The Dodd-Frank Act and other regulatory issues as seen from the vantage point of the president of the Federal Reserve Bank of Kansas City, the director of the Nebraska Department of Banking and Finance, and an attorney from a leading Omaha law firm were examined for members of the Nebraska Independent Community Bankers at its annual convention last month in Lincoln.
Thomas M. Hoenig, president and CEO of the Kansas City Fed, fears that too big to fail has been further entrenched in Dodd-Frank, not eliminated. The largest bank has $2.4 trillion in assets, he pointed out, which is equivalent to 16 percent of Gross Domestic Product. “If you have a liquidity event on Friday and don’t solve it by Sunday evening, you will be bailed out,” he said.
Hoenig, who must retire by Oct. 1, 2011, is also concerned that bankers on the boards of district banks can no longer participate in the selection of presidents. In his view, that has been their most important job under a system that has been in place for nearly 100 years.
Assessing the current makeup of the Fed’s Board of Governors in a question and answer session, Hoenig pointed out that the members are supposed to come from seven different Fed districts, but the six current governors are all from East of the Appalachians, including Janet Yellin, before she became president of the San Francisco Fed and appointed to the Board of Governors. He hopes the GAO study of the Fed currently underway will take a look at this.
Hoenig also thanked NICB and the Independent Community Bankers of America for their support during negotiations on the Dodd-Frank Act. “We came close to losing the district banks,” he said. “That would have been terrible.”
In his review of the Dodd-Frank Act, John Munn, director of the Nebraska Department of Banking and Finance, suggested the changes in the FDIC insurance assessment base could mean more competition from giant banks, which get up to 50 percent of their funding from non-deposit sources. They may become more retail-oriented and seek more deposits to keep their assessment costs, he believes. “That could happen,” he said. “But your FDIC costs should be lower” with assessments based on total assets less tangible equity.
Attorney Jonathan Wegner commented on the interchange fee provisions in the Dodd-Frank Act. He is with the Baird Holm Law Firm in Omaha, which is counsel for major card issuers MasterCard, Visa and Discover. They are working with the Federal Reserve to submit data for what the baseline should be for interchange fees. After they come up with suggested rules in December, there will be only a short window of six weeks for comment, Wegner warned. “But this will be a great opportunity for you to have a voice so we can get something we all can live with,” he told the NICB members.
There could be a competitive impact on community banks, he suggested, because “big banks are looking to get out of debit completely and will come up with new products to get around limits on interchange fees.”
Wegner also cited a new KBW study that indicates an 8 percent hit to bank earnings from new interchange rules. The same study anticipates a 4 percent hit from the Consumer Financial Protection Bureau.
Both Wegner and Munn suggested bankers take advantage of the Small Business Jobs and Credit Act passed by Congress recently. The bill is good for agriculture, Wegner believes, enabling banks to provide funding for new equipment and farm real estate, “and new loans for you.”
Munn urged the bankers to “get up to speed” on the small business lending initiative recently passed by Congress. He acknowledged concerns about possible TARP-like restrictions, “but look at it,” he said.
Bill Poquette is editor-in-chief of BankNews.
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