After years of trying to fend off new regulations, the banking industry is poised to win some relief from existing rules.
So says John Ikard, president and chief executive of FirstBank in Lakewood, Colo., and the incoming chairman of the American Bankers Association. The mood among legislators is slowly shifting, he said, and banks in the next year may have a chance to win some of the regulatory relief that they have been seeking ever since the enactment of the Dodd-Frank Act and other postcrisis rules.
Ikard, who has led the $14 billion-asset FirstBank since 1999, will begin a one-year term as ABA chair at the lobbying group's annual meeting this week in Dallas. He succeeds Jeff Plagge of the $1.5 billion-asset Northwest Financial in Arnolds Park, Iowa.
On the top of Ikard's agenda will be opposing regulations tied only to banks' asset sizes and pushing for a regulatory approach based on risk instead. Other priorities include Basel III relief for small banks and working with retailers to secure the payments system.
Ikard runs a larger bank than recent ABA chairs, but he still talks like a community banker, stressing the social value of smaller banks and the need to exempt them from onerous regulations. Yet he argues that banks need to stick together and recognize that regulations targeting some of them ultimately affect all of them.
American Banker spoke with Ikard about what his objectives in the year ahead and what he hears from bankers across the country. Here is an edited excerpt of the conversation.
How do you see your role as the new ABA chair?
JOHN IKARD: We've played some pretty good defense at the ABA, but it would be nice to have a few more victories. It's funny as the ABA chairman you think you're going to come in and play quarterback, but you end up playing nose tackle. You tell your members, 'This is what I kept out of the end zone.'
The last four years we've had to be defensive, because that's where the consumer and the legislative body politic have been. With Congress being so dysfunctional, it's hard for anybody to get any victories. I do think the tide is turning, though. I've seen some hints from various legislators that they're ready to give us some relief.
What are the association's priorities?
We really don't like hard-dollar demarcation lines these rules apply above $10 billion in assets, these rules apply above $50 billion, and so on. We want to see regulations based on the model. The small community bank that's got a very sound model should be regulated under a much different criteria than the big-city, money-center banks. If we can get tiered regulation based on the operating model of the bank, I think you'll see a great sigh of relief among bankers across the country.
At FirstBank, we think of ourselves as a community bank because we're basically a big mortgage lender. We don't do wealth management or insurance, we never did subprime, we never took [Troubled Asset Relief Program funds]. We're basically a big community bank, and we'd like to be regulated like that given that we have a very safe risk profile.
What are your hopes for the qualified-mortgage rule?
I always want to make sure to champion what's good for the industry and not just for the bank. We and most other community banks will continue to do non-QM loans because that's what the market needs.
One thing I'd like to see is regulators give all portfolio loans QM status. Obviously, this is important for FirstBank, but it is also important to other community banks, especially ones in rural areas that want to make loans you can't wrap in the QM envelope. They still want to make the loan and they think they should have QM status on the loan.
It makes sense to me if I'm going to take all the interest-rate and credit risk, why would the government care if it's QM or not?
Regulators are focusing on cybersecurity. What kind of reforms will you push for?
I'd like to see more cooperation between the bankers and retailers on cybersecurity issues. Rather than have a negative and antagonistic relationship, I think we need to sit down and come up with a secure platform to process these transactions.
A cooperative solution will always be preferable to a legislative solution. If the sides that have a vested interest can come together and develop a network and agree on parameters and security measures, I think that's much preferable to having something mandated through Congress. The legislators probably have good intentions, but whenever they get involved, so many agendas come to the table and it becomes a conglomeration of things that don't work for anybody.
[EDITOR'S NOTE: Ikard's comments on cybersecurity came before word Friday of President Obama's major package of initiatives to increase data security for financial transactions, including an executive order to add chip-and-PIN technology to government-issued credit and debit cards.]
Is it difficult to balance the interests of the large and small banks within the ABA?
When you get the entire banking industry under one umbrella, there's always going to be some disagreement. Somebody always feels like the middle child, the one that's getting picked on.
What I worry about is when you have really heavy regulatory confusion, some banks may say, let's have an organization just for banks under $5 billion in assets, or for banks between $10 billion and $20 billion, and we'll just look out for ourselves.
The problem is that bad legislation is bad legislation. It always flows downhill, and you can't build walls high enough to protect you. We're so interrelated that, if they pass bad regulation, it will eventually flow down to you, as we saw with Dodd-Frank.
What was FirstBank's experience with hard-dollar regulatory thresholds?
When the Durbin amendment passed, I think we were at $10 billion and one dollar in assets. We were maybe the worst-positioned bank in the country. It was perfectly the wrong spot, and it cost us millions and millions of lost revenue. That rule was very frustrating to me because it was an arbitrary threshold, and we just got caught on the wrong side of it.
But let's say it was $15 billion we can't just sit there at $10 billion because we're eventually going to grow into that. I think banks get that, and there's a great deal of cooperation. Even people like John Stumpf at Wells Fargo say we need relief for the community banks. John gets it. Richard Davis of U.S. Bank gets it. The key is to hold the group together, because when we splinter, when we go our own way, we get things like Dodd-Frank. When we stay together we're just so much more powerful.
Are there differences of opinion between large and small banks about Basel III?
The really big banks may talk about risk-weighting issues, or issues with S Corps and how you raise capital and value mortgage-servicing rights. The smaller banks just want it recognized that they should not be subject to this. Even the European bankers who wrote Basel III said, "This is crazy. This was never meant to apply to community banks."
We've made some good progress there everybody agrees that it shouldn't apply to smaller banks, but sometimes it's hard to just get that in writing. I think there will be a time, maybe in the next year or so, to get those issues resolved.
What hinges on this coming election, and what could change with a Republican takeover of Congress?
At the ABA, we're bipartisan. We have friends on both sides of the aisle. The current administration has not been as receptive as we would like, though we do have some really good friends in the Democratic Party and I don't want to chastise them.
Legislatively, I don't know how it's going to look [after the election]. There are some candidates that we think have much more of a pro-bank position, but they're on both sides of the aisle.
Are the regulators listening to the industry's concerns? Are legislators?
We think there are things the regulators can do through their own power. Eventually, Congress will need to get involved and pass legislation to refine some of the points in Dodd-Frank. Everybody's acknowledged that Dodd-Frank has serious errors. But the Democrats that support Dodd-Frank are very wary of opening that Pandora's box and allowing lobbyists to tweak everything, and I can understand that.
But if they allow us to tweak at least a few of the rules they'll have a much happier, more cooperative system. The bankers will be happier, the customers will be happier, and I think the regulators will be happier. I think that's a win-win-win deal.
The Independent Community Bankers of America has opposed the push toward consolidation for smaller banks. What's the ABA's take?
You can't stop market conditions. We've gone from around 18,000 to 6,000 banks.
But one thing that causes me concern is that, in one out of every five counties in the United States, the only bank they have is a community bank. When a community bank leaves a town, that town just dies. A small town can't survive its last bank leaving.
So when you go from 18,000 to 6,000, what types of banks are you losing? If you lose a community bank in Denver or New York, nobody cares, because there's so much competition. But when you lose a community bank in a small town that's a much bigger deal.
For small banks that have $40 million or $50 million in assets, and they're dedicating three people to compliance, I don't know how they're going to survive. I'm not just concerned about the number of banks we lose it's what kind of banks, and where are we losing them.