Beware the Ides

Tomorrow is March 15, the Ides of March. It is the date that Julius Caesar was assassinated in 44 B.C. The meaning of “ides,” derived from the Latin idus, is “half division.” Consequently the ides, for the month of March, falls on the 15th. Caesar was stabbed to death by a group of nearly 60 co-conspirators—many of whom were close to him—on the floor of the Roman Senate. And we think our modern-day political scene is scary!

Caesar had been warned repeatedly by a fortuneteller that he would be killed on the Ides of March, yet he joked mid-day on March 15 that he was still alive. When he boasted that the day was already half over, the soothsayer responded, “Ay, Caesar, but not gone.”

The banking business often falls victim to “half division” on political and regulatory issues. Figuratively we often suffer the same deadly consequences as Caesar. However bankers currently are united on two important issues.

First is the issue of very large credit unions—using the small credit unions as their human shields—attempting to legislatively increase their ability to fund business loans, while retaining their undeserved federal tax exemption. No good can possibly come from this effort. Either credit unions would make loans previously rejected by seasoned bank lenders, thus increasing charge offs significantly and in turn endangering their existence. Or they would steal loans from, primarily, community banks, thereby removing that interest income from taxable to tax-exempt. Bankers are united against this unwise proposal and must work hard to defeat it.

The second issue is that of examination accountability. Bankers are united, with federal regulators as our opponents. The accountability asked for in these proposals follows common sense and should be passed. Regulators look foolish by lobbying that they should not be restricted. Really? The ombudsman programs installed by existing regulators are a joke. The score on these appeals is: Bankers 0, Regulators 100 percent. This bill, among other provisions, would establish an independent ombudsman. Perhaps bankers will win an examination appeal once in a while under this scenario.

Please work hard to bring about a united banking industry where common sense wins. Caesar should have been more aligned with his Senate, instead of engaging in a “half division.” Caesar paid for his oversight with his life. Banks may pay with their institutions’ lives if a united industry does not work hard enough to prevail in these two issues.

When Disaster Strikes

Last Friday, disaster struck southern Indiana in the form of violent tornadoes, with hail the size of tennis balls. The EF4 tornado thrashed communities at 175 miles per hour, leaving a swath of destruction three-quarters-of-a-mile wide.

Indiana Bankers Association Board Chairman Pat Glotzbach is president and CEO of The New Washington State Bank (NWSB), headquartered in Charlestown. The bank has a Henryville branch, which sustained much damage but remains intact. However most of the town of 1,100 was destroyed, as were several surrounding communities.

The majority of those affected in Henryville were customers of NWSB, and Pat’s reaction is what you would expect from a caring community banker. He personally went from shelter to shelter, comforting storm victims and giving assurance that NWSB will extend short-term loans at 0 percent interest. The bank also is offering a discounted mortgage rate for those who will need help rebuilding their lives. Yet Pat’s story is but one of many among several bankers in the area who likewise are reaching out to take care of their customers.

To assist, IBA has set up a disaster relief fund. We will be working with the American Bankers Association, the Independent Community Bankers of America, IBA-member banks and associate members to raise funds and distribute them appropriately.

An important lesson to learn from this disaster is how important a viable business continuity plan is to each of our businesses. Oddly enough, at IBA’s executive committee meeting last Thursday, we had determined that the current IBA plan is inadequate. While I am certain that our member banks have sound plans in place, I can tell you from this experience that the emotion of the moment makes it difficult to execute even an adequate plan—let alone struggle with a sketchy one.

I assure you that the IBA will be working on a plan very soon. I ask that all of you review your plans to confirm that you and your team can promptly and efficiently deal with a variety of business interruptions. Then hope that you never have to cope with a disaster like the one in southern Indiana.

Please keep Pat and his fellow area bankers, their customers and all of those affected by the deadly tornadoes in your thoughts and prayers.

Leap Year Effect

Today is February 29, a date that rolls around only once every four years. Of the four-year rotation, my favorite is leap year. Not only do we gain a day, but we also experience the Summer Olympics and the presidential and gubernatorial elections. For a sports and political junkie, it doesn’t get any better than leap year!

Most people give little thought to February 29, other than an extra day to have to work. I doubt, though, that many bankers feel that way, despite the venomous tenor from the national media vilifying bankers. I have always found that bankers share a deep pride in and obligation to serving the needs of their communities.

