The Ongoing Battle Between Banks and the FCS

May 25, 2016

In last week’s blog, I described the forthcoming Senate Committee on Agriculture, Nutrition, & Forestry hearing to satisfy the committee’s responsibility to provide oversight to the Farm Credit System (FCS). That meeting took place last Thursday, May 19. I predicted that the Farm Credit System would come to this meeting better prepared to defend its competitive advantages over the banking industry than it had at the House Agricultural Committee version of an oversight hearing nearly two years ago. That prediction proved to be accurate.

Testimony from a farmer who borrows from a Farm Credit System bank, a manager of a Farm Credit System bank, and an executive with the Farm Credit System did a much better job of explaining the need for the Farm Credit System, while glossing over the obvious competitive advantages the FCS has over the vast network of community banks. Bankers representing both the American Bankers Association and the Independent Community Bankers of America provided excellent testimony, as they had at the House Agricultural meeting previously. Less time was spent on some of the egregious examples of loans from the Farm Credit banks to companies like Verizon and Cracker Barrel.

If the House committee hearing was a win for bankers, and the Senate committee hearing a tie, where do we stand now? Should we expect any relief for banks competing against the Farm Credit System? A single hearing does not make or break the battle that continues between bankers and Farm Credit System supporters. The reality is that, while the hearing did not change any legislator’s opinion, significant structural advantages provided to the Farm Credit System remains to be dealt with. My opinion is that this battle will rage on for quite some time.

No one expected this committee hearing to be the sole impetus for changing the Farm Credit System. The hope was that this would be another step in that process. Both sides can argue that they won, hence my statement above that this one was a tie. An important election will be the focus of legislative attention for the remainder of 2016. Therefore nothing will occur except for some appropriation bills until after the election. Then there will likely be a lame duck session of Congress, during which many issues deemed to be of importance by legislators will be bundled into a bill or bills and passed. Do not count on anything relative to the Farm Credit System to be part of that packaging, but I do think there will be some community bank regulatory relief included.

Bankers knew from the beginning that taking on the Farm Credit System would be a long process, with no guarantee of success. Last week’s hearing was merely another step in the right direction to level the playing field between banks and the Farm Credit System.

– S. Joe DeHaven

Voices Heard Regarding the Farm Credit System

May 18, 2016

Approximately two years ago, the U.S. House of Representatives Agriculture Committee held an historic hearing in which it performed its responsibility of oversight of the Farm Credit System. You may recall that Rep. Marlin Stutzman from Indiana had penned a letter that received a good deal of media coverage questioning some of the acts of the Farm Credit System Banks.

Both the American Bankers Association and the Independent Community Bankers of America enlisted bankers who provided excellent testimony. The bankers were well prepared for this committee hearing, as opposed to the Farm Credit System representatives, who were not well prepared. Following the hearing, many of the committee members walked away concerned about some practices of the Farm Credit Banks.

Tomorrow, May 19, the Senate Committee on Agriculture, Nutrition, & Forestry is holding its oversight meeting regarding the Farm Credit System. The ABA and the ICBA again have engaged bankers who are well prepared to testify regarding some of the actions of Farm Credit Banks that seem outside of their mission. I suspect that this time the Farm Credit System representatives will be much better prepared. That remains to be seen, since the Farm Credit System has a different regime in place today.

Indiana is again ably represented, as our own Sen. Joe Donnelly is a member of the Senate Agriculture Committee. He also serves as a member of the Senate Committee on Banking, Housing, & Urban Affairs and has been a champion for community bank regulatory relief.

The fact that committees from both the House and Senate have been assessing the performance of the Farm Credit System represents quite a coup. It had been more than 10 years ago that either of these congressional committees had exercised FCS oversight responsibilities. After tomorrow, both will have done so. These meetings have occurred because of the outcry from community bankers through the state bank trade associations, the ABA and the ICBA. Absent our voices, I doubt that these meetings regarding the Farm Credit System would have taken place.

Many Indiana bankers have joined the chorus, in the past several years, requesting that hearings be held. This is a huge win for banking, and a testament to the collective strength of our voices. So often we have been frustrated by actions coming out of Washington, DC, particularly in the past eight years. This victory proves that bankers are being heard. Yes, the legislative process is a slow-moving machine, and often it seems as if no one listens to industry concerns. The next time you feel that way, however, think about how bankers’ efforts managed to move the needle relative to the Farm Credit System.

