Change Is in the Air
Below are comments by Chris Pinkham at the 30th Annual Community Bank Directors’ Forum on May 12:
My message this morning is, more change is in the air. Nothing new to most of you, but a disturbing trend of issues on the federal horizon that over time will impact every banker in this room. Those issues, ranging from the political to the practical, tell me that a fundamental shift is occurring in my business: After a lengthy focus on state regulatory and legislative issues, again we return the focus to federal issues.
First, FDIC reform was finally voted this winter with a very aggressive implementation program, including expanded retirement account coverage to $250,000. That was effective just last month. This will not be the only new change: likely assessment increases in 2007, consolidation of the BIF and SAIF funds into the new DIF (Deposit Insurance Fund) and, most importantly, the requirement that you replace all the FDIC decals on your branches and stationery with the new seal!
Relief from the mountain of regulatory issues that burdens your institutions is still on the horizon, as the House and Senate have different approaches to reforming your work. Areas such as the frequency of privacy notices, CTRs and BSA compliance are all up for discussion, but no compromise is on the near horizon. Look for some trading of issues over the next month, but unless the conference committee can be organized, meet and act prior to the August recess, action in 2006 seems a long shot. Besides, this is an election year!
Mutual Holding Companies
As you may know, we have four (soon to be five) mutual holding companies in Maine. In fact, Maine was a pioneer in the MHC charter a decade ago. Unfortunately, there are only 235 MHCs nationwide, and their uniqueness sometimes causes them to be a target of investors and regulators. We have been working with New York, Pennsylvania, New Jersey, Massachusetts and Connecticut to convince the Senate banking committee to leave the charter alone and, to date, the MHCs are untouched. Sens. Sarbanes and Shelby can be thanked for their help. (Just to reassure you, the issue involves only those institutions who have issued minority stock and the resulting stockholders.)
The controversy continues. Just for a moment, let me assume there is one person in the room that doesn’t understand what all the fuss is about: It’s about the money!
• The company has 3,066 stores and super-centers nationwide.
• It processes about a million financial transactions a week.
• A wire transfer to Mexico costs less than $10, compared to $14.99 at Western Union.
• Money orders are less than 50 cents, compared to a buck or more at many banks.
• Each year, an estimated $65 billion flows out of the United States in money orders, one-third transacted by two companies, MoneyGram (10 percent) and Western Union (22 percent).
• Checks are cashed for $3, and customers aren’t unknowingly steered into short-term loans at 300 percent to 1,300 percent interest rates, as happens at some unethical check-cashing outlets.
• Check-cashers have Wal-Mart outnumbered, with more than 11,000 outlets cashing $55 billion in checks annually (average $5 million per store).
• Industrial banks, also known as industrial loan corporations or ILCs, are found in only a few states. They operate like banks with federal deposit insurance and can issue credit cards, take deposits and make loans. About the only thing an ILC cannot do is offer standard checking accounts if its assets exceed $100 million.
• At the end of last year, there were 29 Utah industrial banks with combined assets of more than $120 billion.
• Utah may present it its best chance. Not to worry about these ILCs, as they are owned by minor players in the retail marketplace: they include General Electric, Merrill Lynch, American Express, Target and Warren Buffett’s Berkshire Hathaway, as it announced plans to operate a Utah industrial bank to handle consumer loans for its R.C. Willey Home Furnishings stores.
• And just this week, Home Depot added its name to the list as they hope to finance home repairs.
Need I tell you that we are seeing unbelievable growth in the credit union industry in Maine? Now their regulator and the industry have proposed CUREA (Credit Union Regulatory Equality Act). It broadens their powers and their field of membership, lessens regulatory monitoring and essentially prohibits conversions to mutual savings banks.
Now, briefly, on the state level:
Identity theft has us working on a number of fronts, first, with the Bureau of Financial Institutions (Superintendent Lloyd LaFountain and his staff) by distributing a brochure on identity theft and credit reports, and second, with the newly formed coalition of 23 banks called the Anti-Phishing Coalition (or www.nophishing.org). We are bringing identity theft to everyone’s attention and hope to reduce losses that are caused by carelessness.
Elder Financial Fraud
After a legislative proposal to mandate reporting of potential elder financial fraud by tellers and other bank employees, we have been successful in building partnerships with a number of concerned groups who originally saw us as opponents and now see us as allies. (And, I might add, they now see how the proposed legislation would not have accomplished what they hoped for – namely, educating the elder population about the fraud risks around them.)
This summer, we’ll be asking banks statewide to add new training modules prepared by the Department of Health and Human Services’ Office of Elderly Services to their regular training of customer contact staff.
Security Breach Bill
And final, I’m pleased to report that the governor has just recently signed the security breach bill which will require all retailers, state government, the university system, (practically anyone) to report a breach of specific information to the owners.
As you know, recent breaches outside the banking industry have cost banks significant losses, while those responsible are rarely identified and certainly do not have the same obligation that you have to report the breach. Effective Jan. 31, 2007, they too will have to report certain breaches.
Change: a fact of life for bankers.
Christopher W. Pinkham is president of the Maine Association of Community Banks.