This fall, the Indiana Bankers Association will survey our membership to gauge Indiana banking community support efforts. Two years ago, when this survey was last conducted, the results were astonishing. Nearly 20,000 different community groups were assisted by Hoosier bankers in 2010—either financially, through human volunteerism or both. That same year, more than 17,200 bankers from throughout the state volunteered time to community groups. Interestingly, there are 17,300 bankers in Indiana, reflecting a participation rate of close to 100 percent. Granted, one banker volunteering with three organizations would be counted three times, so I am not claiming that all volunteered, but it is worth noting that the statistical results show a remarkable volunteerism rate. The average amount of volunteer time by each bank employee was three hours per month, or a total of 36 hours per year.

Additionally the Indiana banking community donated nearly $25 million in 2010 to a variety of community causes. And this altruism does not even count bank financial literacy efforts. More than 3,000 Indiana bankers made 5,400 financial literacy presentations in 2010, reaching more than 110,000 students and adults.

Bankers are proud of these facts and feel a sincere obligation to their various community groups and causes. The year 2012 puts a bonus day on the calendar … and a bonus day of service from the Indiana banking community. Maybe we can call it the Leap Year Effect!

Keeping Up With Technology

Last week Tracy Wainscott, IBA’s information technology and facilities manager, and I met with three hand-picked individuals who work with IBA in some capacity related to technology. The purpose of the meeting was to solicit idea-sharing on a regular basis from this IT group, so that IBA can be informed and prepared to serve the best interests of our members.

We are not necessarily looking for sea-changing ideas. Instead we are seeking focused ideas to put into play to make our everyday use of technology more productive. For instance we have discovered business card reader software, available through a simple app, that takes a picture of a business card to capture and download contact information into an iPhone directory, bypassing the need for cumbersome keystroking.

Our goal in working with an IT advisory panel will be to identify pieces of software or apps to simplify and streamline some part of IBA operations. We recognize that we will never be large enough to employ a full-time team to monitor technology trends for us exclusively; forming this panel is a way for us to benefit from the eyes and ears of trusted technology professionals who understand some aspects of what we do and how we do it.

For the IBA, as for all smaller-sized organizations, technology is the great equalizer. Properly used, technology can make a company appear much larger than it really is. While appearance is of little interest to us, we do want to uphold our efficiency and professionalism.

A possible side benefit to these efforts will be finding niche software apps that our members could use. If and when we do discover software that could be helpful to the Indiana banking community, we will communicate those findings immediately. We know how important it is that members, too, are able to maintain or improve their efficiency and professionalism, for the sake of the customers and communities they serve.

The Closing of SCB Bank

Last Friday, the Federal Deposit Insurance Corp. (FDIC) was named receiver by the Office of the Comptroller of the Currency, following the failure of SCB Bank in Shelbyville. The bank reopened on Saturday morning under the name of the bank that purchased its deposits and most loans, First Merchants Bank, NA, Muncie. As with the other two Indiana-based bank failures within the past three years, no depositor lost a cent.

No insured depositor has ever lost a cent in any U.S. bank failure, since the FDIC was established in 1933. The FDIC was created in response to the Great Depression, specifically to protect depositors of banks and thrifts in the event of a bank or thrift failure, and it has succeeded in its mission. Perhaps no period in history since the Great Depression has been as economically devastating as that of the past four and a half years, but the FDIC continues to perform its duties without wavering.

More remarkable still, this protection has occurred without one cent of funding from taxpayers. FDIC operations, and any losses that occur when a bank or thrift fails, are funded 100 percent by the insured banks and thrifts that pay premiums into the FDIC. Even during the challenging savings and loan crisis of the late 1980s and early 1990s, not one cent from taxpayers was ever used. Instead, the FDIC (and its thrift predecessor, the FSLIC) borrowed funds on the capital markets using the implied full faith and backing of the United States; those funds have been paid back in full by the bank and thrift industry.

The failure of any company is sad and humbling, but the failure of a bank or thrift is especially disheartening, because so many people and businesses in the community are affected. The business procedure itself of transitioning the deposits of a failed institution has been worked into a smooth science by the banking industry and the FDIC. Yet the emotional toll remains huge for owners, employees, customers and the community at large.

Many in the United States want to blame banks for the economic turmoil of the past few years. The truth is that very few banks were the root cause. In fact community banks, such as SCB Bank in Shelbyville, are themselves victims, much as many American families have been victims of this recession. Despite last Friday’s bank failure, however, there are many positive indications that we are nearing the end of the current economic slump, and that better days lie ahead.