Also consider how continuing efforts in other areas, such as regulatory relief, will pay off at some point. Regulatory relief is the right thing to do, and congressmen from both parties know that it must be accomplished. An effective way for you to add your voice is to participate in the Indiana Bankers Association Annual Washington Trip, set for Sept. 25-27. Last year we had an impressive 57 bankers attend the trip, out of a total of 88 attendees. This year I hope that we have 75 bankers and over 100 attendees. That level of outreach makes a statement to congressmen that our concerns need attention.

My hope is that tomorrow’s hearing will shine a light on some of the unfair practices and advantages that the Farm Credit System has over bankers. I also hope you will join us in September to express your concerns in Washington, DC.

– S. Joe DeHaven

Changes and Similarities Through the Years

May 11, 2016

A few miles northeast of Muncie, there used to be a school called DeSoto High School that graduated its last class in 1967. Later, the school consolidated into what is now Delta High School. Back in 1967, I was a member of the final graduating class of DeSoto High School. There were 24 of us, and we were considered a big class. Recently I saw some of my former classmates and other DeSoto “Panthers” at an all-school alumni banquet, an event we gather for each May. It is a joy to attend and reminisce. I was the second youngest member of the class of ’67, so this is also one of the few places I can still go to and be counted as one of the youngest!

At these reunions, it is always interesting to me that, even after 49 years, not much has changed … and yet a lot has changed. Initially people tend to revert to the roles they held when they were in high school ‒ so from that perspective, not much has changed. After a while, though, people start to ask about your current activities and whereabouts, plus their assessment of you and others has transformed ‒ so from that standpoint, much has changed. And certainly after all these years, we are a lot slower and physically altered from those carefree days of high school.

The two areas of life where I have spent most of my career are banking and politics. Like high school reunions, I’ve noticed that some areas of these fields have remained the same, while others have changed. Foundationally, bankers are still financial intermediaries who take deposits and make loans, but much has changed in my time in banking over the past 46 years. Regulatory burden has escalated to a point unimaginable when I started my career. Technology has created many more delivery channels for our products and services. Competition from nonbank entities has increased significantly, with the latest competitors being FinTech companies. Our image has been unfairly damaged, as we were blamed for many wrongs that were committed by those nonbank entities. Tax-exempt competitors have been allowed to grow and provide nearly all of the same services as banks, yet are still allowed their outmoded tax exemptions.

Politically, our structure remains similar to the one the Founding Fathers put into place, and we still operate by Robert’s Rules of Order, but politics also has changed significantly. To the extent that the legislative process is politics, that process has changed. PACs have proliferated since I began my career, and super PACs were previously unheard of. Technology has played a huge part in changing how the process works, with instantaneous, 24-hour news. A downside to this is that many citizens fail to look at both sides of an issue, focusing instead on the side that supports their preconceptions. Consequently many people are no longer willing to negotiate on issues, resulting in the gridlock that we experience today. These are issues that we must resolve in order to move our country forward.

My old high school is gone, and those of us who walked its halls are aging fast. Banking, however, will always be here in some form, despite significant changes. There have always been financial intermediaries and, in my opinion, there always will be. Politics has perhaps not changed enough to keep up with technology and the complexities of the world in which we live today. Let’s all hope that we find the will and leadership to improve our system of governance through politics. In the end, we are all united in wanting a brighter future for this great nation.

– S. Joe DeHaven

Mega Success, Year After Year

May 4, 2016

Providing continuing educational opportunities to the members of the Indiana Bankers Association goes hand-in-hand with our state government relations efforts in helping us to fulfill our mission: “To advocate for and sustain an environment in which banks can succeed.” Every survey of bankers in Indiana within the past 20 years shows that both education and government relations are the most compelling reasons for IBA membership. Your staff at the IBA takes these responsibilities very seriously. Generally this blog addresses advocacy issues, but today we focus on education. I am pleased to report that the IBA provides about 600 educational programs per year ‒ more than any other state bankers association in the country.

These 600 programs include about 400 webinars and 200 seminars, schools, forums, conferences and series. We have four and a half staff members devoted exclusively to providing this high-demand service. The cornerstone of these offerings is the IBA Mega Conference. This yearly event, held in addition to the IBA Annual Convention, was developed by IBA staff and first offered in 1992. Today, 25 years later, Mega has grown to become bigger and more comprehensive than any other event offered by a single state bank trade association nationwide. Other states have tried to copy the IBA Mega Conference, but none have met with the success that Indiana has experienced.

