The State of Banking

[Intro]: Alvin Community Bankers grow themselves, their team, and their profits. This is the Community Bank Podcast. Now, here are your hosts, Eric Bagwell and Tom Fitzgerald.

Eric: Welcome to the Community Bank Podcast. I’m Eric Bagwell, director of sales and marketing at the correspondent division of CenterState Bank. Joining me as always on the podcast is Tom Fitzgerald. Tom is director of strategy and research for the correspondent division. Tom, you’re doing okay?

Tom: Eric, I am doing great. I hope you are as well.

Eric: Doing good. I’m not even sure what number show this is, which is a good thing.

Tom: I think we’re over a dozen now. Aren’t we?

Eric: Yeah, and I think I want to say last week we had maybe our largest day ever of listens. I know it was coming on the heels of Jill Castillo and Chris Nichols. So, we’re getting our name out here.

Tom: Heading to the top 10.

Eric: That’s all right. Who knows where we’re at? I don’t know. We just do it and we’ll see what happens. So, we’ve got a really cool show today. We’ve got Rob Nichols, the present CEO of the American Bankers Association joining us. Actually, Chris Nichols who interviewed Jill a few weeks ago, sat down with Rob and we’re going to play that interview, but first, before we get to that, we want to talk one more time. A couple of days from now, we will have our live stream event, capital markets forum on October the 15th. Tom, talk real briefly about what folks can expect on that.

Tom: Well, Eric, we’re real excited about this format that we’re going to be doing. It’s kind of taking what we had done in the past couple of years were these bond schools, where we would come to your communities and put on a, about a four- five- hour program of looking at the economy, looking at rates, looking at investments, your asset liability. Obviously, that’s not possible now to kind of come and do these group gatherings anymore in the age of COVID. So, we’ve decided to kind of do, like you said, a live stream event. Where we’re going to condense it down. We’re not going to force you to sit for five hours in front of the computer terminal, but we’re going to condense that down into about a two-hour program. Where we’re going to sort of hit the highlights of what we covered in the bond school.

We’re going to again go over kind of the economy where we think rates are headed and then kind of move into sort of an investment panel discussion, kind of where you know, what to do, how to do it as we move through the rest of 2020 and into 2021. Yeah. This is not going to be like a typical webinar that you may see as you’ve attended where there’s a lot of PowerPoint slides. You just hear somebody’s voice. This will actually be a live event where we will be kind of on a stage with cameras and we’ll have a few slides, but probably won’t even go to those very often. We just want this to be a discussion. So, we’re excited about it. You can go to CSB correspondent to register. We’ve already got quite a few banks registered and even in some States that we don’t actively cover.

So, we’re excited about just being able to put this thing on for you guys. Let’s go real quickly now to the interview that Chris Nichols did with Rob Nichols. Rob, as you know, he’s present CEO of the American Bankers Association. He is consistently ranked as one of the top lobbyists in Washington, and in the interview today, they’re going to talk about what’s ahead for the industry, the stimulus bill, whether there’s going to be one or not or another one and just an update on everything else that’s going on in Washington as it relates to banking. So, appreciate you guys tuning into the podcast. We’ll go to that interview right now.

Chris: Rob Nichols, good to see you again, always a pleasure. We appreciate you guys taking the time out of your schedule to give us an update on what’s happening with the ABA, and maybe I’m going to ask you some questions about what’s ahead for banking. You’re doing okay?

Rob: Yeah, Chris, doing great. Thank you. Thanks for the invitation. Really appreciate it, and you know, so far everyone’s healthy and happy and just, you know, navigating eight months into a work from home environment and leading the American Bankers Association.

Chris: Well, on behalf of our bank, I know we just actually signed the check for our next round of membership, our annual payment, and we appreciate everything that you guys do both for us and for the industry.

Rob: Thank you. We deeply appreciate your engagement and not because you have the coolest last name at the bank, but you know, we really, in all sincerity, we appreciate it, and it’s a privilege to lead the ABA and serve banks like yours.

Chris: Thank you. So, 2020, what a year, right? Lots of changes. Tell us about what’s happening at the ABA and how you guys have been adapting, and I’ve heard you know, great conference coming up, so let’s touch on that.

