern Banker, from Ben Haller, who had edited the monthly magazine for decades. In the fall of 1988, Paul merged Commercial West and The Northwestern Banker into a new magazine he called NorthWestern Financial Review. The combined magazine was published twice a month.

I left Commercial West in 1989 to work for the Minnesota Bankers Association, but returned to the NorthWestern Financial Reviewin late 1991. I always liked the magazine and about two months into my new stint as editor, I commented to Paul: “If you ever want to sell the magazine, be sure to let me know.” To my surprise, he responded: “You want to buy the magazine? Make me an offer.” After the shock wore off, I thought about how I might put together an offer. Bob Cronin was the magazine’s well-known advertising sales executive who had worked at Ben Haller’s side for years. He joined Paul’s company when Paul purchased The Northwestern Banker. Bob was about my same age; we talked about it and decided to submit a bid to Paul to purchase the magazine; Bob and I would be 50-50 partners.

By year-end 1991, we had a verbal agreement. Bob and I were each able to scrape up enough for a down payment and Paul was kind enough to finance most of the sale price. March 4 we signed the papers and the magazine was ours, forming the nucleus of a new company we called NFR Communications.

1992 was a tough time to buy a magazine covering banking. The industry was still stinging from the remnants of the ag crisis and the S&L industry collapse of the 1980s. Congress passed two major laws — FIRREA in 1989 and FDICIA in 1991 — that substantially changed bank regulation. The economy was in a recession and FDIC premiums were on the rise. (Amazing how things never change.)

People sometimes ask me if I have heard from any of the old gang. I have not heard from Spender Dean since the late 1980s, and I have only talked to Paul Blackburn a couple of times since the sale. Bob and I paid off his loan on schedule but since then we haven’t had any contact with him. Bob was a tremendous business partner, although he sold me his half of the businesses in 1996. We continued to work together for another couple of years on a contract basis. These days, we remain friends and I see him at the annual convention of the Iowa Bankers Association, where he is usually exhibiting as a representative of a respected industry vendor. Ben Haller passed away in October 2007, and I miss him.

Owning and operating NorthWestern Financial Review magazine these last 17 years has been a tremendous blessing for me. Readers and advertisers have continued to support the magazine, and I have thoroughly enjoyed covering the industry and running a publishing company. NorthWestern Financial Review remains the mainstay of the company, although we have added an important custom publishing component to the business. Currently, the economy is in tough shape and revenue at NFR Communications is lower than previous years, but today is still a great anniversary and I look forward to the next 17 years.

Minnesota-based TCF signed up for CPP funds under the impression that they were for healthy institutions only. Now the bank has filed to repay more than $360 million in TARP preferred stock. TCF doesn’t need the money now and didn’t need it then, suggested Chairman Bill Cooper, who noted that “the rules have definitely changed.”

Key quote: “Recent actions by the U.S. Treasury and possible congressional or regulatory restrictions/mandates changed the rules. As a result, public perception views those banks that took the TARP money as having done so out of weakness and a need to survive without distinction among TARP programs or individual bank capital adequacy. We believe participation in TARP has created a competitive disadvantage for TCF and it is in the best interest of our shareholders to redeem these shares.”