The 2016 Mega Conference is taking place today and tomorrow. More than 1,300 people are registered, 86 companies have purchased booth spaces, and yesterday 120 people enjoyed golf at the beautiful and unique Brickyard Crossing Golf Course. Each year at Mega, tracks of general topic areas are selected, with four specific sessions included within each track. The tracks for this year are Directors, Human Resources, Retail Banking, Risk Management, Sales & Customer Service, Trust, Business Lending, Compliance, Financial Management, Marketing, Operations & Technology, and Strategic Thinking. Add in outstanding keynote speakers, the excellent trade show and a couple of receptions ‒ plus our after-hours hospitality suite ‒ and you have the makings of Mega success.

Putting all of those ingredients together, however, is the secret to the success of this event. We seek a wide range of input from bankers, speakers and advisers to help us address relevant topics in order to maximize the value for our attendees. Having offered the IBA Mega Conference for 25 years, we have been continually honing it into the hallmark event that it is today.

As I visit with bankers from across the country about the future needs of the industry, I continue to hear that education and government relations will be increasingly important for bank trade associations to address. The IBA is well positioned to be able to provide these services well into the foreseeable future. We are financially sound, we have an expert staff, and we have a membership of dedicated and engaged bankers.

That said, we are always open to and looking for ways to improve on our menu of services, including the IBA Mega Conference. Please let us know how we are doing. As our values statement indicates, we “remain mindful that the success of the IBA is judged by the success of its members.”

– S. Joe DeHaven

Exercising the Right to Vote

April 27, 2016

In last week’s blog, I warned that the crazy season of primary elections was landing in Indiana. By now you have been overrun, and likely appalled, by the barrage of negative political advertisements ‒ in your mailbox, on your TV, on the radio, in the newspapers, and streaming over the Internet. The election is still nearly a week away, so the intensity is likely to pick up even more.

For the primary election in Indiana on Tuesday, May 3, there are still multiple candidates running for president of the United States. Unfortunately, though, most people that I talk to are not happy with the pool. The general sentiment is, “With more than 320 million people in the United States, is this the best we can do?”

It currently appears that Bernie Sanders, an independent senator from Vermont, is about to be mathematically eliminated. From a banker’s standpoint, that is a good thing. Sanders, who is running on the Democratic ticket for his presidential aspirations, has lasted far longer than anyone would have thought ‒ perhaps even longer than he expected. What does it say about our country that a 74-year-old, self-proclaimed Socialist is prominent in the conversation? And why is it that he appeals to first-time millennial voters?

Mr. Sanders’ campaign has been based on blaming a single industry for every problem in the world: banking. Why does he not understand that the deployment of capital to businesses, governments and consumers from the banking industry is the backbone of our economy? The Sanders advertisements that I have seen threaten to make the banking business “pay,” and he lists a litany of bad ideas that could be funded by punitive measures against those awful banks. I am baffled.

If he is appealing to millennials, and they agree with his anti-bank rhetoric, how will we win them over as customers in the next few years? I do not see any silver bullets, so there is a laundry list of things that each bank will need to do. One is to tout what banks do individually, as well as industry-wide. I have written often over the years that bankers are too modest about sharing how much they help their various markets. The banking story must be told. Another “to do” item for the industry is to reach out to young, future customers and leaders and ask them what they want from banks. Conversing is one of our strengths, but we need to focus it on young consumers to dispel the Sanders rhetoric.

I suspect that you have figured out that I will not be casting my vote for Bernie Sanders, though I still am not sure who I will vote for. It is serious business, since the president of the United States is the most powerful person on earth. While I wish there were additional choices, I will nonetheless enter the voting booth and make many decisions, one being for president. I hope you, too, will exercise your right to vote, whether on May 3 or in advance. Our country enjoys more freedoms than any nation in the world, largely because of the men and women who have fought to preserve our liberties … including the cherished right to vote.

– S. Joe DeHaven

Elections 2016: Unwholesome Competition

April 20, 2016

The crazy season descends upon Indiana today. Yesterday was the New York state primary, and the next big prize, in terms of presidential delegates, is Indiana. No doubt within the next two weeks we will tire of the barrage of countless negative political advertisements. The primary will be good for our economy, as it is expected to generate well over $10 million in media expenditures in the Indianapolis market alone. I cannot imagine how much more will be spent on hotels and food and advertising on a statewide basis, but it will be substantial.