Rob: So, let’s start with 2020. I don’t know about you. I didn’t have global pandemic on my bingo card. So, the whole year was really upended in the first in Q1, as you well know. So, the year we spent the better part of the spring doing two things, one helping the banks from an operational standpoint run a business amidst a global pandemic. I learned more about surface contamination and aerosol and all of those issues. We had bank CEOs all across the country asking us, do you keep the branch open? Do you shutter the branch? Do you just go to drive through? Do you have hours for those high-risk Americans? How would you do that?

So, we had to just hundreds, if not thousands of questions about just doing business in the middle of a pandemic, how do you do it? What are some of the best practices? So that was a big part of the spring as you will know. The second part was the public policy response, working with the legislative and regulatory community on the cares act, as well as a whole host of other rule easements and adjustments that could be made to help banks, you know, help their borrowers to keep people in their homes to keep small businesses as a float. So, the spring was just a blur with all of that activity happening, happening simultaneously, and I will tell you, I’m remarkably proud of the role that the banking sector played unlike 2008 and 9, which was a financial crisis.

This is a healthcare crisis with a massive economic tail, and the banking system has been a source of strength. We’ve been part of the solution, not part of the problem. So, I think the work that banks did is economic first responders. The beginning of this year was absolutely heroic, and despite some of the chaos around the PPB program, both with the technology challenges, the SBA faced, as well as the lack of any sort of timely guidance. There is no doubt in my mind that banks help support tens of millions, of jobs, of small business women and men in every market across the country, and we’ve heard that repeatedly.

So that it was a really dramatic series of months, and then on top of that, like so many other companies across the country, we have our staff of 350 women and men at the ABA, all working from home still. I know each market and all of your listeners, you know, are in a different place. It’s not a monolithic experience the viral outbreak, but in the Maryland DC, Virginia area, all the employers are still working from home pretty much. I think I read somewhere like 90 percent of the employers are in a work from home posture still, and all the schools are virtual. So, I know it’s different in every nook and cranny of our great nation, but we’re still also maintaining a virtual association, which has its own challenges.

Chris: Absolutely. So, you touched on PPB, for example, let’s just stay there for a second. You have to be proud of the banking industry for everything that we’ve done, how we rotated and figured that out on the fly, you guys were a big part of that. What do you see ahead? What’s the ABA stance and where do you think the next stimulus bill is going when?

Rob: So of course, the news today, and I know that this will air a couple of days from now, but the news of the day is that the likelihood of another legislative remedy before the election is unlikely. President Trump just made an announcement moments before we’re taping this podcast that he’s ceased negotiations for now. I think if that turns out to be the case, I’m a little disappointed for a couple of reasons. One, I do think the overall economy does need additional fiscal stimulus. My view is consistent with Jay Pals who made a point of that nature today as well, and secondly, Chris, directly to your question, there are a couple of things in the PPB space that I think remain undone.

Number one is this idea of an easier forgiveness opportunity for the businesses under 150,000 loans that were under 150,000 in size to turn them into grants more easily. That was congressional intent. These were never intended actually to be loans. They were intended to be grants, and I think it’s important that we make it easier for those to be forgiven and turned into grants. So, we’ve been pushing legislation that was part of the broader economic stimulus to make that easier for that to happen, and that’s kind of held hostage in the broader, you know, the broader talks of an economic relief bill. So, if an economic relief bills off the table, it may make it harder for us to push this through. We’ve asked Congress to do this in a standalone manner and we will continue to do so given the developments of this week.

So, we’ll continue to try to get that pushed along, and then in addition to that, Chris, in addition to the easier PPB forgiveness piece of the bill, we do think some legal liability protections for banks makes a heck of a lot of sense. I’ve got 2008 and 2009 scars on my back still, and there were times that banks did exactly what the government asked them to do, and then years later were subject to regulatory and reputational and legal, you know, legal risks and punitive measures. I don’t want to see that happen in 2021 or 2022 or 23, that a future set of politicians comes after the banks and said, uh-uh-uhh, we don’t like the way you administered the PPB program, and we’re going to take the following steps against you.

