Virus scare is 'textbook reason' small banks matter, says ICBA chair

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ORLANDO, Fla. – Noah Wilcox is stepping into a high-profile role at a turbulent time for banks and the overall economy.

Wilcox is beginning a one-year term as chairman of the Independent Community Bankers of America as coronavirus concerns are creating chaos for oil prices and the stock market, while stoking fears of a recession.

At the same time, he will be tasked with promoting a political agenda that includes additional regulatory reform and continuing an aggressive push to remove credit unions’ tax-exempt status. The ICBA is also working on fostering fintech innovation and helping community banks identify new ways to grow and expand.

“We’ll continue to lend and do everything we can to keep our local economies strong and vibrant,” said Wilcox, chairman, president and CEO of the Wilcox Bancshares, the Grand Rapids, Minn., parent of the $225 million-asset Grand Rapids State Bank and the $104 million-asset Minnesota Lakes Bank.

"We certainly want to encourage community bankers to use their voices to fight for their charters and a level playing field," says Noah Wilcox, chairman and CEO of Wilcox Bancshares.

The ICBA’s Wake Up initiative aims to put pressure on lawmakers and regulators to take action against credit unions.

"We need to get policymakers to wake up, too,” Wilcox said.

The National Credit Union Administration, the chief federal credit union regulator, declined to comment.

Wilcox made his comments during interviews before and during the ICBA’s annual conference. Here is an edited transcript of those discussions.

How does concern and uncertainty tied to coronavirus change your 2020 outlook? Does this influence the ICBA’s near-term priorities?

NOAH WILCOX: It’s unfortunate, especially for families that have been impacted thus far. My heart goes out to them. I’m watching it closely, as are community bankers across the country; however, our priorities for community banking remain the same.

Read more: Complete coverage of the coronavirus impact

Community banks have been around for generations and have weathered storms before. We are well-capitalized and well-positioned to continue to serve our customers and communities, in good times and in bad. In fact, this is a textbook reason why community banking matters. We don’t give up on our customers and communities when times get tough. We will continue to be leaders in our communities and focus on the best ways to provide capital and needed services to our customers just like we’ve always done.

The Fed recently cut rates by 50 basis points. Was it the right move at the right time? Does the inevitable pressure on margins become a formidable headwind for banks?

The Fed is going to make the best decision they can with the information they have. My role as a community banker is to look out for the best interests of my customers and my community regardless of the level of interest rates. Community banks are in this business for the long run. As a fourth-generation community banker, I think I’m a living testament to that. Every community bank in the country will adjust to headwinds as they always have and I’m confident we will help our customers manage any headwinds if necessary.

Investors are clearly worried, given Monday’s market drop. But economic data, including the latest jobs numbers, have held up. What’s your view on the market reaction and the broader macro outlook?

Yes, the economic data has been strong and community banks are doing well. They are the economic bedrock of their communities no matter what the macro outlook looks like. They contribute to the local tax base and will continue to do so long past the coronavirus. While the market drop concerns people, and doesn’t feel good right now, community bankers will forge ahead and do what’s best for our local customers.

What are the ICBA’s top priorities this year?

A top priority is to get more people to wake up to the risky practices and costly tax subsidies and, frankly, irresponsible oversight of the nation’s credit unions. That’s a big focus for the ICBA and myself as chairman in the coming year.

We certainly want to encourage community bankers to use their voices to fight for their charters and a level playing field. We also want to continue to encourage embracing innovation and partnerships with fin-techs. And generally, we want to continually raise the profile of community banks and why they are so important to Main Street America.

Community banks’ objections to credit unions are long-running. What do you see as the key issues on this front in 2020?

We want the rule book to be the same for all the players. As you know, credit unions aren’t subject to the [Consumer Financial Protection Bureau] or the Community Reinvestment Act; they aren’t subject to the same regulations or the same tax structure. They are operating so far outside of their mandate. It is time for policymakers to truly wake up and act.

What’s the ideal solution?

The exemption statute is pretty clear on what you can and can’t do — but when their chief regulator is more of a cheerleader, it’s allowed them to get away from the actual mandate. Congress is letting this happen by not addressing the issue. The more they push the envelope, the more emboldened I think they’ve become over the years. If they operate like a bank, they should be treated like a bank. And that means taxes.

Several credit unions have bought banks recently. What are your thoughts?

It’s a disturbing trend and one I think needs to stop. There are a number of things troubling here. No. 1, you’re further reducing the tax base unnecessarily and depriving certain communities of access to a bank that cares about the community and gives back differently. The other thing is, when you look at how the goodwill is treated in a credit union-bank transaction, if a credit union and a bank are both bidding on a bank, the credit union can afford to outbid every time because their goodwill portion is treated as capital, where it is not treated as capital by the community bank. That’s another unfair advantage of a flawed system that Congress needs to look at. We need meaningful action.

We continue to see consolidation among community banks.

There’s always been consolidation. But when there was very active de novo activity pre-crisis, it didn’t look like it does when there is none, or very limited. de novo activity. So again, we do need to revisit the de novo barriers. If we can make headway with policymakers and regulators, you have a chance to stabilize that.

What’s getting in the way of more de novos?

The current barriers to entry for a new charter — in a metro location or rural — are obscenely high [capital and regulatory requirements]. When it is faster and cheaper to buy a charter and move it than it is to charter a new bank, that’s a problem. And it’s bad public policy. I think it’s time for this to be revisited by the regulatory community.

Especially in rural areas, where maybe you don’t have a bank anymore, that’s where de novos are really important. A small town in rural America that doesn’t have a bank in a 60-mile radius, it would seem to me that policymakers and regulators would want a community bank in that area to serve those people, give them access to the financial system. It’s very important that we get at these barriers to entry.

What are the drivers of growth for community banks in 2020?

Residential real estate and commercial real estate will be big, big drivers. Certainly, small business lending will be a big piece. Community banks make 50-plus percent of small business loans nationally, and those are the businesses that really keep employment and local economies strong. So those are the big three. Barring any kind of calamitous economic event [ it is too soon to call on coronavirus], I don’t see that changing.

The rise of digital is changing business broadly, and banking specifically. Are community banks adapting quickly enough?

On the payments side, especially, there’s a lot going on that requires banks to have a digital strategy. Ignoring the digital space is something bankers would do at their own peril. And I think bankers understand the need for digital channels and innovation. We’ve taken an approach to actively partner with fintech companies and really help them understand the banking space and the regulatory process so that they are able to bring their skillsets to help us with solutions. There are products and services underway that are very helpful, and I think the future is bright.

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