Community Bankers Association of Illinois

Address of Chairman-elect - Robin Loftus

My fellow community bankers and guests, I appreciate the opportunity to serve as your chairman during the 36th year of this dynamic organization. I am also honored to serve as the first female chairman in CBAI history, and I look forward to the coming year.

I commend and admire Cindy Blankenship for not only having served as chairman of her state association in Texas but for also rising through the chairs to lead ICBA, the largest financial institution trade association in America. Thanks for all you do for community banking.

I graduated from college in 1974, the same year this association was incorporated. My banking career now spans 34 years, during which time I have worked for a large regional bank as well as two community banks. I can tell you that the personal rewards and satisfaction have been far greater in community banking. I know this profession can certainly be challenging and frustrating at times, but as Chairman Hesker said last year, we community bankers make a "total commitment" to serve our customers and local communities, and that, in turn, generates a high level of satisfaction.

With your support, I pledge to you that I will do my best to capably serve our profession in these trying times.

That brings me to my top priority as your new chairman. It's the elephant in the room and the single biggest unresolved regulatory issue that Chairman Hesker mentioned earlier: the too-big-to-fail dilemma. Too big has failed and it has impacted all of us. I believe that proper resolution of this issue is essential to the survival of community banks and our nation.

Unfortunately, the financial crisis magnified the problem when regulators hastily arranged mega mergers that resulted in the four largest banks now controlling a record 46% of all U.S. banking assets, and issuing half the mortgages and two-thirds of all credit cards.

The time has come to resolve too-big-to-fail once and for all. For the sake of our children and our children's children, we must do it now and we must get it right because, with our federal debt now growing at $3 million per minute and unfunded liabilities now in excess of 100 trillion dollars, our nation cannot afford another financial crisis of this magnitude.

Here's an insightful description of the financial crisis that I would like to share with you:

"Every now and then ... the credit system expands to full luxuriance... men relate their dreams and projects to the ignorant and credulous... and set them maddening after shadows. If this delusion could always last, life would indeed be a golden dream; but the delusion is as short as it is brilliant." This passage was written by Washington Irving in 1719 regarding the speculative disaster known as the Mississippi Bubble which led to an 18th Century stock market crash in France. My point here is that speculative episodes are peppered throughout history, and we must find ways to temper this human tendency. I know we cannot craft laws that eliminate greed, but we can at least discourage it and minimize its harmful consequences.

There are several notable people who share this concern. FDIC Chairman Sheila Bair said that finding a solution to the too-big-to-fail problem is her top priority.

Federal Reserve Chairman Ben Bernanke said we must put in a new system that will make sure that when a firm does not succeed in the marketplace, it is allowed to fail.

Kansas City Fed President Tom Hoenig said troubled banks must be treated consistently, regardless of size or connections. Procedures should be put in place to have the government temporarily take over troubled giant banks and nonbanks so they can replace management, wipe out shareholders, and sell the clean institutions back into private ownership.

Dallas Fed President Richard Fisher declared that there is something inherently anti-capitalistic about a system that allows giant banks, their shareholders, and their creditors to profit when things go well, but leaves the taxpayer holding the bag when things turn sour.

Without question the giant banks should have higher capital requirements and greater regulatory oversight. There should also be limits on product complexity and the interconnectedness of banks with the capital markets and insurance companies.

But I believe more needs to be done preemptively to reduce the likelihood of massive failures and economic chaos. We need to break up the too-big-to-fail banks similar to the break-up of Standard Oil a century ago. U.S. Senator Tim Johnson of South Dakota, a senior ranking member of the Senate Banking Committee, agrees. He said we should dismantle gigantic troubled firms, including nonbanks, instead of bailing them out.

We should also strictly enforce the national deposit share limit whereby banks beyond that limit can't grow by acquisition, a limit that was breached by regulators during this crisis.

By the way, among all the financial trade groups, only the ICBA and the community banking lobby are pushing for the breakup of the too-big-to-fail institutions. The ABA and IBA don't support this position because their largest members oppose it. For that same reason, they don't support the bill to broaden the assessment base for FDIC deposit insurance that would lower premiums for virtually all banks except the largest, nor do they support a deposit share cap limiting acquisitions. That is why associations just for community banks are imperative.

I also believe that mark-to-market accounting rules should be suspended and subsequently reformed. It makes no sense to require mark-to-market write downs of receivables and income securities in a depressed market if the owner can and will hold the asset and collect its income until it pays in full or can be sold for an acceptable price. The Financial Accounting Standards Board has perversely destroyed bank capital well beyond actual economic losses which has only worsened the financial crisis.

Amazingly, FASB is now considering a proposal to apply mark-to-market rules to all financial instruments, including loans. Former FDIC chairman Bill Issac reacted by saying that Congress is going to have to jump in and apply some adult supervision to FASB. I wholeheartedly agree, and we're going to need your help to do it.

I also believe that the remaining funds in the Troubled Assets Relief Program should be promptly made available to community banks that need it. Thus far, the government has doled out billions of dollars to large troubled banks and stonewalled most community banks. And while I'm not a fan of bailing out anybody, I'm also not too fond of being on the short end of a double standard that's grossly unfair. Again, we need to ask Congress to intervene.

And, I think itís time for the FDIC to borrow from the Treasury on reasonable terms rather than hit banks with another special assessment when many can least afford it. We'll be better off paying assessments after this crisis subsides.

To achieve our goals we will need your political activism by communicating with lawmakers and regulators, financially supporting our political action committees, attending meetings with your elected officials, and participating in Capital Conference and the Washington Visitation.

You should also be a member of the ICBA if you are not already. We work in close cooperation with our national association counterpart, and it is doing a tremendous job of representing our interests in Washington.

Next April, a delegation of community bankers from Illinois will participate in ICBA's Policy Summit in our nation's capital, and we invite you to attend. I know you've probably heard Washington described as "10 square miles, surrounded by reality;" or "Washington is Hollywood for ugly people." These, of course, are exaggerations and should not deter you from coming. Our delegation will meet with Illinois congressmen and hear from the top regulators and congressional leaders at the most critical time in our profession's history.

As an incentive for you to attend, CBAI will cover the $450 registration fee for one banker per bank and 50% of the fee for a second banker from the same bank.

We have the opportunity of a generation to shape change in our favor, and we have earned that opportunity. The time is now to be involved. Do not expect others to do the job for you.

So whether you are a bank officer, director, employee, small business owner, civic leader, or vendor, please heed the call when we seek your grassroots involvement. Our future will be determined by what we do now.

I wish all of you the best of good fortune in the coming year and prosperity for us all.

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