I don’t want to see that happening. So we’re trying to bake into the cake some protection so that can’t happen because again, banks have done exactly what the government asks them to do to disperse these PPB loans, to over 5 million businesses you know, in a matter of just a few short weeks to the tune of over half a trillion dollars and they did it working out of their bedrooms, their kitchens, their basements, you know in makeshift you know, offices, and I’m really proud of the work that they did, and I want to make sure that there’s not a regulatory tail, a reputation or legal tail that we have to deal with a few years down the road.

Chris: We have our 100 percent support. That worried us at almost every turn and was the subject of many late night and Easter debates going through the process, and it continues to be a big discussion with us, both for our customers and for us during forgiveness. I think we’re in week eight now of forgiveness, and still trying to figure it out. So, let me just summarize real quick. You think we get another stimulus package, automatic forgiveness for PPB below a certain amount, 150K? What have you another draw SBA relief, and this all happens maybe first quarter?

Rob: Hard to tell we’re certainly pushing for the easy forgiveness. That’s kind of first among equals of what we’re trying to get done. Our membership is a little split, Chris, on the idea of a second draw. I have had bank CEOs call me up and say, you know, I don’t really want to administer it, but it’s really needed in our local market, and others have said, I don’t think it’s needed in my local market. So, we’ll see about the second draw. I would note that there’s roughly a hundred billion left in the tank from the earlier authorization.

So, there’s still a hundred billion dollars sitting there that we could direct to local economies that need it. We’re going to keep pushing for the easy or streamlined forgiveness as a standalone measure. Secretary Mnuchin intimated just a couple of days ago that he may consider making it easier for loans of other under 50,000 dollars to be forgiven in a more streamlined fashion. We encourage that, but of course, if they can do it for loans of under 50,000, my call to secretary minister will be very good to say, hey, if you’re going to have for under 50, you can do it for under 150 as well.

Chris: Right. That would help. All right. Let’s talk about the conference. I want to just highlight that, because I think that’s been a great effort by the ABA. I’m looking forward to that. That’s coming up a couple of weeks and I want to make sure all our listeners and readers know about that. So maybe just touch on the unconventional convention that you guys are putting on.

Rob: Well. Thanks, Chris. We’re really excited. We’ve had a couple of other virtual conventions over the last several months, so we’ve really finely tuned how this works. I’m feeling really confident about our team and putting this all together. So, it’s kind of the 19th and 20th of this month of October. We’ve got great keynotes from Jelena McWilliams, Federal Reserve Vice Chairman Richard Clarida. We have Scott Gottlieb, who’s going to talk about the possibility of a vaccine and how quickly that can be distributed across the country. We’ll have political takes. We’ll talk about COVID with some of the top HHS officials.

We’ll talk about the election with the election outcomes could mean for our industry. We’ll talk also specific tracks around marketing of CFO, ag lending, payments, boards and directors. It’s going to be great. We got, I think, 70 or so kind of thought sessions as well, which will be great. So, you can really dive into the content that you’re interested in, and then the last thing we did is we’re doing a bring your bank pricing, which is kind of cool. Normally you got to buy a plane ticket and your hotel and a little bit of a registration fee, and next thing you know, you’re paying like three grand to go to one of these conventions.

For about the same amount of money, we’ll basically let you send all the executives in your bank. So, it becomes really inexpensive, really quickly to do what we’re calling to bring your bank option, and so that way you can bring lots of people on it, prices out to like 100 or 200 dollars a head, and so anyway, political sessions, COVID sessions, banking sessions we’re really excited. We got great star power and great thought sessions as well. So, it’s going to be fantastic. It’s all virtual, and it’ll be the 19th and 20th of October.

Chris: Bankers can sign up. They can go, even though if they’re in marketing or in lending, they can go back and forth for whatever sessions they need. Right. So great cross-Functional training.

Rob: That’s exactly right. So, we’re excited. I think we’re probably going to break all of our past attendance measures because it’s so easy to do it. You know, you don’t have to hop on an airplane and go, it was going to be in Boston, obviously it’s not, but we’re really excited, and the technology, again, we’ve had a couple here a big regulatory compliance and risk conference about six weeks ago, we 2500 people participate in that. It was only 5,100 banks in the United States and we roughly half the compliance officers in America on a three-day conference in that case. So, we’re excited. The programming will be really fantastic. We’ll talk DNI, we’ll talk the election, we’ll talk about COVID, we’ll talk about banking, everything that’s topical that you need to know as a senior executive or even a mid-level or [inaudible 15:16] executive in a bank.

