Continued Congressional Stalemate

August 27, 2014

The week after Labor Day, members of Congress will return to Washington, DC, to complete their work for this year and this session of Congress. Much remains to be done. Many bills have been voted out of the House of Representatives, only to collect dust in the Senate. This stalemate is the result of a divided Congress, with the House of Representatives being controlled by Republicans, and the Senate being controlled by Democrats. Despite pleas from the public, there is very little that the two parties have agreed on and accomplished across party lines. The public may not even be fully aware of the lack of cooperation, since most in Congress have simply quit talking about it to appease a dissatisfied citizenry.

For the Senate, another reason that legislators have not been dealing with difficult issues is the upcoming election. One-third of the Senate is up for election, and the Democrat majority appears to be in jeopardy. Consequently Senate Majority Leader Harry Reid does not want to force his caucus members, who are standing for re-election, to vote on divisive issues prior to Election Day.

The problem, of course, is that multiple issues need to be addressed. For openers, there still are 15 budget items to be approved. Technically these should be completed by Sept. 30, the end of the current federal government fiscal year. Instead Congress will probably pass a continuing resolution, essentially an agreement to allow the government to function – usually under the old budget – for a specific period of time. This happens frequently and, in the past few years, has been the norm rather than the exception.

There also are the big issues that the press continues to bring forward, such as immigration and tax reform, which have been on this list for a long time. For bankers, several regulatory relief measures voted out of the House of Representatives by large margins on bipartisan votes would help with some of the overkill in the drafting of the rules to implement the Dodd-Frank Act. While we remain hopeful that progress will be made with some of these measures, there are not many days remaining in this Congress. It is likely that Congress will shut down in late September or early October to permit incumbents to focus on their re-election campaigns prior to the Nov. 4 elections.

The likely scenario is that Congress will return following those elections for a lame duck session, giving members of Congress some time in November and December to accomplish the work that they failed to do in the past two years. Election results will be known by then and will factor into how cooperative legislators might be. Frankly, I do not see them accomplishing much in a lame duck session. If the Republicans retain the House of Representatives and gain control of the Senate, they will not compromise with Democrats on divisive issues, knowing that in January they can pass their version of solutions and put pressure on President Obama to either veto bills or sign them. If Democrats retain control of the Senate, nothing changes, and we face two more years of gridlock.

I can assure you that the Indiana Bankers Association will be watching and ready to greet members of Congress upon their return from the August recess. More importantly, we will be urging them to move forward on issues that impact our industry.

- S. Joe DeHaven

A Bright Future for Banking

August 20, 2014

Last week I had the privilege of participating in the Graduate School of Banking (GSB) at the University of Wisconsin in Madison. There are six such schools throughout the country, with GSB primarily serving the upper Midwest, including Indiana. The school was founded in 1945 by the 18 state bankers associations located in the central part of the country. Today 16 of those states remain sponsoring states, and the presidents/CEOs of those associations each have seats on the GSB board of trustees. Additionally two bankers and two instructors sit on the GSB board; this year, I am honored to serve as chairman. GSB has over 20,000 alumni bankers.

While in Madison, I attended a meeting of the banker advisory board. This group of alumni bankers attended classes for a couple of days to talk with students and faculty, while observing the educational process. At the meeting, members were debriefed as to what they had observed. Several ideas were discussed, with GSB staff taking copious notes, to determine what changes might enhance future sessions. I was amazed at the level of detail that these volunteer bankers examined, all from the standpoint of improving the educational experience to better prepare students to assume future leadership roles.

Following this meeting, I had the opportunity to sit in on a few classes for firsthand observation and to attend part of the rigorous bank simulation exercise required of all seniors. The exercise is a model through which a small group of students manage a simulated bank during a two-year period of time. The program addresses all of the issues that banks must deal with, but within a compressed timeframe. Challenges including matching assets against liabilities, and selling vs. buying scenarios. It is a fun, high-pressure exercise that synthesizes all of the curricula of the 25-month program.

