|
| Compliance and the Community Reinvestment Act (CRA) has become a huge issue for banks. The focus in these areas greatly increased in scope under the Clinton administration and greatly accelerated from there under the Barney-Frank financial solution that actually did very little in my mind to clean-up the banks following the credit crises. It is like they had the whole agenda in place and ready to go and was just waiting for a crisis to come along to jam it down the throats of community banks that were largely doing there jobs correctly to begin with. I must admit here that since the focus of our bank is on safety and soundness, we were caught off-guard by the many new bureaucratic regulations that were put in place. In fact we were placed under a memorandum of understanding to clean up that area of the bank. The next step after a memorandum of understanding is issued is cease and desist. That is why we are spending more than $100K (easy) to comply. To give you an idea of what the rules dictate, consider our manifest that we must produce maintain for every house loan that is originated. It must categorized whether it is a purchase, a refinance, a refinance of a refinance, a rental house, a home equity loan, the combination of a refinance of a home equity loan or a purchase loan, the list seems endless. Unless you keep this manifest in perfect detail you are now subject to fines and a lower bank rating. The tolerance for errors is about “one” or so for a grid that is extremely detailed and is about 5 pages long for each and every quarter it is filed. What does this have to do with solving the credit crisis? NOTHING.
In Iowa and in most other states you will find state laws that prevent you from making more than a handful of larger loans unless you have a state or national charter. To have such a charter you have to participate in FDIC insurance. There are some smaller exceptions such as pay-day loan companies and such but you will not be able to fund such loans with funds from depositors unless you purchase FDIC insurance. IE) The money you lend has to come from you own equity which will really limit the size of your company. Also, most of these companies participate in usurious credit practices which I find appalling. The highest rate in our bank is no more than 9% which makes it easier to sleep at night. You will find that Credit Unions have similar rules as banks but differing regulators and capital guidelines.
If you want to make the banks clean get them out of all the peripheral activities that are outside the scope of banking. That is not being done because the TBTF banks line the pockets of politicians and happen to have the leaders that are appointed to posts such as FED members and Treasury Secretary. I would suggest the only campaign contributions that banks should be allowed to make to political entities are in the form of group donations that can come from the American Bankers Association.
| |
|
For Iowegian and others Re: Banker conversations.
