The past week ushered in a new Congress that hit the ground running. Already it has put a bill on the president’s desk for signing that shows some promise for the banking industry. The bill was the extension of the Terrorism Risk Insurance Act (TRIA), which originally was passed by Congress and signed by then-President George W. Bush following the brazen attacks of 9/11. The bill provides a backstop for the property insurance industry for acts of terrorism that result in losses above a set amount. Fortunately the backstop has never been tapped, but it has provided confidence to both the property and casualty insurance industry and to those who construct and own large buildings that could be terrorist targets. It is an important product, also, for the banking businesses which finance many of those potentially targeted buildings.
Perhaps of equal importance to bankers in the TRIA reauthorization bill are two unrelated provisions. The first is a clarification that end users of derivatives are not required to post margin for uncleared swaps. The other requires that at least one member of the Federal Reserve Board must have experience in community banking on a going-forward basis. In related news, last week President Obama nominated former Bank of Hawaii CEO Allan Landon to fill an open seat on the Federal Reserve Board. In the announcement, the president touted Mr. Landon’s experience in community banking, suggesting that he will fill that requirement. However the president has not signed the bill, so that requirement does not exist today. The question is whether Landon will meet the qualifications to be the representative for community banking, since Bank of Hawaii, at $14 billion in assets, is the 87th largest bank in the United States. It could get interesting, as there is one more open seat to fill. If the president signs TRIA before filling that last seat, will he have to appoint another community banker who better fits the requirements? There may be more discussion about this in the coming weeks but, as it now appears, all agree Mr. Landon meets the requirements.
In other news this week, Housing and Urban Department Secretary Julian Castro reduced the insurance premium for FHA-backed loans from 1.35 percent to 0.85 percent. This reduction is designed to allow more people to qualify for mortgage loans. Of course, it also will qualify those on the fringes, which is concerning, because this is exactly the kind of public policy decision that triggered our descent into the recent financial crisis. Ironically the American Bankers Association released its quarterly Consumer Credit Delinquency Report, which showed that delinquencies were reduced in seven of the 11 categories it tracks. However another report by the Wall Street Journal regarding auto loans showed that those individuals with credit scores under 620 were experiencing increases in delinquencies. That strikes me as a warning against the HUD reduction. Republicans in Congress are not happy about the reduction in the HUD rate. This, too, could get pretty interesting in the next couple of weeks.
It was an exciting week and a great start to 2015. Banking was able to gain some positive traction from the TRIA legislation. Congress showed that it can perform by passing a much-needed bill through both the House and the Senate in a week’s time. There also is cause for hope on other issues facing the banking industry that need help from Congress, but we will all need to work together with Congress to get those issues dealt with. It should be a fun year!
– S. Joe DeHaven