I also participated in the graduation exercise and had the opportunity to congratulate the class – and each individual member – for completing this significant career/life accomplishment. As a former graduate from many years ago, it was an honor to personally congratulate fellow alumni.

I have often addressed the issues of leadership and management succession. What I observed at GSB was that leaders are being well prepared, and that the quality of the students is impressive. They are smart, driven and hungry to learn. Many of these graduates will be joining their banks’ senior management teams. Others may consider moving to other banks to pursue senior management opportunities.

From what I have seen, both in my capacity as president and CEO of the Indiana Bankers Association and as a board member of GSB, is that there are many young bankers out there who deserve a chance at leadership and who will not disappoint. They know banking, they know their communities, and they appear to know how to lead banks to profitability, as evidenced by the bank simulation exercise. I left Madison encouraged by these future leaders of the banking community. The future of the banking industry is in good hands.

- S. Joe DeHaven

Indiana’s Puzzling Economic Position

August 13, 2014

Sometimes I just get puzzled. Recently the NorthWestern Financial Review issued its August 2014 edition. I always enjoy reading this magazine, which focuses on what is happening in the banking region of which Indiana is the easternmost state. My good friend Tom Bengtson has published this magazine for nearly 30 years. In the August issue, as he frequently does, Tom published a statistical snapshot of the states within the focus region; the statistics compare assets, loans outstanding, deposits, loan to deposit ratio, net income, return on assets and return on equity. What puzzles me is that, by most measurements, Indiana has been doing well economically. However, looking at the numbers in the statistical snapshot, Indiana does not fare very well in the banking industry.

Of the 15 states in the comparison, Indiana ranked 14th among banks of less than $100 million in assets on both return on equity (ROE) of 2.61 percent and return on assets (ROA) of 0.35 percent. The national average for ROE is 6.94 percent, and for ROA is 0.82 percent. While there are 2,005 banks remaining in the 15-state region, and only 27 are in Indiana that are under $100 million in assets, I suspect most in other states are located in more rural areas than Indiana offers. Agriculture lending has been a huge boon for many of these banks. Also, Indiana has not adopted the change from C Corporation to Sub S Corporation at nearly the same pace as has occurred nationally. Consequently, I can understand why Indiana small banks are lagging in these important measurements.

What I am having difficulty deciphering is the outlook of all banks headquartered in Indiana vs. the other 14 states, plus vs. the United States as a whole. Indiana has 129 banks – according to the March 31, 2014, data from the Federal Deposit Insurance Corp. – and these banks collectively rank 13th for both ROE at 7.90 percent and for ROA at 0.86 percent! Perhaps the agricultural lending and Sub S adoptions in Indiana explain some of our industry lag, but there must be other reasons. Even looking at all of the 6,730 banks in the United States, Indiana is trailing. The national figures for all banks are ROE of 8.99 percent and ROA of 1.01 percent. I thought that I knew the answer: It must be that Indiana has a much lower loan to deposit ratio. However, Indiana ranked third among the 15 states for the small bank group, and fourth for all banks in the group. Nationally, Indiana at 78.7 percent was well ahead of the average of 70.0 percent.

As I rack my brain trying to determine why this might be, I remain puzzled. Perhaps our state tax rate is higher. If that is the case, then the General Assembly may have helped our problem with passage of tax decreases in each of the past two legislative sessions that, over time, will lower the Financial Institutions Tax from 8.5 percent to 4.9 percent. Perhaps it is due to our historically inordinate reliance on manufacturing for high-paying jobs and continued expansion of facilities, increasing those jobs that have made Indiana the most manufacturing-intense state in the country. Manufacturing has not come back to the level it was in the late 1990s. Perhaps the fact that Indiana significantly lags the U.S. economy in average wages and family average wages causes us to fall behind. Perhaps it is because our average real estate values are lower than throughout the country. Perhaps it is all of the above.

I am interested in hearing from others as to why this conundrum exists. Until then, I remain puzzled.

