BANKTHINK

Dear Santa, Please Let the Bankers Grow Up

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The following is my wish list for this holiday season.

To bankers: Please grow up. 

You are my clients. You did not cause the meltdown, but you did little to help yourselves. Why do we have Dodd-Frank, Volcker, Durbin, etc.? These did not spring up magically overnight. I watched in 2008, 2009, 2010 when Congress was demanding answers from banks, and not getting them. When did we lose the credo, "united we stand"?   

Take a look at the FDIC’s web page for Federal Register notices. Pick a few random rules and look at the comments.  What do you notice?  There is no consistency in the replies.  In short there is no unity. 

Banking has no representation.  Lobbying has failed.  Each time I meet with regulators there is a new group, association, or person for each new issue. Frankly, the regulators I meet are more than a bit confused and would welcome some consistency. 

Interest income is falling. Noninterest income has been rising, but this may be subject to elimination under new regulation. The cost of deposits is rising, as are the deposits themselves. But there are very few assets being booked, returns are poor and regulation is choking any possible economic recovery. In short, business conditions are very difficult. As an industry, we do not need to be piling new regulations on our own head. When we fail to present a unified front and effectively communicate to professional lawmakers, the result will be ill-conceived laws.

To Congress: Please grow up, too. There is a great deal of talk about the fiscal cliff.  How can there be a cliff? Congress has not passed a budget for several years.  We have no ability to judge the impact of "cliff" because there is no benchmark.

America has spoken and the Democrats have won.  Americans favor tax-and-spend policies.  This was the platform they chose in the election. I would ask a bit of caution here. 

As of September 2012, the FDIC reports that more than $10.5 trillion are sitting in bank deposits.  The government has stated a desire to increase jobs, but remember that jobs grow where capital flows.  This $10.5 trillion is the sum of American wealth capital, and it is liquid.  As an economist, I can compute the elasticity of taxes or the maximum increase before capital flies. Is it right to demand more jobs from American businesses by investing capital and then penalizing for the same investment?

To regulators:

Over the past two years, I have received invitations and warm welcomes in Washington. Policymakers have given time and attention. I can call and have great discussions, share information and solutions. Thank you. I hope this continues in 2013. 

To the Fed, my favorite magazine is the International Journal of Central Banking. The papers are brilliant, presented by then finest economic minds across the globe.  But they focus on the smallest slivers of an economy.  Where are the intellectual giants calling for a revisit to the most basic economic principles?  Our central banks are being shouldered with greater responsibility but not given any new operating theories.  The Fed had been managing inflation with interest rate manipulation, and now proposes to encourage employment by lowering interest rates.  Sounds circular. 

To the FDIC, so far you are showing great wisdom.  You are avoiding the family squabbles over whether to extend or not TAG.  It seems one may often demonstrate maturity by avoiding family squabbles, to a point.  Remember that most American capital is sitting idle in deposits. 

If Congress gets the taxation wrong, those deposits could move in an instant.  Your revenue depends on collecting an assessment to pay for bank failures. What happens to your assessment revenue if those deposits fall by 15% or 20% in a quarter? The lost assessment revenue could push you back into the red. 

Again, jobs grow where capital flows. Please suggest to Congress if they get taxation wrong our liquid capital may flow overseas.

To Santa Claus: Please help Congress get it right. And please let the bankers grow up. 

Tim Alexander is a managing director and an economist at Triune Global Financial Services, a consulting firm for banks and regulators. 

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