A note from Charlie – Aug. 6

August 6th, 2015 Charlie Funk
Charlie Funk

It’s “Go Time” for the U.S. Senate

A few months ago, I wrote about the barrage of new regulation – much of it lacking in common sense – that is threatening the very fabric of hometown banking in America.

The threat is real and in the two months since I penned that article, I have seen more evidence that the small guys in our industry have less margin for error than their larger counterparts. Their job is certainly not impossible, but it’s made comparatively more difficult by the mountains of paperwork these new rules generate.

The U.S. House of Representatives has made it clear it wants regulatory relief for our industry. It has sent more than 15 bills, most with bipartisan support to the Senate for consideration.  Sen. Richard Shelby, who chairs the Senate Banking Committee, has chosen a different approach. He introduced a large and comprehensive bill that would bring needed relief to our industry and, most importantly, would make banking simpler for our customers.

“Simpler” as in being easier to obtain a mortgage loan to buy a home. “Simpler” as in being able to close that loan in a reasonable period of time.

Unfortunately, Sen. Shelby’s bill did not pass the committee with bi-partisan support; rather it passed with all Republicans supporting it and all Democrats opposing. This isn’t said to be politically polarizing because the bill contained many elements that both parties could support and the Democrats chose to vote as a block.

This sends an ominous signal in terms of the potential to pass the Senate. The majority will need 60 votes to pass the bill in the Senate and send it back to the House. This means at least six Democrats must offer support for the bill.

Is all lost? No, not at all. Sen. Shelby is known as someone who is willing to compromise and has let it be known that if compromise is necessary to move this bill, so be it. Finally, about two weeks ago there was a news flash that a group of Senators from each party are working to find a common ground and pass real regulatory relief.  Since then, there has been no additional news of movement to compromise coming out of Washington.

Thus far, this piece has been nuts and bolts. Let’s get to the crux of the issue. Just what would a relief bill do for your neighborhood hometown bank?

  • It would establish common sense into banks designated as “rural.”  Why does this matter? Current designation of “rural” has put many small town banks in “non-rural” designations, which imposes regulatory constraints that harm the bank and the customers it serves. The rural designation is solely the function of an out of date formula used by regulators. This is common sense.
  • It would allow banks to offer creative solutions for its mortgage loan customers if the banks hold the loans in their own portfolio and thereby assume all the risk. Current practice has excluded many, many marginal customers from getting mortgage loans due to fear of creating a regulatory problem. This is common sense.
  • Banks spend thousands of dollars getting ready for bank examinations. The bill would allow banks up to $1 billion to be examined every 18 months rather than every 12 months so long as they are financially healthy institutions. This one makes so much sense!
  • The average bank is estimated to spend $65,000 per year just compiling quarterly call reports. This bill would allow the healthiest banks to fill out a shortened version each six months. As a comparison, when I started my banking career in 1979, it took a day (at most) to complete a call report. Really? $65,000 per year to simply report a bank’s financial condition once a quarter?

These are just four good ideas that would make life better for us all. Remember, the more a bank spends on call report completion or preparing for a bank exam, the less money it will spend on customer service and community support. And, this is an most important point, small offices in small towns will become more viable with this regulatory relief.

Need more convincing? This week a bi-partisan coalition of left leaning and right leaning organizations called on the Administration to take away the uncertainty currently existing in mortgage lending. Their target was all of the lawsuits that have been filed by the Justice Department and an estimate of 1.2 million people of moderate credit quality not receiving loans each year because of lender uncertainty caused by lawsuits and excess regulation. Think about that – 1.2 million people!

So, Senators, the ball is in your court. We elect you to come together and do what is right. Even the most strident among you agrees that there are elements in the current environment that need fixing and that both consumers and banks will benefit when they are fixed. Get your act together. America’s hometown banks and its millions of customers are counting on you.

Charlie Funk

About the author

Charlie Funk is President and CEO of MidWestOne Bank. He works with the MidWestOne team to oversee the daily operation of the bank.

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