By Katie Kieffer
I predict medical professionals will see an uptick in bankers with government-induced drinking addictions. The government is driving bankers into depression. It doesn’t help that bankers have no one to vent to. The public has turned on bankers since the liberal media has painted them as greedy trolls who drove the U.S. into recession.
I want to shed some light on the ways that the government is driving a stake into our economy by attacking banks.
Government squeezes banks out of business
- Banks are failing, failing everywhere. 140 banks failed in 2009 – the highest number since the peak of the S&L crisis in 1992. We are barely into March and 22 banks have already failed in 2010. In contrast, just 25 banks failed in all of 2008 and only three failed in 2007.
In Oct., 2009, Timothy Koch, president of the Graduate School of Banking at Colorado, told bankers at the Bank Holding Company Association’s Fall Seminar that government regulators are implementing policies that will drastically reduce the size of the banking industry. Koch said that regulators are lowering banks’ “profit potential” by raising capital levels to 10 percent, causing the banking industry to “self-select.”
Whereas most banks “used to be able to operate comfortably with 8 percent capital,” they now need “10 percent or more, ” Koch said. Bankers are having a difficult time meeting these needlessly high capital levels.
- While federal regulators are cracking down on community banks that provide small business loans necessary to drive the economy, they are nurturing a set of “political banks” that take orders from the government. Political banks are banks with poor business models that the government bailed out, and, now has a political interest in overseeing.
Government has kind words but harsh fieldworkers
On Oct. 30, 2009, the Federal Financial Institutions Examination Council released a document titled the “Policy Statement on Prudent Commercial Real Estate Loan Workouts.” FDIC Chairman, Sheila Bair, described this regulatory document by saying it, “encourages banks to continue making good loans to commercial real estate borrowers, many of which are small businesses…” and “examiners are instructed to take a balanced approach in assessing an institution’s risk management practices for workouts.” This document sounded nice, but has achieved little by way of unfreezing the markets and helping small businesses – the fuel of our economy – obtain loans.
As ABA Banking Journal put it, “Some bankers are simply not ready to believe that a policy statement will bring meaningful change in the field.” Take it from the experts:
- Walt Moeling, banking partner for Bryan Cave LLP in Atlanta states, “Appraisers in this environment aren’t going to step up and give you any big numbers. They have every incentive to protect themselves.”
- Patrick O’Keefe, real estate consultant for O’Keefe & Associates in Grand Rapids, Mich. says, “Having been accused of overinflated appraisals [in good times], they now err on the other side – almost useless.”
- Kate Marcum, president of Millbury National Bank, contends, “They were aggressive about writing down the values and I’ve had some appraisals that were extraordinarily low (area values have fallen around 20% recently). Appraisers are really afraid to say anything positive.” She says that the examination process has “decimated guarantors. Quite frankly, [examiners] don’t want to be caught with a bank with a problem they didn’t identify.” So, they identify nearly everything as a problem.
Former California regulator, Walt Mix, sums the government’s new regulatory document this way, “And the real problem, that can’t be addressed in the guidance, is the bid-ask differential for the [commercial real estate] property. No regulatory document is going to improve the market’s view of underlying collateral.”
Government pushes banks to bail out negligent clients
Effective July 1, 2010, the Federal Reserve has prohibited banks from charging clients with deficient money management skills fees for over-drafting at ATM machines or on debit cards unless the client agrees to pay such charges. Clients with poor money-management skills are probably the least likely to agree to a fee that would crimp their ability to spend beyond their means. Overdraft fees are a practical way for banks to compensate for the risk of loaning money to negligent clients.
Granted, some ATM machines will allow consumers to withdraw beyond their account balance without informing them. A simple “consumer-protection” solution would be to inform consumers rather than to prohibit overdraft fees.
- The Federal Reserve has prohibited banks from charging consumers overdraft fees at ATMs.
But, our government, high on spending steroids, sympathizes with citizens who suffer from similar spending addictions. Thus, the Federal Reserve has decided to slash up to $20 billion in revenue from banks by barring overdraft fees. Smart bankers at Wells Fargo & Co., Fifth Third and U.S. Bancorp are trying to recoup these funds by offering clients short-term loans called “checking advance products” comparable to “payday loans.”
These loans are certainly risky and expensive debt, and even though they inform customers of risk, banks face scrutiny from consumer protection groups who claim that these products are “debt traps.” A “trap” implies that one is an innocent victim. Negligent consumers are not innocent victims. They are negligent consumers who won’t take the time to check their account balance before they go shopping for cash at the ATM machine.
Let’s get the facts straight: No one has a right to spend beyond their means. No one has a right to take more money out of their bank than they put in. If consumers wish to act irresponsibly, and the Federal Reserve strips banks of the ability to charge overdraft fees, then banks will need to find another means to penalize and rightly profit from the risk they assume from lending money to fiscally irresponsible consumers.
Let’s all give bankers a little love and focus our energy on limiting the size of government so that the economy can fully recover.