The Push for Reg Reform

The intramurals are over.  Labor Day is behind us and Congress is set to return next week, after the long August recess, to deal with a host of key issues.

While the Administration and Congress wrestle with a historic vote on a possible strike on Syria, another looming battle over the future of Obamacare and a continuing resolution to avoid a government shutdown, your IBAT government relations team has been busy attending Texas Congressional meetings throughout the state to encourage prompt introduction and action on a comprehensive regulatory bill for community banks.

Financial Services Chairman Jeb Hensarling has been working with his Democratic counterparts to craft a bipartisan regulatory relief bill. Hensarling told IBAT staff this is a major priority for him and his leadership team upon his return to Washington.  A plethora of regulatory relief bills has been introduced in the House, many of which address key components of ICBA's Plan for Prosperity.  What components make the final House bill is anyone's guess at this juncture.

Meanwhile, the Senate has introduced its own version of regulatory relief targeted at community banks. Senators Jerry Moran, John Tester, Mark Kirk and Mary Landrieu have introduced a broad and bipartisan bill, S. 1349. IBAT has weighed in with Senators Cornyn and Cruz asking them to co-sponsor the legislation.

"The time has come for Congress to quit simply 'saying the right things' regarding regulatory reform and get about doing something to address these serious issues," said IBAT President and CEO Chris Williston. "We are still optimistic something can be done before year-end to address the growing frustration shared by every community banker who finds themself dealing with a mountain of needless paperwork and implementation of rules that stifles economic growth and the bank's ability to serve their customers," Williston added.

ICBA has provided an excellent summary of all House and Senate regulatory relief bills which can be found here.

Loan Admin Fee Rule

The Finance Commission exercised its new authority granted by SB 1251, passed during the last legislative session, and increased the Administrative Fee Rule from a $20 or $25 maximum fee to a fee that does not exceed $100. Below is the Regulated Lender Advisory Bulletin issued by the Office of Consumer Credit Commissioner.  The effective date of the rule change is September 5th, 2013.


Administrative Fee Rule (Subchapter E)

The Finance Commission has adopted amendments to the rule regarding the administrative fee that may be charged for a Subchapter E loan under Chapter 342. The key amendments to the rule cap the administrative fee at $100 and will be located in Texas Administrative Code, Title 7, Section 83.503(1). The new language states:

"As an alternative to the maximum administrative fee specified in Texas Finance Code, §342.201(f), an authorized lender may collect an administrative fee that does not exceed $100."

Happy Labor Day!

In observance of Labor Day, the IBAT offices will be closed on Monday, September 2, 2013. Business hours will resume to normal on Tuesday, September 3, 2013.

We wish everyone a happy and safe Labor Day holiday!

Power of A Award

IBAT is pleased to announce that the Teach the Teacher™ Program, hosted by the IBAT Education Foundation, has been awarded The Power of A Silver Award by the American Society of Association Executives (ASAE).

The Power of A Silver Award is one of the highest awards given by ASAE and honors associations that engage in activities and initiatives that are essential to building stronger communities.

IBAT's Teach the Teacher Program is a one-day event that provides educators with engaging and practical approaches to teaching money management to students. Participants earn six hours of Texas Education Agency-approved continuing education credit and receive an incentive stipend. High school economics, social studies and business education teachers learn how to teach topics such as credit, debit, taxes and credit scores, among many others.

"The IBAT Education Foundation is thrilled to have been chosen for this award," Mary Lange, president of the IBAT Education Foundation, said. "We are committed to providing the necessary education that will allow students to begin a path of financial success."

Interchange Rates

Last week bankers breathed a collective sigh of relief when learning that the Federal Reserve would appeal a ruling by a district judge on the establishment of interchange rates.  Earlier this month Judge Richard Leon ruled that the cost methodology the Fed used in establishing interchange rates merchants must pay to process debit card transactions was contrary to Congressional intent and ordered, barring appeal, the Fed to eliminate all but direct costs they used in determining the rate.

Appearing before the court last week, Fed lawyers announced their intent to appeal and argued that current rates be maintained until such time as the appeal could be heard.

So what does all this mean for community banks? Under the Dodd-Frank legislation and the infamous Durbin amendment which mandated the artificial price control, banks under $10 billion in assets were excluded.  One could argue that the District Court ruling would have little or no effect on these institutions but market forces long term would certainly drive interchange rates down for all institutions. The fact remains that government price controls would only pad the profits of the large retailers at the expense of consumers who have not seen any material reduction in prices since the initial Fed ruling.

It is estimated that retailers have enjoyed a $6 billion dollar windfall since rates have been set by the Fed. Meanwhile all financial institutions continue to suffer heavy losses resulting from debit card fraud while the merchants are void of such liability.

Earlier this year, IBAT was successful in moving state legislation which would prohibit merchants from surcharging debit card transactions at the point of sale and restricting merchants from "steering" debit card usage to the large banks which are subject to the fee cap established by the Fed.

IBAT will continue to monitor and assist in any bank coalition efforts in appealing the District Court decision.

