IBA meeting notebook

ABA chairman offers insight on Washington developments.Brad Rock, chairman of the American Bankers Association, answered several questions for Iowa bankers when he spoke in Des Moines on Sept. 22. Rock is chairman, president and CEO of Bank of Smithtown, N.Y..Regarding Fannie Mae and Freddie Mac preferred stock: "I think it is fair to say that when they announced the GSE plan for Fannie and Freddie, they did not understand the full ramifications of it for community banks," Rock said. "So we wrote them a letter that we hand-delivered on the afternoon of Sept. 18 that told them what we thought the ramifications were, what the problems were and gave them a list of six specific suggestions. They have this list of six proposals and I can tell you they are reconsidering.."Here's the problem. The essence of what they have said is: 'does it have more characteristics of debt or equity?' The decision is that all the debts will be honored, but the equity is going to get wiped out. It's preferred stock; it's pretty hard to make the argument that that's debt. But I think there are some arguments for arguing it had some characteristics of debt, and that it ought to be treated differently.."Some bankers have told me and have told other folks affiliated with ABA that years ago not only did the regulators encourage them to own this preferred stock (that's especially true for thrifts), but the regulators in the exam when they saw them listed in the equity section of their balance sheet, that regulators told them 'we think it belongs up in the liability section of your balance sheet.' Now if you have had that experience, please tell me or someone at ABA.".Regarding a federal guarantee on money market accounts: "The Treasury and Fed met behind closed doors, then they announce a proposal, like the one that was announced to guarantee 100 percent of the money market funds. Then ABA jumps in right away. I was in Washington, Thursday [Sept. 18], and we met with them Thursday night; we met with them Friday. We met with them basically around the clock on that issue and some other issues, and we put forth two proposals for trying to mitigate any positive/negative impact from this new money market guarantee.."The Treasury accepted the following amendment: That the guarantee would only apply to existing money that is in those accounts as of the close of business on Friday. So, it does not apply to any money moved, any new money, new accounts, new money that is added to the old accounts. That ought to mitigate concern that there could be a flow of money out of banks into those funds.".Regarding additional regulatory burden: "What Mr. Paulson keeps saying is right now we need certain short-term solutions to stop the bleeding. And I agree with that," Rock said. "But the bigger question is what will be the longer-term, big picture solution? And one of those that he has suggested is a complete revamp of the regulatory system. I think that will happen. Especially now with what has happened this morning where there are no major independent investment houses anymore. Nor everybody comes under the reaches of the Bank Holding Company Act as of this morning and will be regulated by the Federal Reserve.."We have more than 8,000 banks in this country that had nothing to do with causing any of these problems, and we are already very heavily regulated. The problems have come from industries and people that are either very lightly regulated or not regulated at all. It is clear to me there is going to be more regulation. It is clear to me we are going to have a complete revamp of the regulatory system. We have to keep trying to get the policy makers to focus on the fact that we don't need more regulation of the existing banks, we need to regulate those areas that previously were unregulated.".IBA chairman urges return to fundamentals.IBA's 2008-09 chair Tom Stanberry, chair and CEO of West Bank in West Des Moines, offered this commentary about the appropriate response to the current economics crisis:."I want to say something about how we recover from where we are today. It's a return to fundamentals. It's a return to fundamental values, both in terms of the way we look at the economy, and in the way we look at our own personal lives.".Stanberry said the run-up in land prices and the expansion of some commercial businesses were not based on sound fundamentals.."There are two benefits to a capitalist society," he said. "On is if you make good business decisions, sound economic decisions, you will be rewarded for them. The other one is is you don't make sound business decisions, you are going to be punished for them.".Stanberry said he is concerned about a bailout that will reward people who were "speculating on inflation."."Every time the government steps in with a bailout program, it tends to create more inequities in society. The government does a very inefficient job of bailing out people who make bad decisions.."One of the best examples of this would be the setback in the 1980s," he explained. "Look at the RTC, look at the values they paid for land, the values that they then sold the land for, and ask, who made money and who lost money. People who lost money were the shareholders, and the depositors in the institutions, and the people who made money were the people who stepped in and speculated on land appreciation after the RTC sold the land. I can't imagine it's going to be different in this situation.."We are going to take a group of people, bail them out of some bad financial decisions, and put the instruments they are being bailed out of, into the hands of people who can, at best, be labeled financial speculators.".Ames banker wins IBA recognition.The IBA named Dan Krieger its 2008 James A. Leach Leadership Award recipient. Former Iowa Congressman Jim Leach presented the award to Krieger on Sept. 22 via recorded comments from his Princeton University office. Krieger is chairman of Ames National Corporation. The bank holding company owns banks in Ames, Boone, Marshalltown Nevada and Story City.."The Leach Leadership Award was created in 2000, following former Congressman Jim Leach's term as chairman of the U.S. House Banking Committee, to recognize the very best of Iowa banking," said IBA President and CEO John Sorenson. "Dan Krieger fits the mold. He is someone who cares deeply about his community and his industry," Sorenson said..Krieger is past president of the IBA, past board member of the American Bankers Association and past chairman of the ABA Community Bankers Council..Big winner.Eugene Young, of the Treynor State Bank in Treynor, Iowa, won the grand prize in the convention-closing drawing. Bankers who turned in a card signed by 30 exhibitors in the convention's accompanying trade show were eligible. The prize was a 52-inch flat-screen TV, jointly sponsored by The Kirk Gross Company of Waterloo, Dakota Security Systems of Ankeny and Bank on Hold of Edmond, Okla.