-S. Joe DeHaven

New Options in Financial Payments Systems

August 6, 2014

When I started in banking nearly 45 years ago, the payment methods were limited, compared to today. There were no automated teller machines, no Internet, no cell phones and no personal computers. Instead there were lots of branch offices at which people could come in and transact business, a few drive-up facilities, some telephone access and credit cards. Since that time, there has been a virtual explosion of new financial payment system options.

Recently I came across some data resulting from The 2013 Federal Reserve Payments Study, updated as of July 24, 2014. The study indicates that plastic cards are being used prevalently in the payment system today, and that there are three categories of cards: credit, debit and prepaid. A total of 776 million of these cards are issued in the United States, which means there are two and a half cards for every person alive in this country! Of this card total, 334 million are credit cards, 283 million are debit cards, and 159 million are prepaid cards. Prepaid cards are store gift cards, federal or state government-issued cards for various assistance programs, a few payroll cards and some personal cards that the consumer preloads. Usage of these cards on a monthly average is 23 times for debit, 11 times for credit and 10 times for prepaid. So while consumers own more credit cards, they use debit cards at over twice the rate of credit cards.

When comparing ATM usage to going to a branch to conduct an over-the-counter transaction, consumers’ habits were predictable. They used ATMs for 5.8 billion withdrawal transactions, compared with 2.1 billion over-the-counter transactions. The interesting part is that the average size of an ATM withdrawal transaction was $118, compared to the over-the-counter withdrawal transaction of $715. This could be due to ATM amount caps and to more consumer trust in the security offered by being in the branch. However, the one billion ATM deposit transactions averaged $374, compared to in-branch 1.6 billion over-the-counter deposit transactions that averaged $1,000.

Of the 287.5 million wire transfers, 94 percent were from businesses. Those totaled a little over $1,116 trillion. There also were about 3 billion ACH transactions and 1.8 billion secure online transactions. In addition there were 250 mobile payments made using a mobile wallet application, and 205 million person-to-person or money transfer payments completed.

As might be expected, the number of paper check transactions continues to decline, with 45 percent of that decline represented by transactions of less than $50, obviously replaced by the debit card transactions.

While these numbers are large, the trends are not surprising. More and more people are comfortable in utilizing automated transactions in all forms. Perhaps that checkless society we heard so much about back in the 1980s is becoming reality after all.

- S. Joe DeHaven

Image Polishing Needed

July 30, 2014

Last week several Indiana Bankers Association staff members attended the annual convention of the Indiana Society of Association Executives (ISAE). ISAE is the association in Indiana that represents association staff officers. Yes, there is an association for everything! At the convention, attendees learned about trends occurring in the association business, while sharing concerns and successes. Several speakers challenged us to think creatively and to question the hidden rules of running trade associations that serve diverse memberships. Just as IBA bankers find value in meeting with peers at our convening events, it also is helpful for IBA staff to visit occasionally with other association professionals about the issues they are facing and to determine how we stack up comparatively. I am proud to report that the IBA team is among the very best in the state, and I suspect the country. Most of the issues covered at the convention were ones we have already tackled. Others were ideas we have already considered and determined are not the right fit for IBA.

One topic covered was data tracking and measuring member involvement. More than a decade ago, IBA instituted its Five Star Member program, and we have been reviewing and enhancing it continually since then. Of all of the solutions that other associations shared to accomplish the goal of tracking and measuring member engagement, none held up to the IBA Five Star program. We use it to assemble data about each member institution in those areas that are of the most importance to bankers and industry advocacy. We also use it to measure the success of each member engaging with IBA, as well as the success of IBA staff to improve that level of engagement for each member. Five Star is a powerful tool, for both the IBA and each member bank.

Another topic dealt with developing a set of comparative statistics and looking at trend lines over several years to determine progress of the organization. This comparison also can be used to measure against similar organizations across the country or within Indiana. Again, this is an area in which IBA has been excelling for many years. The IBA management team uses these comparisons to improve our performance in serving our membership. It is a point of pride that Indiana consistently ranks among the top state bank trade associations in the country by every measurement tracked.

