Monthly Archives: September 2010

Politics and economics make strange mix

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Brian Wesbury, speaking to Iowa bankers last week, expressed frustration over people who are unable to separate their politics from their economics. Wesbury is the ever-optimistic economist from First Trust Advisors in Wheaton, Ill. He has spoken as several banking industry events, including last year’s ABA convention, the Minnesota Bankers Association convention last June, and the Iowa Bankers Association convention Sept. 20.

Wesbury shared an anecdote about the strange integration of economics and politics. Wesbury explained that he used to work for U.S. Sen. Connie Mack, the Republican from Florida who served in the Senate from 1989 to 2001. Rod Grams was a Republican Senator from Minnesota from 1995 to 2001. Wesbury said that Grams frequently looked to Mack for leadership on banking and economic issues; Grams almost always voted with Mack.

At one point, Mack proposed repealing the Humphey-Hawkins Full Employment Act of 1978. This is the law that requires the Federal Reserve Board Chairman to report twice a year to congress. The law mandates several things; for example, it requires the Fed Chairman to connect the Fed’s monetary policy to the president’s economic policy. Wesbury and Mack thought that was ridiculous.

When Wesbury approached Sen. Grams about supporting Mack’s repeal, Grams baulked. He said he could never support repeal of a law which has the name “Humphrey” on it. Hubert Humphrey, a Democrat, was the long-time senator and former vice president from Minnesota. The movement to repeal Humphrey-Hawkins never gained any steam and today the law is still on the books, although some of its provisions as a practical matter are ignored.

Mixed feelings on Small Business Act

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I wish I had a better feeling about the Small Business Jobs and Credit Act President Obama signed yesterday. The law has some features which look good in a press release, but I am not sure they will truly make any difference.

The $12 billion in tax cuts aimed at small businesses are welcome, but I know from my own experience as as a small business owner, and from talking to other small business owners, that what we really need is more customers. Tax incentives are most effective for small businesses that are protecting net income, but in this environment, it’s not so much about protecting net income as it is about generating net income. I think most small business owners would say they aren’t the ones who need the help; it’s the buyers who need help. Tax programs aimed at consumers are probably more important at this point than programs aimed at businesses. Even in the B-to-B arena, profits are ultimately dependent upon consumer strength.

There is a lot of talk in the banking industry about a new $30 billion lending fund. Only healthy banks have access to the fund, so it will increase the difference between healthy and struggling banks. The ultimate result of that growing difference will be accelerated industry consolidation as the competitive landscape tilts too far uphill for the struggling banks. And I am not sure healthy banks lack for lendable funds, but we shall see. There may be some areas of the country where this additional access to capital may prove worthwhile.

Given the way government policy hurt so many banks (think worthless Freddie and Fannie stock), it would have been nice to see some government effort directed at struggling banks. The 10-year amortization on real estate losses would have been a meaningful measure for many banks, struggling and healthy. But that concept didn’t make it to the final version of the bill.

Why was insurance cap lifted retroactively?

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When President Obama signed the Dodd-Frank Act into law on July 21, the FDIC insurance cap was permanently raised to $250,000. The cap already had been temporarily lifted from $100,000 to $250,000 on Oct. 3, 2008. Interestingly, Dodd-Frank’s increase was retroactive back to Jan. 1, 2008.

There were six banks that failed between Jan. 1, 2008 and Oct. 3, 2008. Account holders at those institutions with between $100,000 and $250,000 became eligible for FDIC insurance coverage. The FDIC said it sent out checks to those account holders on July 22, 2010.  

What impact did the retroactive enactment have on the deposit insurance fund? I have been trying to get an accurate answer to that, but so far, here is all I know. A July 21 FDIC press release says: “This retroactive increase has reduced the number of uninsured depositors at these failed institutions from more than 10,000 to approximately 500.”

Well, “more than 10,000″ leaves a lot of wiggle room, but that statement tells us that at least approximately 500 accounts were reimbursed the full $150,000. That’s $75 million. Then, if you assume 9,500 were reimbursed an average of, say, $50,000, that’s another $475 million, for a total of $550 million. But that’s just an educated guess; could be a lot more or less. My hope is the third-quarter FDIC report has the specific number in it.

