A Legislative Storm Is Brewing

August 26, 2015

We have all heard of the proverbial calm before the storm. Not every storm is preceded by calm, but when it happens, the eerie quiet makes the eventual storm seem more furious by contrast. “Calm before the storm” has thus become a convenient metaphor to describe any placid lull, followed immediately by a flurry of activity. For instance the time prior to a business opening its doors to the public may constitute the calm before the storm ‒ especially for a high-traffic business, like Starbucks!

The banking business is now experiencing a period of legislative calm, from the standpoint of potential regulatory relief, as Congress continues its summer break through Labor Day. In this case, though, we want to see the “storm,” eager for legislators to return from their break and promptly engage in a flurry of activity. That whirlwind of activity, likely to last until Christmas, includes dealing with budget-oriented bills that need to be passed by the House and the Senate to fund government operations, and putting into action overdue bank regulatory relief. For far too long, we have listened to the hot air of congressmen agreeing that banks – particularly community banks – need regulatory relief. Talk is cheap; now is the time for action.

In the meantime, during the current period of calm, it is incumbent upon bankers to visit with their congressmen and once more tell them and show them* how the burden is negatively affecting their customers and communities. Make the point that these disaffected customers are also voters. Most congressmen have come back to the districts that they represent or, in the case of senators, to the states they represent. They are visible in their communities. They are listening to the people they represent, so that they know what the most important issues to address are from the standpoint of their districts or states. Bankers have to be in that line if we are to get any relief.

By the time legislators return to Washington, D.C., the storm will have begun. We will still be able to be heard, but not as much as we can right now. Banking legislation has passed in both the House and the Senate banking committees that provides important and substantial regulatory relief that will help bankers to once again serve their customers and communities. I have written before about why it is imperative that we get a bill passed in 2015 that provides this relief, and now is the time to ratchet up efforts.

Though this is a prime time, there will be some windows of opportunity during the fall. The IBA Annual Washington Trip, Sept. 27-29, will be one of those opportunities. This year could be the most important since 2008, when the Great Recession was beginning. Regardless, I urge all bankers to be actively engaged in talking with congressmen between now and Labor Day. If all goes well, when the long storm abates, we’ll be basking in sunshine.

-S. Joe DeHaven

*Note that a source of materials for persuasively reaching legislators is BankersSpeakUp, a bankers-only repository of grassroots/communications resources. For assistance, contact the IBA offices at 317-917-8047.

‘Culture’ as a Leadership Verb

August 19, 2015

Guest blog by Laura Wilson, IBA Vice President-Communications

In the late 1800s, the son of a Japanese noodle maker patented a process for culturing pearls by seeding oysters. Though he was not the first to patent pearl culturing, he was the first to master a technique to produce consistently round results. Today, few would recognize the names of the original patent holders, but the name of Kokichi Mikimoto lives on. Less well known is that all Mikimoto pearls are cultured, not natural.

These prized pearls, which result from deliberate effort, serve as a metaphor for another sort of culturing, that which takes place every day in workplaces, including financial institutions. Each organization has its own culture, recognizable or not, and that culture is formed either by default or by design. The thoughtful bank leader will ensure that workplace culture develops by choice. Too much is at stake — employee morale, customer satisfaction and profitability — to let it happen by chance. Especially for financial institutions, in service to shareholders, consumers and communities at large, cultural strength can make or break the organization.

The first step in shaping the culture of a bank is to evaluate its current state. But what exactly is workplace culture? Theories abound, with paraphrased definitions ranging from “the sum total of behaviors, actions and attitudes” to “collective mindset” to “the way things are done when no one is looking.” Overlooked, though, is that the word “culture” is both a noun and a verb. Let us then define work culture in two ways:

  • As a noun, “culture” is a set of unified beliefs put into action.
  • As a verb, “to culture” is to intentionally grow a set of beliefs that unify and motivate.

Culture as a noun. Even if a bank culture has not been defined, nonetheless that organization does have a culture. Depending on the level of unity of beliefs among staff, the culture will either be healthy or unhealthy. If there is a lack of unified beliefs, that disunity itself becomes the bank’s culture … and it is not a desirable one. At best, a disjointed workplace will be stymied with redundancy and inefficiency; at worst, it can be plagued with staff rivalry and “silos” that fail to communicate.