One speaker at the convention discussed how to lead with humanity by crafting a culture of high emotional intelligence – lead with empathy, hone listening skills, sharpen self-awareness and strengthen self control. Overall it was a worthy presentation, with emphasis on the traits of a servant-leader, a style which the IBA embraces, as do many of our member banks. The speaker wove in examples of concepts in action and did a good job, right up until he relayed the story of a friend of his who had quit his job at a large bank, because the bank cared only about the “deal,” not about the people affected by it. Worse, the speaker presumed that everyone in the audience saw banks as bad. Afterward I visited with him at length and explained there are bad actors in every profession, but that the bankers I know are the most empathetic people I have ever met. Our bankers are more concerned about their communities and the local economy than about how much money they will make off of the next deal. I assured him that his negative view of bankers was inaccurate, to which he confessed that he had lived in large cities all of his life and had not experienced what he perceived was a small town phenomenon.

I understand his taking a shot at bankers. I don’t agree with it, but I understand it. The important lesson here is that we in the banking business still have a lot of work to do to regain our image of high integrity and honesty. It will require all of us to do an even better job of telling our story. If you need help, visit

- S. Joe DeHaven

Dodd-Frank: The Cost Is Clear, the Value Is Not

July 23, 2014

Monday, July 21, 2014, marked the four-year anniversary of the implementation of the Dodd-Frank Act. While it does not seem possible that this overreaction to the financial crisis could have been in effect for four years, the resulting regulatory burden cast upon banks of all sizes and stripes certainly has left an indelible mark on the business of banking and on its customers, shareholders, employees and the communities they serve. Numerous surveys and studies have been unveiled in the past several days about the Act.

The American Action Forum reports that the Act has imposed 398 new regulations on the banking industry at a cost of $21.8 billion, consuming 60.7 million hours of paperwork burden – the equivalent of 30,370 full-time employees! What is scary is that these statistics represent only about 75 percent of the effect of implementation, as 25 percent of the Act’s rules have yet to be written. Interestingly the number of employees in banks has grown by 2.9 percent – nearly all coming from banks with 250 or more employees – while the employment growth at the federal regulatory agencies, excluding the Consumer Financial Protection Bureau, has increased 16.2 percent. Apparently it takes many more regulatory staff to monitor fewer bank staff. As for the CFPB, it currently employs about 1,800 people.

Despite these outlandish costs, likely voters are not convinced that the policies from the Act have succeeded in accomplishing their goals. A recent poll conducted by a Democratic-leaning firm, Greenberg Quinlan Rosner Research, shows that Americans believe that the stock market is rigged, and that very little has been done to reform Wall Street. The study was commissioned by Better Markets, a financial reform group, which notes that “American voters still distrust Wall Street and big banks and strongly support tough financial regulation.” Among the study results:

  • 64 percent of all voters and 62 percent of voters who own stock believe the stock market is rigged for insiders and for people who know how to manipulate the system;
  • 55 percent believe that Wall Street and big banks hurt everyday Americans;
  • Nearly 90 percent of voters are dissatisfied with the federal government’s actions to date in regulating Wall Street;
  • Stricter regulation of Wall Street and of large banks finds wide bipartisan support, including 74 percent of Democrats, 56 percent of independents and 46 percent of Republicans.

My interpretation of this data is that, whether aligned with a big bank or small, bankers have to do a better job of providing the public at large with facts about the business of banking – the effect of regulation on banks’ ability to provide desired products and services, the factors that determine pricing of those products and services, and the real costs banks pay to comply with regulations that often fail in their intended purpose. Ample information is available from a variety of sources, including Amplify, a free grassroots advocacy tool available to all bankers. Much can be done inexpensively through strategic use of social media and by arming bank employees at all levels with facts to discuss within each of their circles of influence. It will not be easy, it will not be fun, and it will be a lot of work. But it will pay dividends to each bank that speaks up for this industry, and it will benefit the banking business in general.