Why would lawmakers have made the coverage cap retroactive? I see no benefit to the banking industry. Perhaps the representatives from California, where IndyMac failed in July 2008, demanded it in exchange for their support of the legislation. It would be good to get some answers here.

Editor’s note: I corrected the numbers in the fourth paragraph of this post on 9-29-10.

Last week to write FASB in opposition to mark to market

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The FASB web site now lists 915 letters from people who have written in to comment on its proposal to require banks to mark loans to market. I have written about this before, but with the comment period closing next Thursday, I thought it important to encourage readers one more time to send in a comment letter.

Accounting rules that force community banks to mark their loans to market will serve absolutely no good whatsoever. This is a proposal which should be shelved permanently.

I think the consideration of mark to market rules for loans is a particularly bad idea at this time for three reasons:

First, we are coming out of an economic period where banks loaded up on real estate loans. Bankers are being encouraged by regulators and market forces to focus on other areas of lending. Commercial and industrial lending is the natural alternative, but the fortunes of many small businesses gyrate more than real estate prices. The very market bankers currently need most is particularly ill-suited for mark to market accounting treatment.

Second, mark to market is pro-cyclical. At precisely a time when analysts are saying the industry should be moving toward counter-cyclical business methodologies, the accounting world is proposing a system which would make bank conditions appear far weaker than practical in challenging economic times.

And third, the draft is coming at a time when financial reform legislation is giving regulators far greater discretion than they’ve ever had. After all the implementing regulations have been written and adopted, emboldened regulators are more likely to question all but the most certain, plain vanilla loans. Bankers will be discouraged from lending to unique or non-traditional businesses.

Ultimately, such accounting will reduce the availability of credit. Any small business that has anything unconventional about their business is likely to find it much more difficult to get a loan if FASB gets its way.

Take the time to write a letter in opposition to mark to market accounting for loans.

Proximity to a bank robbery

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A particularly brazen bank robbery took place earlier this month in my neighborhood. I had just rounded a corner after pulling out of my driveway on Monday, Sept. 13. It was about 7:10 in the morning; I had three kids in the car, who I would be dropping off at school on my way to work. At the intersection a state highway patrol car was parked with an officer standing next to the driver’s side door. He was carrying a very large gun and gave our car a good stare was we drove past. There was no other traffic in the area.

My kids and I were abuzz about the experience during the remainder of our commute. We didn’t know why the officer was there, but that didn’t prevent us from speculating.

But now we know. This story ran in our local community newspaper explaining that the U.S. Bank office in our neighborhood had been robbed. Two robbers apparently entered the bank as it was opening at 6:45 a.m. They forced the staff into the vault, aimed their weapon at the head of one of the employees and demanded money. Then they bound and blindfolded the employees, and fled. According to the article, the robbers are still at large.

What a horrifying experience for the bank employees. Knowing only what appears in this article, I would say the bank employees are to be commended for acting in a manner which did not make this difficult situation any worse.

FBI statistics indicate that this kind of robbery is relatively unusual. Early Monday morning is an extremely unusual time for a bank robbery to occur. And, the vast majority of robberies occur over a teller counter. The binding and blindfolding of staff also is quite unusual.

The newspaper said the robbers are suspects in other bank crimes, so hopefully they will be caught and brought to justice soon.

Dean, former top Wisconsin regulator, set to retire

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Dick Dean, the Wipfli consultant who was the chief bank regulator in Wisconsin for many years, is retiring. This annoucement was just published by the company:

After working for 43 years in the financial services industry including nine years with Wipfli LLP, Wipfli partner Dick Dean has announced his retirement effective September 30, 2010.

“Over his nine years with Wipfli LLP, Dick has been a strong member of our team as we have significantly grown the financial institutions industry practice, expanded into new markets, and launched new services to help financial institutions face new challenges,” said JoAnn Cotter, partner-in-charge of Wipfli’s financial institutions practice. “The partners and associates at Wipfli greatly appreciate Dick’s contributions over the years and wish him much happiness in his retirement.”

