Not too long ago, I sat down with the former Comptroller of the Currency, Jerry Hawke, at Bank Director’s Acquire or Be Acquired Conference and we debated several issues asked by audience members. Here are some highlights.
On life at the Fed after Greenspan…
Seidman: Life without Greenspan will be different. I think the biggest change will not be in monetary policyu00e2u20ac”it’s going to be in whether the Fed will continue to be an overarching regulator or whether it will back down from that function.
Hawke: Greenspan’s personal reputation has been extraordinary and carried a lot of clout. I don’t think Ben Bernanke will come in with that kind of clout. Whether the Fed will continue its turf-gathering instincts is somewhat questionable. But at the bottom of this, you must understand that the Federal Reserve System is archaic. The whole concept of a central board of governors with 12 regional reserve banks was created in the early part of the 20th century and has no relevance to today’s banking marketplace. The Reserve Banks’ supervisory function is atrophying as banks merge and convert. Yet, the Fed has always considered the Reserve Bank structure to be very important to its independence, so I don’t see it loosening its grasp on its turf.
On Wal-Mart as an ILC…
Hawke: I have never believed in the sanctity of a wall between banking and commerceu00e2u20ac”I think that that’s been overplayed over the years. Yet, I understand the threat that Wal-Mart presents to community banks. If Wal-Mart decided to turn its ILC into a branch operation, that might be potent competition for community banks in their communities. But I think our community bank structure is strong enough to withstand that competition.
Seidman: I agree. However, if I were a community banker, I would still do everything I could to sink the possibility that Wal-Mart stores will have their own banks. Still, while it’s a threat, I don’t think it’s a near-term threat. I think there’s more of a chance that Congress will restrict the ILCs powers.
(Editors note: Both Seidman and Hawke serve on the boards of ILCs.)
On the biggest concern to community banks’ viability…
Seidman: The biggest threat that community banks have is that compliance is reaching a cost that smaller institutions simply cannot handleu00e2u20ac”particularly if they are public. So, the real challenge to the small community bank is the government. Somehow or other, community banks need to exercise the political power to get the “big gorilla” to back off so they can survive.
Hawke: I agree, yet I’m not pessimistic about the future of community banking. I think it’s going to continue to be desirable to own and manage a community bank. To be sure, there will be challenges, but I think our community banking system has got a solid future, and I don’t see it disappearing over time.
On credit union competition…
Hawke: It’s clear that the competition banks have from credit unions is not fair. Yes, the credit unions are able to deliver higher rates on deposits and lower rates on loans because of their tax exemption, and there are some in the banking industry who think it makes sense to try to take away that tax exemption. But that’s just not going to happen. The strategy ought to be to try to get comparable tax treatment or advantages for community banks. Every time the banking industry has gone to Capitol Hill on this issue, they lose a little more, so I don’t see a legislative effort that attacks credit unions being successful.
Seidman: Unfortunately, bankers do not have a good record in Washingtonu00e2u20ac”as we’ve just seen with deposit reform. When Ken Guenther was head of the ICBA, he was one of the few people who put together alliances that gave the banks some success in Washington. I agree with Jerry, there’s not a chance of getting credit unions taxedu00e2u20ac”if you tax them they’ll just reduce their profits by paying higher deposit rates, because they don’t have to make profits. So that’s the wrong answer. With regard to CRA and deposit insurance reform, however, the credit unions and the banks should be working together. If they did, they would be a powerful force on the Hill.