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

Dodd-Frank Regulatory Burden and the Future of Banking

July 9, 2014

Last week President Barack Obama said during an interview on the Marketplace radio program that further reforms of Wall Street are needed. He suggested that the big banks are making too much profit from their trading desk operations, as opposed to investing in companies and the real economy. He went on to claim that the Dodd-Frank Act was put in place only to protect consumers and taxpayers against another financial crisis. He said, “Right now, if you are in one of the big banks, the profit center is the trading desk, and you can generate a huge amount of bonuses by making some big bets; you will be rewarded on the upside. If you make a really bad bet, a lot of times you’ve already banked all your bonuses. You might end up leaving the shop, but in the meantime everybody else is left holding the bag. Now what we’ve been able to do is to try to prevent taxpayers from being the folks who are left holding the bag. But it’s still not a real efficient way for us to run a financial system. That’s going to require some further reforms. That’s going to require us looking at additional steps that we can take.”

The president added that the Dodd-Frank Act was intended “to prevent another catastrophic financial crisis. It wasn’t expected that it was going to solve all the problems. What I’ve said to my economic team is that we have to continue to see how can we rebalance the economy sensibly so that we have a banking system that is doing what it is supposed to be doing to grow the real economy, but not a situation in which we continue to see a lot of these banks take big risks because the profit incentive and the bonus incentive is there for them. That is an unfinished piece of business, but that doesn’t detract from the important stabilization functions that Dodd-Frank were designed to address.” He further stated that there’s more work to be done in reforming the banking industry, including the possibility of restructuring the banks themselves.

While President Obama did not offer any specific suggestions for what should be done – and the likelihood of getting any additional banking regulation through a Republican-controlled House of Representatives is near zero – it is deeply disturbing that our chief guardian of the economy is once again waging a verbal war against the banking industry. The reason that banks are not making profits in the real banking economy is that the regulatory burden resulting from the Dodd-Frank Act has increased expenses and diminished income. He rants against big banks yet, since his program has been adopted, the four largest U.S. banks have increased their percentage of control of total bank assets immensely. Meanwhile the policies adopted in Dodd-Frank have forced many banks to sell. Obama insists that large banks need to be reined in. However, make no mistake – the large banks have been pummeled with unnecessary regulatory burden, despite their rapid growth.

If the president truly wants banks to do the real business of banking, he needs to unshackle banks of all sizes from the choking regulatory burden that has been unleashed upon them during his term. While historically banks have weighed credit decisions from the perspective of whether they are bankable, they now view credit decisions through the lens of “what will the regulators say?” if a loan is approved or declined. In other words, traditionally bankers evaluated credit risk; today, they evaluate regulatory risk. That shift is the direct result of Dodd-Frank. Heaven help us if there is going to be a second round of regulations. If the next bout approaches the scope of Dodd-Frank, it will be the death blow of the banking business as we know it.

- S. Joe DeHaven


Banks and the Fight Against Generational Poverty

July 2, 2014

Last week the Indiana Bankers Association had the privilege of hosting the 2014 meeting of the Central States Conference, welcoming 16 state association executives and their volunteer leadership bankers to beautiful West Baden Springs, Indiana. Our closing speaker at the event was Dr. Ruby K. Payne, founder of a professional development organization called “aha! Process.” Dr. Payne addressed the urgent need for leadership at the local level in the fight against generational poverty. It was a nontraditional topic for this auspicious group – or for any bankers conference – yet the presentation was extremely well received. Ruby did an outstanding job of conveying the problems associated with combating poverty. What our country has been doing for the past 50 years clearly is not working. Poverty is more ingrained in our nation today than when we launched a war on poverty in 1964. Government assistance programs are designed to help people get by, not to get ahead. Giving money to sustain life does not solve the problem. Investing in education – both for those in poverty and those fortunate enough to be self-sustaining – offers a much better chance to stem the growing tide of poverty.

Ruby Payne’s program presents an opportunity to take a different approach. It is based on creating communication between those in poverty and those who are self-sustaining. Many community organizations, churches, local units of government and a few businesses have adopted the program worldwide. With the exception of the few businesses that have adopted it, the other organizations rarely have enough financial resources to underwrite the program appropriately. Part of the solution, in my opinion, is for business to become more involved. Specifically, the banker in each community has a self-motivated interest to help, plus that banker can bring other businesses to the table. The facts are that women without a high school diploma or a GED reproduce at a rate of 2.5 children each, while those women with a college degree reproduce at a rate of 1.1. Plus the average age of the mothers at birth differs significantly. Those without a diploma tend to have children while in their teens, while those with a degree tend to have children at about 30 years of age. Today in the United States, 46.5 million people are living in poverty, roughly 15 percent of the population. If current trends continue, within 100 years, more than 50 percent of the U.S. population will be living in generational poverty. Our form of government will be compromised or may even fail when more people are receiving support from government than contributing to it through the payment of taxes.

Consequently the very survival of our communities – and the banks and businesses in them – depends upon how we deal with this problem of generational poverty. Arguably, banks are in the best position to lead the charge in solving this problem. They are able to convene all other interested parties to collaborate locally to deal with their unique situations. I was pleased to walk away from the meeting last week knowing that Ruby Payne had struck a chord with my counterparts and the volunteer bankers who lead their respective organizations. Many thanked IBA for bringing this issue to their attention; many indicated that they want Ruby to speak to their members. Success, of course, will only occur after thousands of local communities adopt plans to combat poverty … and it will take a long time. It is difficult in today’s world of managing business in 90-day segments to plan for something that may take 30 years to be deemed successful. But as Ruby pointed out in her presentation, it often takes 20 years or longer to be an “overnight” success.

