Iowa has weathered this recession pretty well. It has only had one bank failure since the recession began. It has a much lower foreclosure rate than the national average. Iowans also tend to have some of the lowest credit card debt levels in the United States. But, as American Bankers Association Chairman Art Johnson pointed out at the Iowa Bankers Association’s annual convention in Des Moines last month, that could quickly change, depending on how regulators implement the Dodd-Frank Act.
According to Johnson, who is also CEO of United Bank of Michigan in Grand Rapids, how the Consumer Financial Protection Bureau is implemented and how the word “abusive” is defined could create huge burdens for community banks. Johnson also said the Federal Accounting Standards Board’s proposal on mark-to-market accounting “threatens our very business model.” Because of these issues, he urged bankers to be advocates for their industry and to remain involved and engaged in the governing process. “Advocacy isn’t a seasonal sport with a beginning and ending,” Johnson said. “There is no down time in advocacy.”
While the future regulation of community banks may not yet be decided, Economist Brian Wesbury of First Trust Advisors in Wheaton, Ill., gave attendees hope that the economy will recover from this recession just like it has from every other recession this country has been through.
Wesbury said people are afraid that this recession is different from all the others; that we might not recover from this one. But he doesn’t understand why people think that. “Pessimism is so great right now,” Wesbury said. “I call it economic hypochondria.”
His theory is that when you’re down you have nowhere to go but up. “When people ask, ‘How can we have recovery with unemployment at 10 percent?’ I ask, ‘How can we not?’”
Wesbury pointed out that the country is supposed to be living in a “new normal” but consumer spending is actually higher today than it has ever been in U.S. history, according to the Bureau of Economics. He also noted that the savings rate is the highest it has been since the 1990s.
“One key reason the economy will be OK is that Fed policy is still loose and productivity is still strong,” Wesbury said, using the example of Apple and its iPad. However, Wesbury believes Treasurys are a bubble waiting to burst. And when it comes to Fed policy, Wesbury thinks Kansas City Fed President Tom Hoenig is “dead on” in wanting to start tightening its rate policy. “But it is not going to happen,” Wesbury said.
The breakout session “Financial Strategies for the Challenging Times Ahead” also focused on the economy and growth. Session leader Edward Krei of The Baker Group in Oklahoma City explained that there are several things high-performing financial institutions do well, one of which is that they clearly define their market segments and listen to their customers.
They also build effective processes, which includes committees and boards. Krei asked IBA members, “Is your ALCO committee effective?” and “Does the board spend at least 75 percent of its time on the five most important issues facing your institution today?” Also, Krei asked attendees if there are good approval processes in place for loans and risk management.
Krei said high-performing organizations also invest in employees and an organizational structure that promotes accountability. He told the audience to ask themselves, “Do we have the right people in the right positions doing the right things?”
At the board level, Krei said bad compensation plans create risk and boards should look at four issues: ownership succession, board succession, management succession and organizational structure, including effectiveness of committees.
Kari English is senior editor of BankNews.
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