Bankers Encouraged to Fight Credit Union Small-Lending Bill
A tepid economy and regulatory uncertainty together make for strange bedfellows, as epitomized by recent deals to sell two banks to, of all things, credit unions. And along with the deals comes renewed debate on whether the nonprofit institutions should be taxed.
The leadership of the American Bankers Association pushed attendees at this year's Conference for Community Bankers to stand united in public, while urging them to push lawmakers to sign onto a bill to address examination appeals.
The American Bankers Association used the first full day of its annual Government Relations Summit as a call to arms for its members.
Representatives for the association urged bankers to become more assertive as lawmakers consider several bills deemed critical to the industry, particularly a proposal to expand small-business lending at credit unions and a bill to reform the regulatory examination process.
"This is no time to play footsie," James Ballentine, the association's executive vice president of congressional relations and political affairs, told the more than 1,000 bankers at the summit, which is being held in Washington. "Tell the members of Congress about your bank what you bank does and what you mean for your communities."
The crowd got particularly rowdy when association representatives gave an overview of the proposed Financial Institutions Examination Fairness and Reform Act, which would establish an independent appeals process for banks. Asked whether supervision and examination have added value to banks since the financial crisis, scores of bankers raised their hands to answer "no."
"How about a hell no," shouted one audience member.
Robert Litan, vice president of research and policy at the Ewing Marion Kauffman Foundation, said during a panel discussion that his organization received a similar response from a regulatory survey conducted in November. More than 55% of the 90 bankers surveyed said supervision has not added value; a greater majority said it was counterproductive or costly in relation to the benefits.
Only 12% of the bankers surveyed said the supervision process had proven beneficial to a significant degree.
Nicholas Ketcha Jr., an executive managing director at FinPro and a former director of supervision at the Federal Deposit Insurance Corp., said that the one thing missing from the survey was how "judgment has been taken away" from examiners. As a result, there is "second guessing" during the examination process, he said to a room full of applause.
"Examiners' judgment has been neutered" by supervisors after bank failures early in the financial crisis were blamed on the examiner, said Wayne Abernathy, the association's executive vice president of financial institutions policy and regulatory affairs.
Litan and Abernathy suggested several proposals that bankers should pitch to lawmakers and regulators: customized supervision, clarity on capital requirements and recognizing risk management of loan losses.
A lot of commercial real estate lenders say "that with rents expiring this year or next year the regulators, knowing the soft markets in CRE, are anticipating that it will project a decline in rents," Litan said. "Therefore, they are de-classifying loans on a projection basis even though that loan is performing today and even though the projects may have personal guarantee from the borrower" or additional collateral.
Litan also suggested that banks have the option to either perform this declassification, known as "alternative classification," or volunteer for stress testing instead.
The association on Tuesday afternoon then transported bankers — armed with more knowledge and packets with details on the bills discussed — to Capitol Hill to visit lawmakers.