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Week of June 17 |
From the chairman
By David Cook
OBA Chairman
Some political humor/satire/sarcasm for your amusement and consideration:
As Woodrow Wilson said, a clear principle of representative government is that “somebody must be trusted.”
Politicians are like mosquitoes. They were put here for a reason, but nobody knows what it is.
Remember, politicians who promise you pie in the sky are planning to use your dough.
“The best way to protect the Constitution is to understand it.” — Foundation for the U.S. Constitution (possibly could be a good read for our current administration)
During a lengthy hearing, a chairman of a Senate Finance Committee is reported to have said, “If every man insists on knowing what he's voting before he votes, we're not going to get a bill out by Monday.” (Can you say Nancy?)
“I just figured out what's wrong with the economy. We're earning money five days a week, and the government is spending it seven.” — Bob Orben
On a more serious note, the June 14 edition of ABA Newsbytes gives hope that possibly some members of the Senate are starting to get what we have been saying for the last two to three years. In case you missed it, here is the lead headline and story:
Senators Emphasize Community Bank Concerns During Hearing
Senators from both parties questioned whether the regulatory burden on community banks was too heavy during a Senate Banking Committee hearing yesterday on community bank performance.
“The regulatory framework that emerged out of Dodd-Frank has made it increasingly difficult for community banks to operate and maintain business presence in many communities,” said ranking member Mike Crapo (R-Idaho). "Community banks are disproportionately affected by increased regulation because they are less able to absorb additional costs."
Elizabeth Warren (D-Mass.) expressed concern that “small banks are still subject to many regulations that were written for the larger financial institutions,” and Heidi Heitkamp (D-N.D.) told the Politico newspaper that “when you look at the overall thrust of Dodd-Frank – which was to eliminate 'too big to fail' – I think for many community banks, this has become 'too small to succeed.'”
During testimony, officials provided an overall optimistic view of community banks' performance without significantly addressing regulatory burden. Community bank failures in the years following the 2008 financial crisis mostly resulted from risky real estate loans and poor underwriting, said the Government Accountability Office's Lawrence Evans.
Today, added FDIC Chief Economist Richard Brown, community banks continue to play a “crucial role,” representing 95 percent of all banking organizations, 46 percent of small loans to businesses and farms and a majority of deposits in rural areas and small cities. “Community banks that grew prudently and that maintained diversified portfolios or otherwise stuck to their core lending competencies ... exhibited relatively strong and stable performance over time,” Brown said.
Perhaps now the time is ripe for us to consider what Past Chairman Swickey has been preaching for the last few months: the idea of true regulatory reform with a bifurcated industry or even a community bank charter, regulated by state banking departments. While we are at it, why not introduce a bill authored by the Senate and House Banking and Finance Committee to exempt community banks from Basel III?
Your thoughts and input are invited and needed.
Senators emphasize community bank concerns during hearing
Last week, the Senate Banking Committee held a hearing dealing with community bank performance in the wake of the passage of Dodd-Frank. Importantly, Senator Elizabeth Warren (D-Mass.) suggested the answer for small institutions may be creating a two-tiered regulatory system.
"Are we reaching a point where we should have a two-tiered regulatory system?" she asked.
Good question senator. And a lot of Oklahoma bankers at least believe strongly that the answer is a resounding “yes!”
Also of considerable importance was the view expressed by the ranking member, Sen. Mike Crapo (R-Idaho), who noted something every Oklahoma banker also knows: "Community banks are disproportionately affected by increased regulation because they are less able to absorb additional costs."
Amen.
As OBA's Immediate Past Chairman, Brad Swickey told more than 650 bankers at our Bankers' Night Out programs this past May that community banks make up 95 percent of all banking organizations but between 10-15 percent of total banking assets. However, community banks also make about 46 percent of all the small business loans that are made in the country. The latter number shows how important community banks are to the nation's economic recovery.
More quotes from the hearing:
- “The regulatory framework that emerged out of Dodd-Frank has made it increasingly difficult for community banks to operate and maintain business presence in many communities.” – Sen. Crapo
- “Small banks are subject to many regulations that were written for larger institutions, so now there is a regulation system that will in effect crush the smaller institutions.” Sen. Warren
- “[W]hen you look at the overall thrust of Dodd-Frank -- which was to eliminate 'too big to fail' – I think for many community banks, this has become 'too small to succeed.'” Sen. Heidi Heitkamp (D-N.D.)
(Note: we might point out that even though Dodd-Frank was intended to end TBTF, almost everyone other than federal banking regulators believes it did not. Many think it institutionalized TBTF as a matter of national policy, much to the detriment of community banks.)
- "We are trying to minimize regulatory burden on institutions, when some were designed for the largest, most complex institutions. It is important to tier these regulations appropriately and what exemptions should be made," Lawrence Evans, director of Financial Markets and Community Investment, Government Accountability Office.
Senate Finance Committee may consider credit union tax exemption
Thursday, the Senate Finance Committee released a report that outlines some of the issues that may be on the table for the Committee's consideration as the discussions about reforming the tax code come closer to reality. So far the Committee has held 30 hearings on tax reform and a lot more are expected.
Among the options that may be considered is eliminating the credit union tax exemption.
