Overall, Missouri banks are in “reasonably good condition,” according to Missouri Division of Finance Commissioner Rich Weaver. However, Weaver said five state-chartered banks have already failed since the recession began and he expects two or three more will fail this year.
Speaking at the Missouri Bankers Association’s annual convention last month, Weaver said common problems he sees at Missouri institutions are out-of-territory participations and quickly eroding capital with no access to new capital. Weaver said residential real estate and construction and development loans are also common problems in St. Louis, Kansas City and Springfield, with the St. Louis area being in the worst shape.
Also speaking at the convention was Chuck Lewis, vice president of compliance services for the MBA. Lewis discussed the various regulations being implemented in the near future including overdraft protection, which took effect July 1. Lewis believes 60 percent of customers will opt in to an overdraft protection program after a year. His concern in the meantime, however, is banks losing money due to memo posting.
For example, if a customer makes a purchase at a gas station, memo posting initially posts $1 to the person’s account. By the time the full amount is posted and shows an overdraft, the person has left the gas station with his purchase and the bank has to take a hit for the overdrawn amount. Similar scenarios could apply to ATMs.
He is also worried that as financial institutions look to offset the loss of fee income regulators will be scrutinizing their actions. Lewis suggested that eliminating or reducing free checking may result in actions against the institution for failure to have products available to all segments (e.g. low-income populations). This could result in Community Reinvestment Act issues. He also suggested that cancelling a customer’s debit card ability if they overdraw but don’t opt-in to the institution’s overdraft program will most likely lead to allegations of loss-of-fee-income discrimination.
Another concern Lewis has is customers who opt-in one day to cover a purchase and then opt-out the next day. Lewis would like to see a limit on the number of times a customer can opt-in or opt-out of an overdraft program.
Complying with the future regulatory reform bill was also a topic of concern during the convention. American Bankers Association Chairman-Elect Stephen Wilson, chairman and CEO LCNB National in Lebanon, Ohio, said the reform bill will regulate the regulated but will do little to regulate the unregulated. “Some claim it pertains to the unregulated but if there is no one to enforce it, it doesn’t matter,” said Wilson. According to Wilson, 50 new regulations were created before this bill came along and if implemented the Senate bill would add at least 30 new more regulations.
Wilson said the ABA is working to improve the bill by lobbying to preserve the thrift charter, protect Federal Home Loan Banks’ ability to make advances, maintain preemption and improve the Consumer Financial Protection Bureau.
Also of importance to the ABA is mark-to-market accounting. “FASB doesn’t answer to anyone,” Wilson said. “In the House bill they would so we need to make sure that’s in the final bill.” Wilson said the comment window is open until Sept. 30 and asked attendees to flood their representatives with comments about the unintended consequences of mark-to-market accounting.
Kari English is senior editor of BankNews.
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