The OBA's position on H.R. 2897 and why

The OBA's position on H.R. 2897 and why

There are times when trade association politics enters into the process of deciding whether to support or oppose certain legislative proposals. This is, regrettably, one of those times.

Earlier this year, Illinois Congressman Luis Gutierrez introduced the “Bank Accountability and Risk Assessment Act of 2009” (H.R. 2897). It would broaden the assessment base used by the FDIC to determine a bank's deposit insurance premiums by switching from “domestic deposits” to a base of “total assets minus tangible equity capital.”

In July, the OBA conducted a poll of its member banks asking whether they supported a change in the assessment base to something other than domestic deposits. The results of that poll showed that 165 OBA member banks responded out of a total of 247 member banks.

Of the 165 member banks that responded:

• 71 (43.0%) were in favor of shifting the assessment base to total assets minus Tier One Capital;
• 53 (32.1%) were in favor of having the assessment based on domestic deposits; and
• 41 (24.8%) favored an assessment based on total deposits.

The Gutierrez bill would also require those banks that pose a “systemic risk” to the financial system pay a “systemic risk” premium to the FDIC in addition to their regular FDIC premium to compensate the FDIC for the increased risk of insuring them.

The Community Bankers Association of Oklahoma (CBAO) and the Independent Community Bankers of America (ICBA) support H. R. 2897 and have been seeking House co-sponsors of the legislation and encouraging their members to do the same. (Note – there is no companion bill in the Senate.) ICBA President Camden Fine sent an e-mail around encouraging bankers and their trade associations to join him in supporting this bill.

CBAO President Craig Buford sent a similar letter around, although he mis-represented statements that were made by OBA President & CEO Roger Beverage at an ICBA briefing during the OBA's Washington Visit. That's regrettable, because our members are virtually the same Oklahoma banks.

At its meeting on September 22, following the Association's Annual Washington Visit, the OBA's Board of Directors, comprised of traditional community banks of all sizes, from all geographic regions of the state, discussed the Gutierrez bill in some detail. The discussion focused primarily on the context of the overall regulatory reform proposals introduced at the direction of the Obama Administration and the resulting legislation pending in Congress, including creation of the proposed Consumer Financial Protection Agency (H.R 3126).

The OBA Board voted unanimously not to take a position either in support of or opposition to this bill at the present time, for three primary reasons:

First, there is overarching legislation under consideration in Congress to address the issue of systemic risk. Focusing on one area addressed in the Gutierrez bill separately, outside of the overall context of regulatory reform, the Board felt would be premature. After all, it's one of the arguments we've been using in opposition to creation of this new consumer advocacy agency: don't separate and divide the regulatory functions of prudential oversight from consumer compliance because it will undermine the strength of the current system of bank regulation. The same principle of "division" applies here.

Second, the OBA is made up of banks of all sizes, on both sides of this very divisive issue. While one of the goals of the bill is to force money-center banks that pose a systemic risk to pay higher deposit insurance premiums, OBA Board members recognize two things: the Association has members that line up on both sides of this divisive issue; and many community banks across Oklahoma are heavy users of FHLB advances rather than deposits to fund loans. Many of them would also pay higher premiums under the premium structure as set forth in H. R. 2897 than they will under the current system of paying on the basis of domestic deposits.

While the Association's Board members understand the emotional appeal of this bill for community bankers, they also know that banks deemed “too-big-to-fail” are not the ones causing problems for the FDIC's Deposit Insurance Fund. Its depletion is the reason FDIC insurance premiums for traditional community banks have increased. They also understood the trade association risks associated with taking a position in any one of three ways and the potential to damage the Association's membership base regardless of which directive is given.

Finally, there may be a time when this issue should be put forth for debate in the Congress, but the Board believes that now is simply not the right time to split the industry. Banks of all sizes are under continual assault on Capitol Hill and in the media. It doesn't make any difference if you're Citibank or First National Bank of Nowhere, NE. The Board concluded that right now the industry must hang together and work together on as many of the issues it faces as possible.

While it's true that the industry is split on this specific issue, the Board noted it is not split on other common issues like mortgage cram-down authority, opposition to the creation of the CFPA, overdraft protection plans and limitations on them, restrictions on interchange and merchant account fees (both of which continue to be a growing stream of revenue for most traditional community banks), and a myriad of other legislative and regulatory issues that have as significant an impact on your bank's bottom line as does its FDIC insurance premium.

The facts are that the DIF has been decimated by the failure of medium-sized to smaller institutions, not the Wall Street giants and the non-banks that were the focus of the TARP “bailouts”. Banker insurance premiums have not increased because of those large entities. In fact, the largest bank “failure” so far over the past couple of years that's had an impact on the DIF is IndyMac, FSB, a $32 Billion federal savings bank that was unable to withstand a week-long deposit “run” in July, 2008 and will end up costing the DIF approximately $9 Billion.

And while it's true that the nation's largest banks have received money from the federal government, it's not been FDIC-banker money. It's been money from the Capital Purchase Program, authorized by the passage of the Troubled Asset Relief Program (TARP).

Many OBA Board members expressed their personal view that they would seek to support the idea contained in the Gutierrez bill separately and apart from their role as OBA Directors. They clearly understand that member banks are receiving requests from the ICBA and the CBAO to ask for co-sponsors of the legislation.

All of those requests are fair and within the purview of each institution to decide whether now is the time to engage in this epic intra-industry battle. But from this Association's standpoint – with members on both sides of the issue – the more appropriate position at this point in time is one of neutrality.

We wanted to make sure our member banks are aware of the rationale behind the Board's initial decision, but we also want to hear from you. We're continuously and actively engaged in the policy proposals as they evolve on a daily basis, and we want to hear from you and your bank about your views on this and every other issue that comes to our attention.

For those who are wondering which bankers currently serve on the OBA Board, the list is as follows:

Executive Committee
Marty Hansen, Chairman, First State Bank, Fairfax
Jan Miller, Vice Chairman, Bank of Commerce, Catoosa
Jane Haskin, 1st VC, First Bethany Bank & Trust
Brad Krieger, Past Chairman, Arvest Bank, OKC

Group 1
Todd Huckabay, Bank of the Wichitas, Snyder
Phillip Dickey, Southwest National Bank, Weatherford
David Atkinson, First National Bank, Elk City

Group 2
David Cook, Bank of Laverne, Laverne
Kent Latta,Oklahoma State Bank, Buffalo
Gwen Easter, First Bank & Trust, Perry

Group 3
Felton Gatlin, First National Bank, Coweta
Ron Reiser, RCB Bank, Claremore
Richard Willhour III, Century Bank of Oklahoma, Pryor

Group 4
Bridge Cox, Citizens Bank & Trust, Ardmore
Mike Murphy, First American Bank, Norman
Kim King, First State Bank, Noble

Group 5
George Drew, Kirkpatrick Bank, Edmond
John Osborne, Stillwater National Bank, Stillwater
Dick Beshear, First Security Bank & Trust, Oklahoma City

Group 6
Wade Edmundson, Summit Bank, Tulsa
John Pixley, F & M Bank & Trust, Tulsa
Carl Hudgins, Commerce Bank, N.A. Tulsa

At-Large
Hal Brown, Bank of Oklahoma, N.A., Oklahoma City
Jim Martin, SpiritBank, Stillwater