Super Success

Wow! Indianapolis has completed its joyful task of hosting Super Bowl XLVI, and by all accounts it was a super success. This success did not come by accident. It took years of planning by talented community leaders, ably guided by Allison Melangton, president and CEO of the Indianapolis Super Bowl Host Committee. Planners and their supporting team of 8,000 volunteers attended to every last detail to ensure the safety and comfort of our guests.

Coast-to-coast media converged in the Hoosier capitol, broadcasting the latest from the midst of Super Bowl Village. For the citizens of Indiana, Super Bowl XLVI was a 10-day celebration, though most of our New York and Boston visitors arrived within the last four days. Nearly everyone I have talked to within a couple of hours’ drive of Indianapolis came to see Super Bowl Village and/or the NFL Experience.

Some good luck worked in our favor. First, Mother Nature graced us with unseasonably warm temperatures, averaging above 50 degrees—nothing like the freezing temperatures and snow/ice storms that usually befall central Indiana this time of year. Second, the two teams represented on the playing field brought in fans from wealthy cities—New York and Boston—who came ready to spend money in the Heartland. Third, when planners called for 8,000 volunteers, a total of 13,000 stepped forward—though in my mind that abundant support does not reflect luck but, rather, the giving nature of Hoosiers.

I felt a surge of pride, watching this community-transforming event unfold. It was a feeling similar to what I feel every time I attend one of the national banking conventions. Coming soon is the American Bankers Association’s National Conference for Community Bankers in Palm Desert, Calif., Feb. 19-22, and the Independent Community Bankers of America’s Annual Convention and Techworld in Nashville, Tenn., March 11-15. I would strongly urge bankers to attend one of these national events to benefit from quality education, trade shows and banker-to-banker networking … resulting in a transformative experience for your bank and your community.

Congratulations to the Indianapolis Super Bowl Host Committee. Congratulations to this great city and state for consistently showcasing our Hoosier hospitality. Congratulations to the Super Bowl XLVI champion, the New York Giants. And congratulations to those bankers who will attend one of the forthcoming national conventions, in the interest of moving their banks and communities forward!

Misstate of the Union

Last week the president of the United States addressed “we the people” through the State of the Union address. These annual speeches are telling, often as much for what they do not cover, as for what they do. This year Hoosiers took special interest in viewing, since our own Indiana Gov. Mitch Daniels delivered the Republican response. While the president made some good points, he could not resist bashing bankers. His perpetual, unfair characterization of bankers frustrates me. It is past time for him to acknowledge and extol the good deeds that bankers do.

Gov. Daniels’ response was excellent. He began by listing points in the speech he agreed with, and that he felt Republicans would help the president to accomplish. Then Daniels focused on the economy, which the president had covered only lightly. In the spirit of conciliation, Daniels encouraged both Democrats and Republicans to seek out areas of mutual agreement.

As for criticism, Gov. Daniels had plenty to mete out regarding the president’s performance during the past three years. Many of us in the business community likely would concur with the governor. The Obama administration continues to default to the idea of a larger federal government as the answer to our economic malaise and high unemployment rate.

Stacking regulation atop regulation will only serve to deprive entrepreneurs of incentive. Instead we need to encourage and motivate entrepreneurs, who can create the jobs we so desperately need to begin the long climb up the mountain of prosperity. Certainly President Obama did not create the economic problems we now share, but he was elected on the premise of change. The goal of that change was to get the economy going again. He has clearly failed.

Even Obama must recognize his failure, as evidenced by the lack of meaningful economic coverage in last week’s State of the Union address.

Divided We Stand

Six years ago, during my tenure as president and CEO of the Community Bankers Association of Indiana, we were approached by the Indiana Bankers Association to discuss a possible merger between the two organizations. A few weeks later, my then-executive committee asked me what my thoughts were regarding a potential merger. I made two observations. First, I noted that we were two strong organizations serving a single, contracting industry, and therefore merger talks made sense. Second, I pointed out that I could not recall a single state-level issue within the past 10 years that the IBA and CBAI disagreed on.

The merger took place soon after, and it was a smooth transition by all accounts. Ever since then, though, I have harbored a lingering concern. What would the IBA do, I wondered, if faced with a divisive issue between big banks and small banks? This year, that concern became a reality through Senate Bill 147. The bill, with language supported by the county treasurers, covers numerous topics, one of which is the removal of geographic restrictions on relationships with approved depository financial institutions (i.e. banks).

