WASHINGTON - While many economists spend their days in a hypothetical world of purely rational behavior, James Chessen concentrates on more concrete pursuits - like predicting the future of the banking industry.
As chief economist for the American Bankers Association, Mr. Chessen must divine trends and alert the industry to changes in the economic and regulatory climate.
"We do a lot of that," he said casually, one leg draped over the arm of his office chair. "One of the roles that this office, I think, plays is to try to think out into the future - what will the issues be and what do we need to know to address those kinds of things."
Mr. Chessen, 41, and his staff produce 30 surveys per year for ABA members. After crunching the numbers, he converts the research and projections into ammunition for industry policy arguments before congressional committees and regulatory agencies.
"A lot of what we do is articulate what those policy positions are," he said. "We're involved in practically every testimony, every written statement."
One example is the industry's arguments on reducing deposit insurance premiums. Bankers credit Mr. Chessen and his staff with helping convince the FDIC that the economic recovery would boost industry financial strength to a level that would justify a premium reduction.
"They were early on in pointing out that the industry would restore itself to better health sooner than many people projected," said Stuart Hoffman, chief economist at PNC Bank Corp.
While banks are expected to get a huge cut in premiums later this year, Mr. Chessen is still working the issue.
"We've been in the face of the FDIC more than they would like," he said. ABA plans to press for a reduction of premiums to zero for the second half.
A former economics professor at Lake Forest College in Illinois, Mr. Chessen came to Washington in 1983 to work at the FDIC as a financial economist. He moved to the ABA as a senior staff economist in 1988 because he wanted to be more involved in economic policy. In May 1992 he became chief economist.
Under his leadership, the economist's office has become an instrument of ABA advocacy. Unlike the chief economists of other trade groups, Mr. Chessen works directly with the lobbying arm of his organization.
"The role of the economist in working on key policy issues has come to the forefront under him," said Edward Yingling, executive director of government relations at the ABA.
Mr. Chessen's relaxed manner belies his frenetic pace. Issues that have occupied his time recently include financial modernization, reforming the Home Loan Bank system, credit union taxation, and Glass-Steagall reform. But most of his efforts have gone into the debates over reducing bank insurance premiums and recapitalizing the thrift insurance fund.
Tracking the capital levels of the bank and thrift funds, Mr. Chessen and his staff projected in April 1994 that banks would replenish their insurance fund long before thrifts would. He called recent attempts by savings and loans to avoid the cost of recapitalizing the Savings Association Insurance Fund by converting to bank charters "a conscious attempt to get out of an obligation."
The proper solution to the SAIF funding problem, according to Mr. Chessen, is to force thrifts to recapitalize their fund and retire the bonds floated in 1987 to start the industry's cleanup. Permitting premiums paid by the so-called "Oakar-Sasser" institutions - thrifts acquired by banks - to be used to pay down Fico bonds would accelerate the recapitalization, he added.
The tension in Mr. Chessen's voice as he discusses the SAIF issue contrasts markedly with the generally cheerful demeanor that has served him so well in navigating the political tides of Washington.
At the FDIC, Mr. Chessen made his mark as a member of an interagency task force that developed risk-based capital rules for banks.
"He really strived to make sure that everybody was aware of what was going on" in that initiative, said Alan McCall, Mr. Chessen's boss at the time and now the assistant director of asset dispositions at the FDIC. "He is obviously a people person."
Political savvy and an ability to frame economic issues in the context of banking industry concerns are other key strengths of Mr. Chessen, according to Mr. Hoffman, who served from 1992 through 1994 as chairman of the ABA's economic advisory committee.
"He does a nice job of taking the economic mumbo-jumbo" and putting it in terms that his audience understands, Mr. Hoffman said.
Faith in the ultimate wisdom of unfettered markets and awareness of political realities shape Mr. Chessen's analysis of the legislative debate over allowing banks to enter other businesses. Regulatory barriers will fall slowly, he predicted, giving banks entry to new financial businesses before opening the door to commercial enterprises.
"I would venture to say that 20 years from now, there will probably be a mix of banking and commerce," he said. "When and how we get there is another story. I don't know if it would be politically acceptable today."
Last year, Mr. Chessen and his staff worked with 22 leading bankers to produce a blueprint for the future of the banking industry. The report documents the decline in banks' share of the financial services market and argues that allowing banks to expand their product offerings is essential to the survival of the industry.
"It's a real hard look at the industry and where it's evolving, in a way that will serve us very well over a lot of years."
Mr. Cahill writes for the Medill News Service.