Fortunately, worst-case scenarios are the exception, not the rule. However, since effective bank presidents and CEOs continually seek to improve their organizations, it can only help to periodically assess culture. If a bank’s culture, as a noun, is defined by how beliefs are put into action, the bank’s mission, vision and values statements should correlate with what employees are actually doing. In a healthy culture, employees are unified in purpose (mission), collectively see where the bank is headed (vision) and agree on how best to arrive there (values). In this robust environment, employee actions enhance the bank’s mission, vision and values.

Culture is further revealed in the unspoken. Every workplace has tacit understandings. For instance, the training of new bank employees typically will specify how to greet and interact with customers, but interaction among co-workers may be left to inference, and thus is unspoken. When there is unity in the unspoken rules, and when those rules give rise to behaviors that benefit the bank as a whole, its culture is healthy.

Culture as a verb. Just as a cultured pearl is formed by deliberate action, bank culture needs to be designed, with able leaders guiding the process. Though at times a strong culture may form organically — such as when a family-owned bank brings generations of embedded culture into the workplace — organizational consultants warn against allowing corporate culture to happen on its own. If leadership does not consciously shape culture, the workplace could fall into a default culture, often determined by the most forceful personalities present.

Another risk to not consciously shaping culture is that a cluster of cultures might form, each with its own leaders, values and directional views. These mini cultures become institutional silos that can strain communications, drain energy and undermine team-building. The result may be office politicking and an undercurrent of discord, to the detriment of the bank’s bottom line.

Take a hard look at your organization’s culture and ask, “Is there unity of beliefs that align with mission, vision and values? Do employee actions support those beliefs?” Then find ways to measure these variables, engaging third-party help if needed. Customer satisfaction surveys can be revealing, as well as candid conversations with staff. In fact employee engagement is key to changing culture for the better.

Throughout the process, leadership must remain clearly at the helm, especially if a substantial cultural overhaul is due. Several years ago, the CEO of an Indiana bank brought in outside consultation to invigorate the organization’s culture. The result was a renewed culture brimming with upbeat messaging, cheerful staff and customers so satisfied that they wrote notes of appreciation. Yet during the process, a few employees were uncomfortable and chose to exit. The CEO did not recalibrate the new standards to please the dissenters, but instead held true to the new culture to allow it to fully form; ultimately, the bank thrived.

Improving the culture of any workplace takes time and determination, but is well worth the leadership effort, particularly for service-oriented banks. Leaders who embrace culture as a verb should keep sights set on mission, vision and values to ensure that cultural change is consistent with overriding goals. To circle back to the analogy of cultured pearls — while it may not seem “natural” to consciously shape a bank’s culture, the result can be a gleaming gem of an organization.


SEC’s Ruling on CEO Pay – Weighing Business Down

August 12, 2015

Ernest Jennings Ford ‒ better known as Tennessee Ernie Ford ‒ was a country, pop and gospel singer during my growing-up years. He is probably best known for popularizing the song, “Sixteen Tons.” The refrain is memorable:
    “You load sixteen tons, what do you get?
    Another day older and deeper in debt.
    St. Peter, don’t you call me ’cause I can’t go,
    I owe my soul to the company store.”

The song pays homage to the brutal working conditions that coal miners faced in the 1930s and 40s, made worse by the dead-end economic system of the “company store.” By the time Ford recorded “Sixteen Tons” in 1955, conditions had improved dramatically for workers, and the company-store concept was history. Yet the spirit of the song struck a chord and became an anthem of sorts for blue collar workers everywhere. (Of interest to Hoosiers, Ford’s first live performance of the song was in July 1955 at the Indiana State Fair.)

Much has changed between then and now. The ’50s were a manufacturing era, with most workers holding blue collar positions. Technology was beginning its advancements, but had not yet transformed the lives of most working people. It was, indeed, a different time.

In 1965 the average wage of a corporate CEO was 20 times that of the average worker in that same company. The best athletes in the world probably earned 10 times what the average worker earned. Today, those numbers have changed drastically. Our middle class has become squeezed, with many joining the upper middle class, and many others dropping to upper lower class ranking. At the same time, CEO pay has escalated to where the average corporate CEO may make 300 times the average wage at his or her company. Their salaries pale next to those of the best athletes, who are paid multiples of what CEOs earn.