Dean has extensive experience in the financial institutions industry. In addition to serving financial institutions through his work at Wipfli for the last nine years, his background includes five years as Wisconsin’s first Secretary of the Department of Financial Institutions (DFI). In that role, Dean served as the top financial regulator and chief advisor to the governor on matters regarding Wisconsin’s banks, savings institutions, credit unions, mortgage lenders, and licensed financial service providers. He also served as Wisconsin’s Deputy Commissioner and Commissioner of Banking for eight years. In addition, Dean worked for over 22 years as a bank officer and director at three Wisconsin banks.

Dean holds a bachelor’s degree in business administration and management from Madison Business College. He also completed graduate and post-graduate studies in banking at the Graduate School of Banking in Madison, Wisconsin.

Dick has been a tremendous resource and friend to me and NorthWestern Financial Review magazine over the years. Certainly a comfortable retirement is much deserved, but my hope is he will stay connected to the industry in some way.

Trade groups honor legislators

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The bankers associations in Indiana and Iowa recently named a “Legislator of the Year” at their respective annual conventions. 

The Indiana Bankers Association named Sen. Allen Paul (R-District 27). The association said that Sen. Paul is being recognized for his support of community banking, “particularly for his oversight of the passage of responsible banking legislation.” He chairs the Insurance and Financial Institutions Committee. ”Paul has earned a reputation for simplifying complex concepts, for running efficient committee meetings and for passionate civic involvement,” the Indiana bankers said.

The Iowa Bankers Association honored Rep. Kraig Paulsen (R-Hiawatha). IBA said Rep. Paulsen is a “great example of a politician who doesn’t just talk about getting this done–he actually gets them done. Early in his legislative career, he successfully sponsored and passed an IBA-supported property tax reform bill.”

Such recognition undoubtedly helps elected officials. While they are typically being criticized for most things, it must be nice once and a while to get a pat on the back. But more importantly, legislators can include the recognition on their resume, which may help build credibility with bankers and with other business leaders. Such credibility probably makes it easier for them to raise money during campaign season.

Remembering Ed Tubbs

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Ed Tubbs was a giant in Iowa banking circles. He passed away on Friday at the age of 90. He was a friend of this magazine, helping this reporter out when he was just a cub, covering the farm crisis in the 1980s. This obituary gives you a pretty good picture of his extensive involvement in the industry:

Edward Lane Tubbs, 90, Maquoketa, died Sept. 17 at Clarissa C. Cook Hospice House, Bettendorf. He was a longtime banker and community leader.

He was born April 17, 1920, at the family farm in Clinton County, near Elwood, the son of Clifton and Mary Lane Tubbs. He graduated from Elwood High School, Maquoketa Junior College, Iowa State University with a bachelor of science degree in animal science, and attended the Wisconsin Graduate School of Banking.

On Nov. 27, 1941, he married his high school sweetheart, Grace Dyer, who passed away in 1998. On March 11, 2000, he married Elaine Marshall in Scottsdale, Ariz.

After graduating from Iowa State, he worked for the Extension Service in Newton, Iowa, then served in the U.S. Army during World War II. He then operated the century family farm near Elwood, during which time he served as president of the Clinton County Farm Bureau. He was a director of the Mississippi Valley Farm Business Association, chaired the board of the Lost Nation co-op elevator and served many years as livestock superintendent of the Clinton County 4-H Club Show. He was a 4-H leader and Little League coach, and served many years as president of the Elwood School Board, during which time he was a leader in forming the Delwood School District.

In 1957, he was employed by the DeWitt schools as instructor for the veterans on-farm training program. In 1959 he was a member of the first agricultural delegation from the U.S. to the Soviet Union. He later made two trips to Russia, first as a member of Friendship Force in 1985, and in 1993, representing the Iowa Bankers’ Association and Iowa State University to the Baltic states to assist in their transition from a central to private banking system.