“Obviously this is good news,” said OBA President Roger Beverage. “While there are some credit unions that have retained their original structure and mission, there are many more that have expanded well beyond their original purpose – for which the current tax exemption was granted. The fact that the Committee is willing to discuss it shows that at last reality has begun to sink in about the credit unions' abuse of their tax exempt status by functioning as a de facto bank.
“If they adhere to their original purpose, most bankers would say 'that's just fine.' But these aggressive, large, multifaceted credit unions have long outgrown their original reason for being and they should be reined in. Fair competition is one of the things that's made this country so great. Right now it isn't.”
Click here to read the report.
High court to take up disparate impact theory
The U.S. Supreme Court will decide whether people who file housing discrimination lawsuits must show intentional bias on the part of the defendant in order to move forward, rather than rely on a statistical analysis as evidence of discrimination regardless of whether there is any intent to discriminate.
The "disparate impact" theory has been pushed hard by the Obama Administration, the CFPB and the Department of Justice. We're hopeful that the Court will put common sense back into the process of trying to determine whether a bank's action in approving or disapproving a loan application is based on an intentional discriminatory act rather than a statistical gathering of turn-down statistics.
By way of background, the town of Mount Holly, N.J., is defending a lawsuit brought by residents over the demolition of property in a predominantly minority neighborhood. It argues that the plaintiffs must prove there was intent to discriminate on the part of the town rather than the disproportionate impact the demolition had on racial minorities.
Over the past five years, the Administration has used this "disparate impact" theory to extract large settlements from banks that were said to be in violation of the Equal Credit Opportunity Act. According to news reports, Bank of America, SunTrust Banks and Wells Fargo have settled these disparate impact claims by paying nearly $500 million to the government.
“This legal theory is one of the most dangerous land mines that banks face today, at least in my opinion,” said OBA President Roger Beverage. “It will become even more dangerous when someone challenges a bank's denial of certain mortgage loan applications because they don't meet the requirements for a 'qualified mortgage' (QM).
“I going to guess that the provision of the QM rule requiring a 43 percent debt-to-income ratio will be one of the things that triggers many loan denials. My sense is that a protected class of some sort will be found in that 'non-qualified' pile of loan applications, and will trigger a claim of 'disparate impact' regardless of intent. Bankers as a whole who become aware of this 'Catch-22' may simply choose not to make any residential real estate mortgage loans, and that's bad for consumers.”
Confidence in banking industry starts to creep up
Americans' confidence in U.S. banks increased to 26 percent in June, up from the record low of 21 percent a year ago. The percentage of Americans saying they have "a great deal" or "quite a lot" of confidence in U.S. banks is now at its highest point since June 2008, but remains well below its pre-recession level of 41 percent, measured in June 2007. Between 2007 and 2012, confidence in banks fell by half -- 20 percentage points.
Confidence in the banking system suffered in the early 1980s, as the U.S. experienced its worst recession since the Great Depression – at least to that point. Still, confidence in banks remained near the 50 percent mark in the early '80s, and banks generally ranked in the top half of institutions tested.
Confidence in U.S. banks fell in the '80s and '90s due in large measure to the collapse of the savings and loan industry and its insurance fund. It stood at 30 percent in 1991, but recovered slightly by 2004 when it reached 53 percent. Americans' confidence in banking remained high through 2006 as borrowing was easy, lending boomed and the financial bubble of the last part of the decade grew.
Gallup: As many Americans have confidence in banks as do not
Also included in the recent Gallup poll, the percentages of folks who view banking positively and those who view it negatively has narrowed significantly. The percentage of Americans who have a great deal or quite a lot of confidence in banks is now 26 percent. Those who have little or no confidence in banks is a little higher at 28 percent, but it's a fairly significant improvement since the collapse of the housing market and the near-collapse of the financial services industry in 2008.
Click here to read about the survey results.
CFPB offers mortgage rule implementation webpage
In an effort to help smaller community banks, the Consumer Financial Protection Bureau (CFPB) has assembled a number of compliance resources that are available on a single website. Among other things the CFPB has included downloadable compliance guides which, it says, are done in “plain English.” (Note: some people may disagree with that last statement).
The site also includes videos on the new Qualified Mortgage and Ability to Repay rules that have recently been published and amended, the 2013 HOEPA rules, loan originator compensation, Equal Credit Opportunity Act valuations, TILA HPML appraisals, escrows and TILA and RESPA servicing. It includes reference charts as well as a list of both underserved and rule counties across the country.
Click here to access the compliance guides and videos as well as other tools.
Too-Big-To-Fail hearing scheduled
Friday, the House Financial Services Committee announced it will hold a hearing next week on the general subject of Too-Big-To-Fail. Testimony will be presented by past and present Federal Reserve Bank presidents and the preferential treatment that flows from that policy directly to the nation's largest banks.
According to the Committee, the hearing is scheduled for the morning of Wednesday, June 26.
OBA education corner ...
It's summer, which means things slow down, but don't stop – never! – in the OBA's education department. Take note of the following:
- Flood Insurance Review & Update, June 25, webinar — Gain the knowledge needed to avoid frequently cited violations and obtain a positive outcome in flood insurance examinations and the information on Biggert-Waters to assure that compliance programs are updated for the latest developments.
- Managing Problem Loans, Part 1: Effective Collection Techniques, June 28; Part 2: Managing Problem Commercial Loans, July 1, webinars — These webinars give timely pointers for those who deal regularly with commercial loans.