Every penny of CEO pay is made public, with corporate filings available to shareholders and prospective shareholders ‒ that is to say, everybody. A board of directors, elected to represent those shareholders, determines what the compensation of the CEO will be. Whether or not you and I believe the CEO pay is fair, there is an accountable process in place to determine what that pay should be.

Recently, however, the federal government has glommed onto the notion that free-market pay scale is a problem, and that government should solve it. Suddenly, all kinds of initiatives have been erupting in different areas of government to deal with pay disparity. Some municipalities have hiked minimum wages to as much as $15 per hour. Citing the Fair Labor Standards Act of 1938, President Obama recently decreed that he will raise from $23,700 to $50,400 the salary threshold below which employees are to be paid time-and-a-half for work hours exceeding 40 per week. This development comes on top of a ruling that mortgage originators at banks are not eligible to be exempt from overtime pay.

Last week the Securities Exchange Commission announced a ruling to require public companies to disclose the ratio of the annual compensation of their CEOs to the median of the annual compensation of companies’ employees. This is yet another “gift” from the Dodd-Frank Act … never mind that public company CEO compensation is already public information. This ruling will not help anyone and, in fact, will only serve to run up the cost of conducting business, due to considerable time squandered to collect this data and then report it on a regular basis. Training will be required, so that compliance is assured. Suits will be filed and defended. And for what? Nothing will result from this, other than subjecting businesses to criticism and diverting time away from productive use.

These governmental mandates will not solve anything. They will drive up prices on goods and services, to the detriment of consumers, and they will hamper business profitability, to the detriment of workers. This SEC ruling is sixteen tons of nonsense, and it’s weighing us down.

– S. Joe DeHaven


Working Toward Bank Regulatory Relief

August 5, 2015

The U.S. House of Representatives and the U.S. Senate have gone home for their summer breaks. They will not return to Washington, D.C ., until after Labor Day. Upon their return, they will be faced with numerous deadlines to reauthorize organizations and to pass budgets for the coming year. Despite a flurry of activity by the House Financial Services Committee that passed out multiple industry-backed regulatory relief bills, there remains much to do ‒ but few remaining legislative calendar days ‒ to accomplish meaningful bank regulatory relief this year.

While there is much bipartisan support for passage of a bank regulatory relief bill, and I believe that one will pass, I admit that I am getting nervous. The aforementioned calendar days are squeezed by “must do” issues regarding budgets and reauthorizations, such as the possible reauthorization of the Export-Import Bank, that will take precedence over banking bills. And even though there is another year ahead to capitalize on our momentum, it will be a presidential election year during which, recent history indicates, little will get done.

Complicating matters, the Senate Committee on Banking, Housing & Urban Affairs and the House Financial Services Committee take very different approaches, and reconciling those differences will be a monumental, time-consuming task. I believe that it will require a significant effort in the Senate to achieve agreement on a bill that both Democrats and Republicans will support. If that happens, then this agreement will have to be negotiated with the House of Representatives. The House has approved several separate bills which have bipartisan support, but others do not. We have a long way to go.

The good news is that both Republicans and Democrats in the Senate and the House support common sense regulatory relief efforts. This environment is a first since the financial crisis reared its ugly head in 2008. Momentum is an important element to the passage of legislation, and the banking industry is seeing more momentum now than at any time in the past 15 years. These are important characteristics to the passage of a banking bill.

Another positive is that there are mainstream champions on both sides of the aisle. Our esteemed Sen. Joe Donnelly, a Democrat, is an advocate for getting a bill passed and is working with a team to negotiate a bill that all can agree to. Sen. Donnelly will be key to this process, and we appreciate his willingness to lead.

Indiana as a whole will be key to this process. In addition to Sen. Donnelly, two Indiana representatives, Marlin Stutzman and Luke Messer, both Republicans, sit on the House Financial Services Committee. Both of these members are supportive of bank regulatory relief efforts. The Indiana Bankers Association continues to work with all three of these Hoosier legislators to advocate for the passage of regulatory relief to allow bankers to serve consumers in their pursuit of the American dream. Whether that dream is to buy a car, build a home or start a business, bankers must be freed from the excessive regulations that are hindering, if not preventing, them from providing needed services.