Chris: All right. Now I know you guys at ABA are apolitical, but looking ahead, what are some of the priorities that you all are focused on, on behalf of our industry?

Rob: Yeah. So, let’s talk a little bit about the election. That’s the question on everyone’s mind, we’re roughly a month away. What will it mean? So first a couple of top lines, and I’ll get into some specifics. On the top lines, our agenda doesn’t change. The ABA is one of the largest and oldest trade associations in America, about 150 years old, we’ll work with whoever’s in power, Democrats, Republicans, independents, far left, far right.

Our agenda will not change regardless of what happens this fall. Maybe some of the tactics and strategies that we employ might change, but the agenda remains unchanged. So, in terms of looking at the year, I’ll surface a couple of things, one, obviously COVID. We’re going to be working hand in hand with the legislative and regulatory community to come up with ways to ease, to allow banks to do more, to ease the economic dislocation faced by tens of millions of Americans who are out of work.

That’s going to be first among equals is being a partner with whoever’s leading the government in the house and Senate and the white house, so we can help get the economy restarted to the best of our ability. That intermediation of capital the deployment of credit is so important during non-crisis times, and is even more important in the midst of a crisis. So that certainly phase one or subject number one. Number two is kind of everything else. Like we can walk and chew gum at the same time. So, we still need to address the safe banking act, the cannabis banking measure still needs to move forward.

The AML BSA reforms that were underway still need to move forward. Getting accounting policy, right, tackling things like CECL, super important. So, all those other things that maybe aren’t getting the same degree of focus need to be continuing as well. Acknowledging of course, that getting the economy going is such a critically important focus area for us. Other industries as well, but again, the intermediation of capital is first among equals when it comes to economic recovery, and I note this too Chris is again, we’re going to work militantly in a bipartisan way with Republicans and Democrats. Obviously, if there is a full democratic sweep, there could be some corporate tax increases that are on the table.

Certainly at least there’s some speculation that could be something that we could be faced with, and that the 2017 tax adjustments might be reversed, but perhaps. Though there are other things that you could probably move quickly for example in that, and the safe banking act is one example of something that I think both the democratic house and Senate would take up quickly. So, we don’t know what the outcomes are, but our agenda will not change just some of the tactics and strategies that we would employ, could. One other note too, is the regulatory direction won’t really take a 180 post the election, and I’ll tell you why, because the leadership at the federal reserve and that the FDIC, their terms will go two years into Trump’s second term or two years into Biden’s first term.

So, you’re not going to see a big regulatory pivot overnight. Legislatively, that could be different, but from a regulatory standpoint, you won’t. Now the OCC and CFPB leadership, they would have new leadership if there was an election that was one of my Mr. Biden. So, there’ll be new regulatory leadership that the two of the agencies, but not at the other two, and remember, Chris, you know, this well given your senior position, but so many of the key banking rulemakings require the fed the OCC and the FTC to work together.

So my point is, I don’t think you’d see a big regulatory Delta or shift till probably 2023, even if there was a full democratic sweep here in the election on November 3rd and also notably because of so many of these States who are new to the vote by mail, we may not even know November 4th the outcome of the election could take a few more weeks, but all that speculation aside what’s most important for your listener is we’re going to be well positioned going into 2021 to advance our agenda, regardless of who the stakeholders are.

So many issues now in Washington, you have to put coalitions together. Sometimes the coalitions are center left, sometimes they’re center, right. We’re going to work with everyone to advance the banking industry’s agenda to help create jobs, economic growth, and inclusive prosperity, and we’re going to do it regardless of who’s holding the gavels in the house and the Senate, and who’s sitting in 1600 Pennsylvania Avenue.

Chris: Just out of curiosity, how would you characterize the past four years in terms of economic, I’m sorry, regulatory relief? Has there been as much as promised? Is it just starting to make headway? What’s your take on that?