By May 3 we will all, I hope, either go to our respective polling sites, or will have voted in advance. We vote to select the candidates of our choice, though sometimes our vote is against candidates. Each of us have our own criteria to measure candidates for all of the offices, from the presidency on down. This year it may be difficult to sort through criteria as we prepare to vote ‒ to date I have not seen much substantive discussion of issues in any races. Along with the presidential circus, there are many other important contests to decide this year, including the one for the Republican candidacy for the U.S. Senate seat currently held by Dan Coats. This race pits two outstanding U.S. representatives, Marlin Stutzman and Todd Young, against each other, and observers have noticed considerable mudslinging in their campaigns.

There also are some heated contests for state-level Senate and House seats, primarily on the Republican side. With some exceptions, most of these contests are one-issue ideological challenges, rather than broad-based issues disagreement. While that is not entirely new, it strikes me that it is more prevalent throughout this year’s races than in the past.

At the presidential level, much has been said on the Democrat side about the influence of the top 1 percent of wage earners, what to do with banks, and relative political experience. Little has been said about how to lead our nation, how to direct foreign policy, or how to realistically plan our domestic future. Hillary Clinton has been cast as a serial liar, and Bernie Sanders is an admitted Socialist, which somehow makes him at age 74 the choice of young voters. This is all confusing to me. Then there is the Republican side, where we have Donald Trump and Ted Cruz ‒ both of whom have their share of party detractors ‒ as the leading candidates. Add to the mix John Kasich, who remains in the race despite having no visible chance of getting enough delegates to win. There is conjecture that none of the three will have enough votes to win the nomination on the first ballot of delegates, which could open the final process to anyone. This, too, is confusing to me.

My reflections on all of this are twofold. First, each year more Democrats move further to the left politically to win their primaries, and Republicans move further to the right. In this two-party system of ours, those of us who live in the middle are left unrepresented. Will a third party spring up to represent those of us in the middle? Second, I am thankful that we have the Summer Olympics this year to divert our attention away from politics for two weeks, while we enjoy a more wholesome competition!

– S. Joe DeHaven

Misplaced Incentive for the Credit Union Industry

April 13, 2016

There is a maxim, heard in various derivations, that holds a lot of truth: “You get what you incent.” Companies around the world use this concept to encourage sales of specific products or services. Government at all levels, and in many forms, have used incentives to elicit desired behavior. Unfortunately I believe that governments, in particular, often misuse incentives, or fail to end incentive programs when the perceived goals have been reached.

A case in point is the continued tax exemption enjoyed by the credit union industry. Because credit unions were founded to provide limited financial services to groups of individuals who shared a common bond, the federal government provided a tax exemption so that financial services would be available for such persons, especially those of modest means. Today’s credit unions, though, are hardly recognizable from those formed nearly a century ago. The Credit Union Trends Report from CUNA Mutual Group indicates that, in January, more than 300,000 people joined credit unions, loan balances were up 11 percent from the previous year, and savings balances increased 6 percent. While all categories of credit unions grew, the largest credit unions grew four times faster than the smallest credit unions.

Today there are more than 105 million credit union members in the United States, served by under 6,500 credit unions. The banking industry has about the same number of institutions as there are credit unions, but has not shown the same level of growth in customer base as experienced during the past several years by the credit union industry. Yet with all of that growth, plus exemption from federal and generally state taxes, the credit union industry only earned 0.75 percent return on assets last year, compared to the banking industry’s return on assets of 1.03 percent ‒ and banks pay federal and state taxes throughout the country!

Why, then, does our federal taxation policy continue to incent credit union growth at the expense of bank growth? The answer is a bit hard for bankers to understand. Generally speaking, Democrats want to align with policies that support the “little guy,” and credit unions are perceived to both serve the little guy, and be the little guy within the financial services realm. Despite the findings of study after study that disprove that credit unions continue to serve those of modest means, the perception remains.

Another generality is that Republicans are opposed to raising taxes on any person or entity, and thus they are not willing to institute taxes on the credit union industry. Never mind that Republicans are proponents of a level playing field in business, which obviously does not exist in the financial services industry. As someone who has worked on this skewed issue for decades, it is frustrating to have such systemic opposition to correcting this innate unfairness.

I certainly do not know when this issue will be addressed by Congress, but I do believe that the day will come. In the meantime, I fear, we will continue to get what we incent, which is the abnormal growth of the tax exempt credit union industry, largely at the expense of the tax-paying banking industry.

– S. Joe DeHaven


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