Check Handling FAQs Part IV

Our Compliance Helpline team of Shannon Phillips and Kelly Goulart are often asked questions by member banks dealing with the handling of checks and items that:

To provide some help in that area, we have developed a one-page resource for each of those topics.  These one-page resource papers provide information on the theory, the practice, who pays, questions to ask, and potential defenses.

These are not intended to answer every question or possible situation, but to stimulate the thinking process when banks find themselves confronted by these inevitable situations.

If you have additional questions or suggestions for future white paper series, please feel free to contact the IBAT compliance team.

Diebold Integrated Solutions

Last week IBAT officially announced an endorsement of Diebold's Integrated Solutions which provides complete ATM channel management, including hardware and software, professional managed services and traditional maintenance services.  This marks an expansion of IBAT's current endorsement of Diebold ATM, Retail and Drive-up Banking Equipment and other products.

"IBAT's expanded endorsement of Diebold's integrated solutions package is another example of our commitment to provide IBAT members with leading-edge technology solutions," Curt Nelson, president of IBAT Services, said. "We put great effort into being proactive about endorsing products and services that will translate into success for our members now and in the future."

Diebold's integrated solutions will enable IBAT member banks to establish a single point of contact for monitoring, maintenance and managed services. In addition to improving operational efficiency, delivering an optimum consumer experience and enhancing security, this will help community banks throughout Texas grow and retain a reliable consumer base.

Examination Insights

What are the major areas of emphasis for examiners from each of the federal regulatory agencies? According to a white paper produced by IBAT Associate Member Sageworks, asset quality and capital adequacy top the list.  

Based on survey responses from 165 financial institutions over the past year, the 44-page report includes recommendations that these institutions received during federal exams during the past 12 months. Responses are anonymously broken down by regulatory agency, with sections related to the OCC, FDIC, Federal Reserve, and the NCUA, and cover:

  • Credit administration and asset quality;
  • Allowance for loan and lease losses;
  • Stress testing; and
  • Management and compliance with federal banking regulations.

The full white paper is being offered to IBAT members as a free download via the Sageworks website. 

Week in Review: August 23, 2013

It might very well be that the most significant, market-moving event of the week actually happened last month. With [last] Wednesday's release of the FOMC's minutes from their July meeting, the Fed disappointed many, if not most, market participants who thought they would be getting some clarity about Chairman Bernanke's tapering intentions. Well, if they'd been thinking, they wouldn't have thought that. The minutes reflected pretty much what the Chairman's post-meeting statement indicated; and that is that future Central Bank actions will be determined by how well or how poorly the economy performs. So, it was déjà vu all over again as credit markets swooned as if this was news. [Last] week's swoon took the yield on the Treasury's Benchmark Ten Year Note up to near 2.90%, a two-year high... Read more in the Baker Market Update.

Succession Planning

The article below originally ran in the July/August 2013 edition of The Texas Independent Banker Magazine.

Succession Planning – A First-hand Account

I was the Senior Vice President of Operations for a $140 million Texas community bank when I received a call on November 6, 2002 informing me that not an hour earlier our bank’s Chief Financial Officer, and my close friend, had been killed in a car accident while on a hunting vacation in Montana.  I walked into the bank President’s office, interrupting a meeting he was having, and said “We have to talk now.”

Like so many community banks, we did not have a formal succession plan.  We had given succession planning some thought, but it was always something that seemed to remain on our “to do” list.  That phone call on November 6 changed all that and started a mind-numbing scrabble of long days and even longer nights that could have been much easier to deal with had we had a succession plan in place.

The bank President, board members, and other senior bank officers represent the leadership of the bank.  If that leadership becomes compromised or degraded, the bank certainly faces considerable “leadership risk.”  In fact, the loss of a senior officer or board member can have a profound impact on both the short-term efficiency and the long-term strategic success of the bank.  Like any other risk, boards have a fiduciary responsibility to develop a comprehensive and carefully crafted plan to address “leadership risk” – and that translates into a succession plan.

No matter how big or small the bank is, the board of directors should have developed a succession plan.  The complexity of the plan will certainly be impacted by the size of the bank, but there are some basics that every board should consider when developing a succession plan.  Without a plan, boards will find it difficult to act quickly and efficiently when faced with the inevitable loss of a key member of bank leadership.

Step #1 – Assign Responsibility for the Plan

The entire board can and should take an active role in the succession planning process giving both advice and consent.  However, the details and actual development can be assigned to a sub-committee of the board or even to the senior management of the bank.  There are also a variety of third party human resource consultants who can provide valuable guidance in the development of an effective plan and they should not be overlooked in the process.  The board should also approve and adopt any plan, and part of the responsibility assigned should include a regular annual review and report to the entire board.  A good succession plan is dynamic.

Step #2 – Identify Covered Individuals

A succession plan should cover all those who play a significant and critical role in the bank.  This obviously includes the president, the chief financial officer, a chief operations officer, a chief credit officer, the chairman of the board, and in today’s technology driven world the information and technology officer should be included as well.  Those are just a few titles that come to mind, but each bank will have to consider and possibly include other department or division heads who are critical to the success of the bank and whose loss would pose a significant detrimental impact.