Rob: Great question. So, listen, I was really excited at S.2155, that we were able to get that over the finish line. Number one, number two, that it was bipartisan number three, that it contained the movement of the 50-billion-dollar asset threshold. These artificial asset thresholds make no sense from a supervisory framework. Instead, we should be looking at banks based on risk, business model and activities, not artificial asset threshold. So, I really was encouraged that we were able to address and fix the artificial asset threshold in 2155.

However, you may recall, we didn’t get the 10 billion dollar assets threshold, and there’s a whole bunch of banks in the United States, roughly 500 of them that are, you know, between 1 and 10 billion, and there’s a number of these banks in part, because of all the PPB loans that have grown up and are about to hit the 10 billion dollar asset threshold, where of course they’re subject to CFPB supervision, Durbin, higher FDIC assessments and all these other things. So, I think the last four years was a really strong, positive step in moving towards a more tailored supervisory framework in fixing some of the overshot that were in Dodd-Frank. Dodd-Frank had some good pieces, it had some bad pieces, and we were able to address some of the bad pieces.

That’s good, and then it was bipartisan. That was great move towards tailoring. That was great. Certainly, more to do, and particularly most notably is that 10-billion-dollar asset threshold, I would hope, and you’re going to really see us be intentional here, that we keep our issues bipartisan. You know, the intermediation of capital deployment credit, it’s not a Republican issue., it’s not a democratic issue, it’s an economic issue. So, we’re going to try to do keeping our issues bi-partisan as we were able to do the last few years. So hopefully we can make more of these common-sense regulatory modernizations that are not rollbacks, but are just really smart improvements to the public policy, supervisory architecture.

Chris: You think we’ll see some relief on the regulatory side, as it pertains to credit with troubled debt restructurings and the rollover forbearance. Is that an issue that’s on your radar screen?

Rob: It sure is. That’s a great question. We’ve had a number of conversations with the FDIC and the other regulators about that issue, certainly, and there’s a sensitivity all the way up to Jelena McWilliams herself around this. So, I think all the regulators that the fed the FDA, FDIC are very focused on temporary rule easements and adjustments that they can take to help banks help their borrowers during this time of massive economic dislocation. We’ve talked to the FDIC about that they’re attuned to this issue and again, the fed and the OCC, everyone right now realizes that there may be, you know, short-term rule easements that should be employed to allow banks to do more to help their borrowers.

I would note that we’re not using the crisis to move regulatory reform. We’re not doing anything to undermine safety, soundness, financial stability of consumer protection. This is a partnership with the regulators to figure out ways to make it easier for banks to keep people in their homes, foreclosing on the homes doesn’t do anyone any good. So, this is about partnerships with those regulators, the FHF as well to ensure that if we go into another year of 2021 with credit deterioration, which is possible, you look at all these industries still hurting, some industries are doing okay. Some are really hurting through these headwinds and gut punches.

We want to make sure that we have regulatory flexibility to help keep people in their homes, help keep small businesses, afloat, help extend credit to people who need it, and there may have to be adjustments here or there, again, we’re not seeking to make permanent, but that would allow the banking sector help buoy the economy at a time it really, really needs it.

Chris: Absolutely. You mentioned safe banking act of cannabis. Out of all the initiatives going that one seems like it has a lot of traction right now, and I have a personal bet that it’s going to happen next year. So, what’s your take on that one? Is that something that we’ll see in 2021?

Rob: I do criticize, I share a very similar view with you on that, frankly, we had massive momentum this year until COVID hit which really kind of derailed that, but you know, we were at 33 States that have legalized another 8 or 9 or 10 are about to legalize this fall here in the November election. So, we’re soon to be at 40 States out of 50 that have legalized and banks are caught in the middle between a state that’s allowing for, and a federal supervisory framework that doesn’t, and that doesn’t make sense. So, the good news is you have lawmakers from both parties who realize there’s a problem here and want to fix it. I think it’s just a matter of time.

The merits are fully behind this issue. The politics, as well as both parties learned that, gosh, this is not a move for decriminalizing or making cannabis legal. This is just trying to allow banks to support particularly businesses that do business with cannabis. That’s been the problem Chris is in parts of the country where in my home state, for example, I grew up in Seattle, Washington State was one of the first States to legalize cannabis, and then you have a bank that had maybe an accountant that was doing business for the dispensary.