With the aforementioned data, it is eerily apparent that there exists a wide gap between the huge price that bankers have paid and the belief among consumers that little has been done to rein in abuses, whether real or imagined. No one can close this gap but bankers themselves.

- S. Joe DeHaven

Farm Credit System – A Tool That Needs Sharpening

July 16, 2014

Last week American Banker newspaper published an op-ed piece, “Keep Farm Credit System Focused on the Farm,” authored by U.S. Rep. Marlin Stutzman, who represents the Third Congressional District of Indiana in Washington, D.C. Coincidentally Congressman Stutzman also is featured as the cover story of the July issue of Hoosier Banker magazine, the first elected official so featured. One of Stutzman’s many impressive traits is that he combines his power-position service on the U.S. House Committee on Financial Services – the House banking committee – with the common-sense insight of a fourth-generation Hoosier farmer. This mix gives Stutzman ideal perspective for weighing in on the topic of overreach by the Farm Credit System (FCS). The FCS is a government-sponsored enterprise that was created in 1916 to finance farmers with limited options. Since its inception, it has stretched into a $247 billion operation that “is now directly competing with the private sector for nonagricultural business,” as Stutzman observes in his American Banker op-ed.

In the op-ed, Stutzman goes on to cite frustrations from constituent Indiana bankers, who cannot compete when undercut by lending rates offered by the tax-advantaged FCS. One banker gave the example of losing a mobile home park financing opportunity to FCS; clearly, there is no connection between mobile home parks and the FCS mission of serving farmers of limited options. Similar examples of overreach abound, most notoriously last year, when the FCS provided financing to global powerhouse Verizon Wireless. The thin rationale was that agricultural communities were included in Verizon service ranges.

The original intent of FCS is not in dispute. As Marlin Stutzman acknowledges in his Hoosier Banker interview, the FCS “has been a wonderful tool for agriculture.” But this tool needs sharpening. It has been nearly 10 years since FCS has been examined closely by its committees of jurisdiction. Lacking oversight, it has grown so unwieldy that, if FCS were a bank, it would be the ninth largest in the nation. FCS overreach is harmful in several regards:

  1. The tax-advantaged status of FCS deprives the U.S. Department of the Treasury of substantial funding. For example, in 2012 FCS paid only $222 million in combined federal, state and local taxes on its profits of $4.34 billion – a rate of only about 5.12 percent. Had FCS paid at the same rate as banks – approximately 29 percent – it would have paid $1.285 billion in taxes, helping to pay down the U.S. national debt.
  2. Last fall the Federal Financing Bank, an agency within the Treasury Department, offered a free line of credit of $10 billion to the Farm Credit System Insurance Corp. (FCSIC). Given that this line of credit is more than double the current FCSIC asset size of $3.5 billion, a red flag is raised about the funding adequacy of the Farm Credit System Insurance Corp. If funding is inadequate, is there a future takeover of FCS on the horizon, paid for by U.S. taxpayers?
  3. The tax-advantaged status of FCS permits it to provide pricing and terms that are unrealistic for tax-paying banks to compete against. While the tax break is understandable when FCS remains within its mandate, it is unjustified when FCS lends to prosperous farmers and ranchers, or to businesses that have no connection to agriculture. Each time FCS lends beyond its mandate, it is competing against the private sector, a blatant violation of its mission.

Marlin Stutzman indicates that he intends to leverage his position on the House Committee on Financial Services to push for a much-needed investigation of the Farm Credit System. As he summarizes in the Hoosier Banker article: “FCS is expanding beyond its original mission to compete against the private sector in a way that was never intended. The result is that the banking world is now competing against its own government. That’s unhealthy.” Thank you, Rep. Stutzman! The Indiana banking community and the full banking community nationwide appreciate the common-sense wisdom you bring to your position on the House banking committee.

- S. Joe DeHaven


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