04/18/2013

Loving: Downsizing Megabanks Key To Restoring Free Markets

ICBA NewsWatch Today 04/18/2013

Advocacy
Loving: Downsizing Megabanks Key To Restoring Free Markets
Downsizing too-big-to-fail financial institutions is essential to removing their government-subsidized competitive advantages and restoring America’s free market system, ICBA Chairman Bill Loving wrote in an American Banker op-ed.

“As a community banker, I do not share concerns about the impact addressing the threat of ‘too big to fail’ financial firms once and for all will have on our industry,” Loving wrote. “The fact is this: Community bankers should be more worried about what will happen to our industry if we don't act.”

Maintaining the status quo would only result in community banks’ continued subjugation by the megabanks that enjoy privileged status in Washington, Loving wrote. Only by restructuring these firms can we eliminate unfair competitive advantages, unleash free markets and allow community banks to compete in the financial landscape, he wrote.

ICBA this week launched a new website calling on policymakers to end the too-big-to-fail problem to improve competition and innovation and increase the availability of consumer credit. The “End Too-Big-To-Fail” site includes a variety of resources from ICBA, policymakers and others on this critical issue. Read Loving's Op-Ed.


Regulation
Fed’s Stein Suggests Stricter Policies on Too-Big-To-Fail
While policymakers have made progress in addressing the problem of too-big-to-fail financial institutions, evidence suggests the issue has not been fully resolved, Federal Reserve Governor Jeremy Stein said.

Speaking at the International Monetary Fund, Stein said the market appears to attach some probability that the government would bail out the creditors of systemically important financial firms. He cited as evidence the funding subsidy offered by artificially high credit ratings.

Another problem is that even if bailouts are considered improbable, the failure of a systemically risky financial institution would nevertheless inflict significant damage on the financial system, Stein said. “In the presence of such externalities, financial firms may still have excessive private incentives to remain big, complicated and interconnected, because they reap any benefits—for example, in terms of economies of scale and scope—but don't bear all the social costs,” he said.

Stein suggested increasing the slope of the capital-surcharge schedule that is applied to large financial firms. He also recommended imposing at the holding company level a substantial senior debt requirement to facilitate resolution under the orderly liquidation authority established by the Dodd-Frank Act.

Community bankers can still register for next week’s 2013 ICBA Washington Policy Summit to meet with policymakers on too-big-to-fail, ICBA’s Plan for Prosperity and other top industry priorities. Slated for April 24-25 in Washington, the summit will allow community bankers to meet directly with their members of Congress and banking regulators. Register for the Policy Summit.


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In the News
Loving Testimony on Plan for Prosperity Makes News
ICBA Chairman Bill Loving’s congressional testimony on the need to implement regulatory relief for community banks was featured in The Hill. Loving testified on Tuesday before the House Financial Services Subcommittee on Financial Institutions and Consumer Credit on behalf of provisions in ICBA’s Plan for Prosperity legislative platform.

The Capitol Hill newspaper featured Loving’s comments that the Consumer Financial Protection Bureau’s proposed mortgage-lending rules are unnecessarily restrictive and could leave good borrowers without mortgage credit. Loving also covered other regulatory-relief provisions in the Plan for Prosperity and noted that community bankers are prolific small-business lenders.


Payments
Report Finds Rising Fees, Costs for ATMs
The prevalence and amount of ATM surcharge fees charged by financial institutions have increased since 2007, according to estimates from the Government Accountability Office.

The GAO report on ATM fees found that the estimated average surcharge fee from financial institutions increased from $1.75 in 2007 to $2.10 in 2012, in inflation-adjusted dollars. In contrast, GAO estimated that the fees assessed by financial institutions for using an ATM outside their network generally stayed constant over this period.

The GAO analysis found some differences in the biggest cost drivers for ATM operations. For example, large banks reported higher costs for hardware and software investments than did midsize banks and credit unions. In addition, most of the surveyed ATM operators reported that overall per-ATM costs have increased over the past five years while revenues have declined.


Regulation
Foreclosure Review Check Problems Solved, Fed Says
The Federal Reserve Board announced that the paying agent sending checks to borrowers under the Independent Foreclosure Review said early problems with some checks have been corrected. Some check recipients informed the Federal Reserve that they were told their checks could not be cashed, though the problems have been fixed.

On April 12, payments began to 4.2 million borrowers following an agreement reached by federal bank regulatory agencies and 13 mortgage servicers. More than 50,000 people have already cashed or deposited checks.


Economy
Fed Beige Book Reports Moderate Growth
Economic activity expanded at a moderate pace from late February to early April, according to the Federal Reserve’s latest Beige Book. Most districts reported increases in manufacturing activity, residential and commercial real estate improvements, and higher loan demand. Consumer spending grew modestly, while reports on agricultural conditions were mixed.

Employment conditions remained unchanged or improved somewhat, with reports of hiring most prevalent in the manufacturing, residential construction, information technology, and professional services sectors. Respondents were optimistic about the economic outlook, with growth expected to continue at the same or a slightly improved pace.


Poll
This Week’s Quick Poll
Take this week’s Quick Poll on credit union business lending, and view results from the previous poll on whether Congress will act to take on the too-big-to-fail threat. View the Archive.


Education
ICBA’s BSA/AML Institute Slated for May
An upcoming ICBA seminar is designed to provide attendees with a greater understanding of how to adopt improved Bank Secrecy Act/Anti-Money Laundering practices, establish stronger internal controls, and monitor for weaknesses. The BSA/AML Institute, scheduled for May 13-15 in Minneapolis, will utilize real-world examples for banks of varied asset sizes. Using this approach, attendees can closely consider their situation relative to a peer example and put more substance behind catchphrases such as “risk-based” and “as needed.” Register Online.