His banking career began in 1959 when he joined the Jackson State Bank in Maquoketa as agricultural officer, and later became vice president and director. In 1966 he and his associate and friend, John Fagerland, purchased controlling interest in the recently chartered Maquoketa State Bank, where, over the next 44 years he served as president, director and chairman. In 1967, he and John incorporated Ohnward Bancshares which today includes Maquoketa State Bank, First Central State Bank, Gateway State Bank, and Ohnward Bank & Trust.

He served as treasurer, then president, of the Iowa Bankers’ Association, and a director of the American Bankers’ Association. During the ag crisis of the 1980s, he helped found and served as president of Mabsco Agricultural Services, a consortium of 15 Midwest state bankers’ associations designed to provide credit to farmers. In 1987-89 he served as superintendent of banking for the State of Iowa.

Locally, he helped create the Maquoketa Timber City Development Corporation, and served many years as director and as its vice president. He served on the board of the Maquoketa Chamber of Commerce and its Industrial Development Committee. He was treasurer of the City of Maquoketa, a 50-year Rotarian and 9-time Rotary Paul Harris Fellow. He was co-founder and longtime director and treasurer of Maquoketa Community Services, and served on the board of the Maquoketa Senior Center and the Pearson Foundation Awards Committee. He was a 60-year member of the American Legion.

Ed was a trustee of the Iowa 4-H Foundation and received the 4-H Alumni Award in both Clinton and Jackson counties, and was a lifetime honorary member of the FFA Alumni. He served six years as a director of the ISU Alumni Association. He was a governor of the ISU Foundation, and a member of the Founders Club and the Order of the Knoll. For over 30 years he provided scholarships to Iowa State freshmen, 4-H alumni and Maquoketa Community High School graduates, and funded an endowment in the Maquoketa Area Foundation for scholarships as a memorial to his wife, Grace. Other philanthropy included major contributions to the Maquoketa Library, the Hurstville Interpretive Center, the Ohnward Fine Arts Center, the Maquoketa Area Recreation Center, the Extension 4-H Building at Iowa State, and the ISU Alumni Center.

He was a 13-year director of the Iowa Business Growth Corporation, the Iowa Student Loan Liquidity Corporation, and the ISU President’s Council. He was state director of the Conference of State Bank Supervisors, and was on the Iowa Friends of Agriculture executive committee, as well as a trustee of the Sharar Foundation of Clinton Community College. He was a longtime trustee of the Hoover Library Association.

Honors included the Iowa Friend of Extension Award, Gamma Sigma Delta (agricultural honorary) Alumni Achievement Award, the ISU Floyd Andre Award for distinguished service to agriculture, the Community Service plaque from Mt. St. Clare College, the President’s Award from the Maquoketa Chamber of Commerce, the Congressman Jim Leach Award for leadership in the banking industry, and the Bruning Award in Winnepeg, Canada, from the American and Canadian Bankers Associations for lifelong service to agricultural banking.

He was named honorary director of Walnut Hills Bank at the Iowa Living History Farm.

He was a member of the United Church of Christ in Maquoketa, where he served as moderator and in many church offices.

His pride and joy was his family. He is survived by his wife, Elaine; sons Steven (Chris) of Delmar, Alan (Myrna) of DeWitt, and William (Linda) of Eldridge; grandchildren Brigham (Kami) of Clinton, Peter (Joanne) of Des Moines, Joel (Sara) of Delmar, Abram (Nicole) of Anamosa, Mary (Mike) Harling of Chicago, Aimee Tubbs and Moe Provencer of Seattle, Anne (Matt) Olson of West Des Moines, and Alisa (Joseph) Sleep of Columbus, Ga; 16 great-granchildren; and a brother, Charles (Marjorie) of Davenport. Also Elaine’s family: Mike (Cathy) Marshall of Maquoketa, Pam Marshall and husband, Jim Darling, of Fort Collins, Co.; six grandchildren; and two great-grandchildren.

Memorials may be made to the Ohnward Fine Arts Center, Hospice of Jackson County, the United Church of Christ or the charity of your choice.

Online condolences may be given at: www.carsonandson.com.