Then the regulator was saying to the bank, hey, you can’t lend money to the accountant anymore. They’re like, whoa, and they would have these significant knocks on ripple effects where the secondary businesses were getting impaired by this federal state inconsistency. So, when lawmakers hear those stories, they say, gosh, even though I’m not pro cannabis myself, I need to fix this. So, we’ve had people on the left and the right come together. I do think it’s just a matter of time.

Chris: Absolutely. I for one would love to get out of the business of having to vet tenants, to our income producing properties that we lend on. So that’s been tough for us for sure. All right. As we wrap up how my bankers help the ABA more and get more involved with some of the initiatives that you’re doing?

Rob: Well, thanks, Chris we have tons of committee. So, you know, spend a little time on aba.com just to learn about all the various offerings. You know, I haven’t talked today yet about our core initiative for example, we’re trying to do work very strategically to enhance and make more the core marketplace. Our banks are served by those technology providers, not just the big three, but some of the other companies as well, we think that’s certainly important. We have a million councils and committees on any imaginable business, operational or policy area that you care about.

Spend a little time on the new aba.com. We’ve got you know, whole set of resource. If you go to aba.com/coronavirus, you’ll learn about all the resources we’re putting together for banks on the pandemic. You go to aba.com/course, you can learn all about what we’re doing in the core marketplace. There’s just a lot going on right now, and then immediately after the election, as we look into Q1 of next year, we’re going to spend a lot of time with the new Congress and possibly a new administration and educating them on our issues, and that’s a great opportunity for everyone to participate.

So, all of our fly-ins right now are virtual. So, you can do them from the comfort of your living room or dining room, and so I’d also recommend you reach out to your State Banking Association. That’s affiliated with the ABA and we work hand in hand, and so that’s an easy way to get involved to say, hey, when’s the next virtual fly in? Then we’ll put you on a Zoom with, you know, the head of the FDIC or the OCC or the federal reserve.

Chris: All right, taking you up on that. It’s going to be interesting to see how that works virtually. Before I let you, go though, you did mention the core initiative your take on FinTech and how banks have been performing and you know, have you seen enough changes in banking to keep up with technology?

Rob: Yeah. Great question. So, much of the initial early innovation in the banking sector was all done by banks, obviously, and now we have this whole new set of market entrance of FinTech companies that want to partner with banks, we’re trying to hasten and facilitate those partnerships. Well at the same time and banks, I think completely get that. In some cases, the core marketplace has created a little bit of friction, we’re trying to address that, certainly, but we’re also similarly in on a parallel track trying to make sure that the regulatory architecture is fair.

You know, we already have some on level playing fields in the banking sector around farm credit and credit unions, and while we don’t need to belabor those today, I certainly don’t want a third level playing field around FinTech companies that receive banking charters, but are subject to a lighter supervisory framework. I’m not a fan of that. So, we’re not anti-competition if we want to give a bank like charter to one of these companies, we’re okay. As long as they’re subject to the same duties, obligations, and responsibilities that banks are. So, if they want the dessert, which is the, you know, the charter, with the dessert comes great benefits, most notably preemption.

So, you don’t have 50 state patchworks that you have to deal with, but just one federal standard. If they want the dessert, they got to have the spinach Chris, they got to have the spinach, they got to be subject to the same duties, obligations, and responsibilities. So, as I answered your question, there’s two parts. One is we’re really being intentional about facilitating partnerships with banks and FinTech companies, banks of all sizes with FinTech companies of all sizes and creating marriages and partnerships. So, both sides can thrive, and then the second part of your question is making sure that the regulatory framework evolves in a way that doesn’t disadvantage banks.

Chris: Absolutely. Well, PPB has definitely taught us to be able to speed things up and give us confidence that we can pull that off, and we appreciate everything you do. We partner with a lot of fintechs out there. We joined the Alloway labs and, you know, it’s part of the ABA Alliance and that’s been real helpful to look at different vendors and different solutions. So, we thank you for that, and then we look forward to your initiatives for 2021. Thank you for all that you do. Thanks for being on.

Rob: Thanks, Chris. I really appreciate the opportunity to speak to you today and your viewers.

Chris: Sounds good Rob, stay safe and thank everyone at BBA for us.

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