The big banks support this idea, the small banks do not, and the IBA is caught in the middle. It is an uncomfortable position, because we are a member-driven organization. Each member bank, regardless of size, has one vote. Fortunately our executive committee members met their responsibilities head on and examined all facets of the issue. In the end, they were unanimous in their decision. They instructed staff to seek an amendment that would require local government units to maintain their banking relationships with those banks within their service areas. However, in the event of fewer than three approved banks, the local governmental unit may seek relationships with banks in adjoining counties.

What impresses me, more than the end result itself, is the reasoning behind this decision. Our executive committee members felt strongly that, much as banks are required to invest back into their marketplaces through the Community Reinvestment Act, local governments should invest funds back into their communities by supporting those banks that hire local community residents and make lending in the community a priority.

While I understand that this amendment will not likely satisfy all of the larger banks, I am proud of the careful consideration exercised by the IBA executive committee and ratified by the Government Relations Committee and the board of directors. Personally, though, I hope it is at least another 20 years before IBA is faced with another member-divisive issue!

Economic Insights

The Indiana Bankers Association hosted its first annual Indiana Economic Outlook Forum last Friday. By all accounts, it was a successful event, with some 200 bankers and guests attending from throughout Indiana.

The two speakers for this inaugural meeting were outstanding. John Ketzenberger, president of the Indiana Fiscal Policy Institute—a member-based organization that provides unbiased, nonpartisan research on state tax policy and budgeting practices—delivered an explanation of current state tax revenues and their prospects for the future. With the Indiana Legislature in session, John’s detailed remarks were timely.

The second speaker was Charles L. Evans, president and CEO of the Federal Reserve Bank of Chicago and a current member of the Federal Open Market Committee (FOMC) of the Federal Reserve Board. The FOMC determines economic and monetary policy of the United States and, to a large extent, the world. Dr. Evans has worked for the Federal Reserve Bank of Chicago for more than 20 years, the last four as president and CEO. He holds a Ph.D. in economics and has taught economics at the university level. He has become somewhat of a contrarian voice, at times casting the dissenting vote on economic and monetary policies considered by the FOMC.

His view is that the United States should maintain an accommodative posture, i.e. low interest rates, for as long as it takes to bring the unemployment under 7 percent from its current level of 8.5 percent. Since the Federal Reserve also is tasked with controlling inflation, he would abandon this accommodative posture should inflation exceed 3 percent annually. He says the long-term inflation goal should be 2 percent or less, but would accept 3 percent on a short- or medium-term basis.

While I imagine that many community bankers in the room agreed with Dr. Evans’ assessment for the sake of the economy at large, I expect those same bankers cringed at the prospect of remaining in this low-rate environment relative to the profitability of their banks.

Economic and monetary policy is difficult to decide. Thank you, Dr. Evans, for sharing your insights.

Playing Offense at the Statehouse

Now that the holiday season is behind us, our thoughts turn to what we must accomplish in 2012. For the IBA, topping the list is the Indiana legislative session. For the past several years, the banking industry has been playing defense. We have successfully fought off attempts to change mortgage and foreclosure statutes that would negatively affect lenders and borrowers alike.

 This year, we will play offense. While there are many issues in which we will be on defense, our biggest issue is removing the corpus of the Public Deposit Insurance Fund (PDIF) from state government custody into a new, not-for-profit Public Deposit Insurance Corporation (PDIC).This new PDIC will have a contract with the State of Indiana guaranteeing coverage of all public deposits—meaning that the entities (depositories) and the insureds (local governments) will determine the best ways to assure taxpayers that they will not be asked to pay increased taxes to cover a loss due to the failure of an insured depository.

 Getting this legislation passed will not be easy. The Daniels administration will, no doubt, be opposed. Those legislators who look at this fund as an answer to funding needs in areas unrelated to taxpayer deposits will be opposed. Firefighters and police who currently benefit from the PDIF income stream likely will be opposed.

 The grassroots efforts of insured depository employers (banks, thrifts, savings banks, savings and loan associations and credit unions) will determine the success or failure of passage of this bill. Your lobbyists have had a bill drafted; our bill sponsors have introduced it, have talked with committee chairs to conduct hearings, and are counting votes. Now it is up to you.

 Please engage your staff in this important issue. We’re playing offense, and we need your help.