-  S. Joe DeHaven

Power Shifts in Washington, DC

June 25, 2014

Recently I wrote about the surprising upset of Eric Cantor in the Virginia primary election. He was beaten by Dave Brat, a relative unknown. Because Cantor was serving as majority leader in the House of Representatives, a position second only to the speaker of the House, this news was earth-shattering in political circles. The follow-up was that Cantor resigned his leadership position in the House and will soon return to the rank-and-file member position, held by the vast majority of House members, for the remaining few months of his term.

As could be expected, Cantor’s resignation set off a frenzy of activity, as members jockeyed for his leadership position. Many threw in their hats one day, then changed their minds the next. In the end, two candidates vied for the post. One was Kevin McCarthy of California, who was currently the majority whip — the third position of power in the House of Representatives. The other was Idaho Congressman Raul Labrador. McCarthy won the race for majority leader, which he will assume Aug. 1, after Cantor relinquishes the position on July 31.

McCarthy’s win opened up an inside power game, as a Republican House caucus election was held for majority whip. Three candidates sought this power position: Steve Scalise from Louisiana, who won the private ballot election; Rep. Peter Roskam of Illinois; and our own Indiana representative, Marlin Stutzman. While Stutzman did not ultimately win, simply being a contender was a coup on his part. As fate would have it, I was with Congressman Stutzman for a couple of hours, just two days before this historic vote occurred. Since he serves on the House Committee on Financial Services, I wondered to myself where he might be of greatest value to the bankers of Indiana. Of course the answer would be the leadership position, but it was not meant to be at this time.

Rep. Stutzman and I spoke about his efforts to seek the majority whip leadership position. He had entered the race a day or two after the other candidates, and he realized that he was the long shot. However, his being part of the discussion was a boost for his career. It gave him a chance to talk with most of the 233 Republicans in the House caucus, including those he previously had little contact with. Expanding his relationship base could very well pay off for him sometime in the future. Following the election in the fall, all of these positions will be reopening for election. While mass change does not happen often, sometimes it does. There are many questions regarding the success of Speaker John Boehner’s leadership within his caucus. He may decide not to pursue another term as speaker, or he might be ousted by a challenger. If so, who knows what the leadership chain reaction will be?

Congressman Stutzman is a quality individual. He is kind, fair, and he wants to make this country better for his two young sons for years to come. He is the type of person we all should want to see succeed. Last week, he demonstrated that he has some leadership aspirations. If ever they are fulfilled, it will be a victory for Indiana and, I believe, for our country.

- S. Joe DeHaven

The Squeezed-Out Political Middle

June 18, 2014

Last week, Washington DC was abuzz with news of the unexpected primary election defeat of Eric Cantor. Rep. Cantor had enjoyed a meteoric rise to the No. 2 leadership position in the Republican-controlled House of Representatives. He often was characterized as likely successor to John Boehner as speaker of the house, assuming that Republicans remained in control. Cantor’s defeat came at the hands of a relatively unknown, small-college professor of economics named David Brat. Professor Brat teaches at Randolph-Macon College in Ashland, Virginia.

Lessons abound in this election upset. First, Brat raised only about one-tenth of the money raised by Cantor, yet he won by a 55-45 percent margin. Could it be that money is less important than historically thought? Could it be that technology-oriented campaigning, which requires much less money, is the wave of the future? If so, will this change the lobbyist/fundraiser influence rumored to control the halls of Congress? While these questions are rhetorical, the answers will impact those seeking office in the next few years.

Another concern resulting from this election is that Brat was a Tea Party candidate. Cantor, too, originally was elected as a Tea Party favorite, though he veered toward the center as his political sail caught wind and he rose to the position of majority leader of the House. Could it be that reports of the Tea Party’s demise have been greatly exaggerated? The Tea Party has suffered many losses during this primary election season, yet it also has pulled off a few upsets — though none larger than this one. The strength of the Tea Party is a concern to traditional Republicans. While traditional Republicans have been largely supportive of business interests, the Tea Party is more intent on the social agenda and significant reduction of the regulatory burden cast upon the citizenry. If the conservative wing of the Republican Party is indeed shifting further to the right and becoming more focused on social issues, and if the liberal wing of the Democrat Party is moving further left and becoming more interested in those same social issues — but on the opposite side — what happens to the centrist agenda regarding business interests? What happens to compromise? If we are setting the table for more gridlock, how will Congress ever solve any of our real problems? What might this portend for the presidential election in a couple of years?

One of the results that could emerge from this tension is the formation of a third party. Surely one of those three parties would find its footing in the middle, changing the entire specter of the American political structure.

I had the privilege of meeting Eric Cantor on a few occasions. I found him to be a bright and committed legislator who worked tirelessly for his caucus. Cantor frequently attended fundraisers throughout the country in support of his fellow House Republicans, raising countless dollars for the elections of his peers. Whether you agreed with his positions on the issues or not, the Republicans have lost an influential young leader who had the ability to raise money, communicate with Democrats and create a sizable following in the middle. It will be difficult to replace him. Thank you, Rep. Cantor, for your contributions!

- S. Joe DeHaven


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