ABA Gets To The Issues

June 13, 2005
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GRAND RAPIDS — The American Bankers Association goes to bat for bankers and state banking associations by tackling critical industry issues with the help of its Government Relations Council.

The 140-member council, which has banker representatives from every state, raises legislative and regulatory issues it feels the ABA ought to address and makes recommendations on the stance the ABA board ought to take on the issues. 

Three bankers in Michigan serve on the ABA's Government Relations Council, including Art Johnson, chairman of United Bank of Michigan. Johnson currently serves as vice chairman of the council, and he has served the council in a couple of different capacities since 1996, including stints as captain of Michigan's "TEAM 21," the ABA's grassroots political activist program.

James Fast, president and CEO of Ionia County National Bank in Ionia, and Dennis Angner, board member of Isabella Bank and Trust in Mount Pleasant, also represent Michigan on the council. Council members meet four times a year in Washington, D.C.

Council members keep ABA leaders updated on the concerns of bankers in their states and keep their state banking associations informed of the ABA's positions on issues. It's a three-way process, Johnson said.

The ABA's professional staff in Washington keeps the council informed of what might be coming at the industry from a political, legislative or regulatory perspective, he explained. The council gives the national association insight as to what's going on in the field. As a result, new ideas come from both directions, he said, as do potential solutions and positions on issues. The give and take includes state banking associations.

"Sometimes legislative or regulatory things that are happening in one state can have an impact on the national scene and certainly have an impact on member banks from those states. A lot of those things can have a tendency to filter from one state to another."

The banking industry is particularly watchful of California because that's where a lot of  "bad" regulatory ideas get their start, Johnson remarked.

"Because it's such a large state with such a large contingent in the House of Representatives, bad ideas in Sacramento have a way of getting a hearing in Washington. Oftentimes, if you see something coming, you can start talking it up and head off a bad idea before it gets too much momentum."

The ABA Government Relations Council originally had nine major issues on its plate at the start of the year, but two have already been resolved to the council's liking. One was passage of the Class Action Fairness Act on Jan. 25, which is intended to curb lawsuit abuse. The other was passage of new bankruptcy reform legislation, which President Bush signed into law April 20. Most of the bill's provisions take effect in October this year.

Among the issues the ABA's Government Affairs Council continues to address are Social Security system reform and deposit insurance system reform, both of which the organization supports.

"Because our economy and people's financial well-being are so important to our industry, Social Security reform is an issue we absolutely have to have an interest in," Johnson said. "The idea is that the Social Security system will be in trouble some significant number of years down the road. One thing that bankers generally know is that the sooner you start solving a future financial problem, the easier it will be to solve."

Present law requires the Bank Insurance Fund and Savings Association Insurance Fund to maintain at least a 1.25 percent designated reserve ratio, which translates to $1.25 against $100 of insured deposits, according to the ABA. Over the past decade, commercial banks and savings associations have contributed more $36.5 billion to ensure the insurance funds are well capitalized, according to the ABA

As the deposit insurance system is currently structured, growth of the insurance funds is unlimited. The ABA believes the funds should be capped so when they exceed the designated reserve ratio, excess amounts can be returned to the banks and savings associations that built up the funds in the first place.

There are some problems in the way banks pay premiums for the insurance for their depositors, as well, Johnson said. If the reserve ratio falls below 1.25 percent, the Federal Deposit Insurance Corp. board must charge premiums sufficient to restore the reserve ratio. As he sees it, it tends to be an all-or-nothing type of situation: Either banks are paying very, very low premiums and, in some instances, no premiums at all in a particular year, or they're paying very, very high premiums following some stress on the funds.

"We'd really rather have that leveled out over time so that the premiums that we have to pay don't go up in an economic downtime when it would be disadvantageous for that cost to go up. We think those improvements can be better dealt with now, at a time when the industry and the insurance fund are both in very good shape."

The ABA wants to see national bank and financial holding company subsidiaries get authorization to provide real estate brokerage and property management services. Johnson said a lot of people don't realize that state-chartered banks in Michigan have had that authority for a number of years, but not many banks offer real estate services because it doesn't fit into their business model.

"But it is important on the federal level for us to defend the ability of our regulators to expand the products and services we can offer in a rapidly evolving financial marketplace," he added.

"Most of the large real estate firms have their own mortgage companies, and what we're asking is simply to be able to offer the same range of services to new homebuyers that the large real estate brokerage companies can. Bankers will still have to hire real estate professionals to do all that, so nobody should worried about their jobs."

The ABA is against the tax-exempt status Congress grants credit unions, which it considers a tax subsidy. The ABA and state bankers associations have launched Operation Credit Union.

As things are now, it's simply not a level playing field, Johnson said. United Bank of West Michigan, for example, pays $1 million to $1.5 million in federal income taxes, while its credit union competitors offer virtually the same products to virtually the same customer base but don't pay any federal income taxes, he pointed out. And that gives them a very large competitive advantage. Futhermore, federally chartered credit unions also don't pay any state taxes other than sales tax, he noted.

"I don't mind competing with anybody. In fact, I think competition is great. As a community banker I have to relish competition, because if it wasn't in play, little community banks wouldn't be around. But there is a place for us, and we pay our fair share of taxes."

The heart of the problem is that restricting credit unions' ability to grow is really the only tool banks have at the moment. If credit unions paid taxes just like banks do, then all the argument about their ability to grow would go away, Johnson said.

"The thing that is particularly galling is that they want to grow at the banking industry's expense and use a taxpayer-provided pricing advantage to do that. Most of the roadblocks that we try to throw in their way when they're seeking additional powers are simply to stop the advantage that they have from becoming any greater."

The ABA also backs legislation that would create a new, independent regulator with increased supervisory power over government-sponsored enterprises, including Fannie Mae and Freddie Mac, which have gotten into some accounting problems of late. There are questions as to whether those enterprises are growing too fast, are too big and control too much of the housing market, Johnson said.

Regulatory relief for banks is another issue on the ABA's Government Relations Council's priority list. The Fed estimates that the total cost of compliance today for banks is between $26 billion to $40 billion annually.

One other issue is consumer privacy. The ABA believes that the goal of financial privacy policies should be to "strike a balance" between protecting the privacy interests of consumers and preserving the "clear consumer benefits" that arise from the free flow of information in the economy.    

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