We thank Sen. Donnelly, Rep. Stutzman and Rep. Messer for their support of the ability of bankers to serve their customers and improve the economy one loan at a time!

– S. Joe DeHaven

NCUA Oversteps its Bounds

July 29, 2015

Hubris is defined, briefly, as wanton insolence or arrogance. It is certainly an appropriate description of action taken recently by the board of the National Credit Union Association (NCUA), as it tries to do by regulation what Congress has opted not to do by legislation. This affront of the checks and balances built into our system of government boils down to legislation by regulatory fiat. George Washington would spin in his grave at what our governmental bureaucracy has evolved into over the past 240 years. Worse, the NCUA action is indicative of what we have been seeing the past 10 years or so … it is not an anomaly.

What the NCUA has done, essentially, is to gut the credit union member business lending caps that were clearly established by legislation in Credit Union Membership Access Act of 1998, which primarily allowed credit unions to accept multiple groups as part of their membership, thus effectively eliminating the historical requirement of a common bond of members of a credit union. The legislation set the member business lending cap at 1.75 times the credit union’s net worth, or at 12.25 percent of the credit union’s total assets. Business loans under $50,000 were exempt from this calculation, as were any portion of loans with government guarantees, such as Small Business Administration loans.

The banking industry fought hard back in 1998 to defeat the act, but it passed with little opposition in Congress. Since then, the banking industry has singularly cried foul to Congress, and the issue has not been taken up again. However, each year there are bills introduced to increase or eliminate the member business lending cap available to credit unions. The frustrating part about the NCUA decision to wade into this issue is the sheer gall of collectively thumbing their noses at Congress, which has historically set the laws for how banks and credit unions must operate. Regulators ‒ such as the NCUA, Office of the Comptroller of the Currency, Federal Reserve and Federal Deposit Insurance Corp. ‒ enforce the laws; they do not establish laws. NCUA apparently has determined that it does not need permission from Congress.

I have been involved in countless conversations with banking regulators at all levels, and I can assure you that other regulators do not share this philosophy. Time and time again, when we have asked for some form of relief from a regulation, regulators have said that we need to go to Congress, because all they can do is follow Congress’s will. In other words, regulators are simply doing what they believe Congress gave them authority to do. Clearly the NCUA does not ascribe to that logic. The NCUA has become an industry advocate, rather than a regulator tasked with the safety and soundness of the institutions they regulate, let alone any consumer protection concerns.

I believe that Congress eventually would have lifted or eliminated the member business lending limit, but there would have been a big price for it. That price would likely have been total or partial elimination of the federal tax exemption that credit unions continue to enjoy. However, there was no mention of the federal tax exemption in the proposed rule from the NCUA.

It is way past time for banks and credit unions to be put on level playing fields for product offerings, taxation, access to capital and regulation. And it is high time that regulators stay within their realm by regulating laws passed by Congress, rather than by creating law through regulation.

 – S. Joe DeHaven

Sharing Stories to Be Persuasive

July 22, 2015

Last week I had the privilege to attend the American Bankers Association summer leadership meeting in Baltimore. One of the speakers was Colonel Arthur J. Athens, USMC (retired), director of the U.S. Naval Academy’s Stockdale Center for Ethical Leadership in Annapolis, Maryland. Col. Athens reminded us of the lessons of the great Greek philosopher Aristotle, who determined that persuasion is based on three components: ethos, logos and pathos. Ethos is the ethical appeal, or credibility, of the argument. In today’s environment, reputation would have a great deal to do with whether the argument can be believed. Next, logos is the logical deduction, or reasoning, of the argument. Logos is bolstered with statistics, data and documentation. Finally, pathos is the emotional means of persuasion. Modern-day advertising, with its heavy emotional appeal, is based on pathos.

Combining these various types of persuasion to make a point is best done through the telling of a story. By rights, bankers should be quite persuasive. Bankers have ethos, because within communities, bankers as individuals are held up as people of character and credibility, even if the industry as a whole is not held in high esteem. Additionally bankers have logos. They have innately logical demeanors ‒ after all, the books have to balance ‒ so bankers score “through the roof” on logos and can provide clear, logical arguments. The persuasive area where bankers may fall short is the emotional side of reasoning: pathos. This is where storytelling can be especially important in connecting emotionally with clients and associates.