Step #3 – Identify “Springing Events”

What event will cause the succession plan to spring into action?  Typically plans should address three events that would cause the activation of the plan for covered individuals – their sudden death or incapacity (the “hit by a bus” scenario); a planned retirement or departure; and also a significant or sustained deterioration in performance.  However, one other event should at least be given some thought and that is a significant change in the strategic plan of the bank because that could necessitate a change in leadership or require a slightly different skill set to carry out the strategic goals of the bank.

Step #4 – Identify Potential Candidates

This step is the replacement planning part of the process and should include a means for identifying and developing inside talent.  I worked for a larger community bank that required each of their senior officers to both identify and develop their successors in a formalized process.  That internal focus recognizes the fact that for a variety of reasons internal talent may be better suited to and able to step into the role better than outside talent.  The board and senior management will have had time to interact with promising up and coming talent.  Inside talent will also be familiar with the roles and responsibilities, and the corporate culture within the bank.

Step #5 – Reduce the Plan to Writing

Although we had discussed succession planning informally, all those discussions and plans went out the window when we were actually confronted with the sudden and tragic loss of a key member of our management team.  There is simply no way to have a succession plan that is clear, consistent, and performs under the “stress of the moment” unless it is in writing and available to all the players involved.

Step #6 – Include the Board

As I already stated, board members are an integral part of the leadership of the bank.  It makes sense that a succession plan will include the identification of potential board candidates.  These can be individuals who serve on an advisory board or have professional skills desirable to the board.  Identifying the right potential board candidate requires careful consideration and planning.  For example, if a board had a single member with a strong accounting background, that should be a consideration when contemplating potential board members.

In conclusion, thoughtful consideration for the six steps above will help a board and senior management engage in the important process of succession planning.  Loss is inevitable and often occurs at what seems like the worst time possible, but failure to plan is a conscientious decision and reflects an abdication of a board’s fiduciary responsibility.

Finally, here is to Charlie.  I think about him often and while we managed without him, in many ways he was irreplaceable.

Kelly Goulart is IBAT’s Regulatory Compliance Manager.

Save the Date!

Final plans are coming together, and registration will soon open for the popular IBAT Winter Summit.  

The dates - February 9 - 11.  
The place - Harrah's at South Lake Tahoe.  
The players - The top regulators and banking attorneys in Texas, plus an economic update and investment strategy session. 

Great learning opportunity, great value, great venue... and ample opportunities for networking and recreation in a relaxed and informal atmosphere.  Watch for more information in the weeks ahead.

Compliance Guides

Thanks to the nearly 90 bankers who attended the IBAT Lending Summit in Dallas last week! In preparation for the Summit, we added each of the CFPB's Mortgage Compliance Guides to the IBAT web page dedicated to the new mortgage rules. Each of the seven guides, along with a link to the CFPB training videos, is provided as a helpful and time-saving resource for all our members.

Weighing in on Home Equity

As previously reported in the Bottom Line, after years winding through the courts, the Texas Supreme Court issued a decision in ACORN v. Finance Commission, et al. challenging several home equity interpretations adopted by the Finance Commission and Credit Union Commission. A request for rehearing has been filed and IBAT filed an amicus curiae brief supporting the request for rehearing. IBAT's brief disagrees with the formula the court created to determine interest and the limitations the court imposed on the use of powers of attorney to close home equity loans.

IBAT also filed an amicus curiae letter in the case of International Bank of Commerce v. Silvestri et al. The letter supports the IBC's contention that:

  • the guaranty and security agreement provide the only formula for calculating a guarantee's liability guaranty agreement in a commercial real estate transaction, 
  • the security agreement does not alter the terms of the guaranty, and 
  • the appellant waived his offset right under the property code.

Week in Review: August 16, 2013

Bond yields decided to push a bit higher [last] week as economic data continues to show creeping improvement. The bellwether 10yr T-Note yield climbed to a 24 month high of 2.86% and the yield curve steepened further, giving ammo to banks in their battle against margin compression. For their part, Federal Reserve officials kept markets guessing as to whether and when the dreaded "tapering" of their $85 billion in bond purchases might commence. The Fed's balance sheet currently sits at an all-time record of $3.65 trillion... Read more in the Baker Market Update.

Altered Check Handling

Our Compliance Helpline team of Shannon Phillips and Kelly Goulart are often asked questions by member banks dealing with the handling of checks and items that:

To provide some help in that area, we have developed a one-page resource for each of those topics.  These one-page resource papers provide information on the theory, the practice, who pays, questions to ask, and potential defenses.

These are not intended to answer every question or possible situation, but to stimulate the thinking process when banks find themselves confronted by these inevitable situations. This week's installment deals with the handling of alterations.  

Next week's will address checks which have a midnight deadline for return.

Convention Deadline Extended

The deadline to reserve your hotel room for IBAT's 39th Annual Convention, September 21-24, has been extended to this Friday, August 23.  After this Friday, we can no longer guarantee room availability or rate.

You can make your hotel reservation and sign up for the Annual Convention using the online registration site or, if you've already signed up for the Convention and just need a hotel room, complete the print registration form or call Jessica Molina at 512-275-2207.