An example of how these three elements of argumentation may play out for bankers is when trying to persuade a congressman to support a certain piece of legislation. First, ethos or credibility should already be in place, because the congressman should already know who the banker is ‒ underscoring the value of grassroots advocacy. Second, the banker likely has the logos, or logical, part of the argument covered and can back up assertions with numerical proof. However it is in the third area, pathos, where the banking industry needs to step up. Do banking professionals consistently connect with congressmen regarding how industry issues affect their voter constituencies? Do bankers connect as well and as often as the credit union leaders, or consumer activists, or retailers?

How can the banking community do a better job of being persuasive? Though there are many answers, one way is to become better at storytelling. When you are talking to your congressmen about how bad the regulatory environment has become, tell specifically about your client who no longer qualifies for a mortgage at your bank, and the negative effect on that client. To get a loan, did your client have go to a loan broker or a payday lender … and consequently have to pay a much higher rate of interest?

Or can you tell a story about a customer who appreciated your bank’s overdraft protection program so much that the customer wrote you a thank you note? Your team regularly hears from customers who appreciate the service your bank supplies, and those are stories worth sharing. If the banking community is going to win some of the larger battles looming in Washington, D.C., we have to get better at telling our story. It is the story of customers and communities. It is ever unfolding and changes with the times. Col. Athens says that he practices telling his stories in front of a mirror, or tries them out on family or friends. We must become that dedicated to telling our stories of banking.

– S. Joe DeHaven

Time to Tailor our Regulatory Regime

July 15, 2015

Since the first of the year, I have written and spoken frequently about what I see as a change in attitude toward the banking business, particularly toward the community banking sector, by both the prudential regulators and Congress. Since progress moves slowly in Washington, D.C., I am certain that many bankers question my optimism. Recently, however, a couple of positive developments took place that support my belief that the tide has begun to turn.

Last month Republican Rep. Scott Tipton from Colorado introduced the TAILOR Act* bill. This common sense bill simply states that “the Federal financial institutions regulatory agencies shall (1) take into consideration the risk profile and business models of the various institutions or classes of institutions subject to the regulatory action; (2) determine the necessity, appropriateness, and impact of applying such regulatory action to such institutions or classes of institutions; and (3) tailor such regulatory action applicable to such institutions or class of institutions in a manner that limits the regulatory compliance impact, cost, liability risk, and other burdens as is appropriate for the risk profile and business model involved.”

Couple that bill with a speech titled “Dodd-Frank at Five; Looking Back and Looking Ahead,” delivered last week by Federal Reserve Gov. Lael Brainard before the Bipartisan Policy Center. Brainard said: “One thing we can all agree (on) is that we have a more resilient and dynamic financial system as a result of having a very large number of banking organizations, in different size classes, pursuing different business models. Indeed, that diversity is one of the hallmarks of the U.S. system, which distinguishes it from many other advanced economies. Accordingly, we want to make sure that our regulatory framework supports banks in the middle of the size spectrum, as well as community banks, and the customers they serve. Thus, by the same rationale that argues for the greater stringency of the standards associated with greater systemic risk at the top end of the scale and complexity spectrum, we will carefully examine opportunities to ease burdens at the lower end of the spectrum. And we will want to continue to refine our regulatory standards, using the authorities under Dodd-Frank to make sure they are tailored to be commensurate with the risk to the system.”

My interpretation is that Gov. Brainard is indicating that tailoring regulation to the size and complexity of the individual financial institution is something that the regulatory community must embrace to assure that the localized financial structure ‒ unique to the United States, the most successful and powerful economy ever on earth ‒ will be protected for future generations. At the same time, Congressman Tipton’s bill provides a legislative remedy if the regulators do not tailor regulation to the size and complexity of the individual institutions or classes of institutions.

The banking industry must remain vigilant in its efforts to continue to press both regulators and Congress for common sense relief from the oppressive regulatory burden that has been unleashed by the Dodd-Frank Act. I assure you that the Indiana Bankers Association, along with our affiliate state associations, the American Bankers Association and the Independent Community Bankers of America, will continue to pursue a tailored regulatory regime.

* Taking Account of Institutions with Low Operation Risk Act

-S. Joe DeHaven


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