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Community Bankers Association of Illinois
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     A Bi-Weekly News Bulletin for CBAI Members                     June 26, 2013 Graphic
Community Bankers Association of Illinois
Community Bankers Association of Illinois Community Bankers Association of Illinois
  • Time to Register for CBAI Convention!
  • FDIC’s Hoenig Cautions Banks Not to Pursue 20% Returns
  • Stanford Professor Supports Tiered Capital Based on Bank Size
  • Mega Banks Again Diving Headlong Into Derivatives
  • “Concealed Carry” Bill Would Permit Banks to Ban Guns on Premises
  • Freddie Mac to Drop Low-Activity Fee
  • CBAI and ICBA Urge Renewed Efforts on House Farm Bill
  • Tell Congress to Support Regulatory Cost-Benefit Analysis
  • The Community Bankers School Registration Deadline is July 1
  • The Baker Group Springfield Seminar Set for August 5th - Register Now!
  • Baker Market Update
  • Main Street Economic Growth Climbs
  • Did Bernanke Say Too Much?
  • Consumer Confidence Advances in June
  • OCC Releases Quarterly Summary for Central District Banks
  • Mitigating the Compliance Risks of Indirect Lending
  • FFIEC Requires Community Banks to Educate Customers on Internet Banking
  • KASASA Ad 8 - “Plutonium Account”
  • Compliance for Loan Processors Set for July 30 & 31
  • Training the Credit Analyst Scheduled for August 1 & 2

  • Time to Register for CBAI Convention!

    Early Bird Special Ends June 30th

    This year the annual showcase event for Illinois community bankers is in Springfield. Join with hundreds of other community bankers to 1) learn from top-rated community banking educators on all aspects of bank operations, 2) browse through an exhibit hall featuring 100 firms and their latest products and services; 3) enjoy entertaining presentations and performances, and 4) mix and mingle with your peers in this great community banking profession.

    CBAI’s 39th Annual Convention and Exposition is organized just for you, and it’s right here in your own back yard at the Crowne Plaza in Springfield on September 26-28.Early bird registration features discounts and prizes, but it ends June 30th.
    Register Today! See Prize Drawings!

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    FDIC’s Hoenig Cautions Banks Not to Pursue 20% Returns

    FDIC vice chairman Tom Hoenig recently cautioned banks to not chase 20% returns on equity because the risks inherent in that goal are more suited to hedge funds. Although he didn’t name specific banks, the large Wall Street banks were likely the subject of his comments. He also noted that banks with a 10% tangible capital ratio can still maintain a good return on equity.
    See Bloomberg Article.

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    Stanford Professor Supports Tiered Capital Based on Bank Size

    This week, Anat Admati, a noted professor of finance and economics at Stanford University’s Graduate School of Business rebutted the claim by consultant Bill Isaac that a substantial long-term debt requirement would be better than higher capital for mega banks as proposed in the Brown-Vitter bill. She stated, “Long-term debt is a poor substitute for equity, particularly for the largest banks. If anything, Brown-Vitter does not go far enough in raising equity levels… Requiring more equity is the simplest and most effective way to reduce the large distortions associated with the banks’ high indebtedness and to prevent instability and crises.”

    Professor Admati also dismissed the claim that higher equity requirements on the mega banks would harm credit and growth. She referred to recent comments made by the governor of the Bank of England who said, “Those who argue that requiring higher levels of capital will necessarily restrict lending are wrong. The reverse is true. It is insufficient capital that restricts lending.”
    See AB Article.

    CBAI and ICBA support the Brown-Vitter measure which requires banks larger than $500 billion in assets to maintain a hard capital floor of 15%, while banks with less than $50 billion in assets would continue to operate under the current capital guidelines. Senator Richard Durbin is a co-sponsor of the Brown-Vitter bill.

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    Mega Banks Again Diving Headlong Into Derivatives

    “Those who cannot remember the past are condemned to repeat it.” – Jorge Santayana

    The OCC reported last week that the too-big-to-fail mega banks are again chasing high returns in the risk-heavy derivatives market. Essentially contracts whose values are derived from some other underlying securities such as stocks, bonds, currencies, and certain loans, derivatives helped to nearly destroy the U.S. financial system and global economy less than five years ago. Just four TBTF banks (JP Morgan Chase, Citigroup, Bank of America, and Goldman Sachs) account for 93 percent of all U.S. derivatives activity.

    CBAI and ICBA are concerned that the OCC, under intense lobbying pressure from the mega banks, has given them two more years to create a corporate firewall between their derivative trading units and the rest of the bank operations. Unless meaningful efforts are taken soon to mitigate this risk, the global financial system may encounter yet another crisis.
    See WSBE Report.

    ICBA Tells Congress: “Greatest Threat to Financial System is Too-Big-To-Fail”

    In a statement for today’s House Financial Services Committee hearing on taxpayer-funded bailouts, ICBA wrote, “The U.S. will not have a robust and truly competitive market for financial services until the too-big-to-fail problem is definitely resolved.” See ICBA Release.

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    “Concealed Carry” Bill Would Permit Banks to Ban Guns on Premises

    Illinois’ “concealed carry” firearms legislation is not law until signed by Governor Quinn. However, in the event that House Bill 183 is signed into law, banks should be aware of their authority to prohibit guns on bank premises.
    Read More.

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    Freddie Mac to Drop Low-Activity Fee

    As a result of determined efforts by ICBA and community bankers across America, Freddie Mac just announced that it has scrapped a planned $7,500 annual fee for low activity. Instead, the agency will assess a “non-activity fee” on sellers that have not sold any loans in the past 36 months and do not service any loans for Freddie Mac. This outcome represents a big win for community banks. Freddie Mac will soon notify in writing all sellers and servicers of the policy change.
    See ICBA Letter.

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    CBAI and ICBA Urge Renewed Efforts on House Farm Bill

    After the U.S. House of Representatives rejected the Federal Agriculture Reform and Risk Management Act of 2013 (H.R. 1947) by a vote of 195-234, CBAI and ICBA urged House members to continue efforts to approve a new Farm Bill this year. In a statement, ICBA emphasized that farmers and ranchers and their lenders need a new five-year bill to make long-term planning decisions.

    “The bill would have reauthorized important USDA business and farm loan programs and strengthened crop and revenue insurance programs that have become essential risk management tools for most farmers. Differences need to be overcome for a farm bill to be enacted this year,” stated ICBA Chairman Bill Loving.

    House Agriculture Committee Chairman Frank Lucas (R-Ok) and Ranking Member Collin Peterson (D-Mn) both expressed disappointment in the vote. Lucas said the reforms in H.R. 1947, including $40 billion in deficit reduction, are so important that policymakers must continue to pursue them. Peterson said he does not know where lawmakers will go from here. The Senate passed its version of the farm bill earlier this month.
    See ICBA Statement.

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    Tell Congress to Support Regulatory Cost-Benefit Analysis

    CBAI and ICBA this week are urging community bankers to express their support for legislation that would require financial regulatory agencies to subject proposed rules to a more rigorous cost-benefit analysis. Under S. 450, which would implement a provision in ICBA’s Plan for Prosperity platform, the agencies could not issue notices of proposed rulemakings unless they first determine that the rules’ quantified costs are less than their quantified benefits.

    The initiative is just one part of the ICBA Plan for Prosperity, the community banking profession’s legislative policy platform to address the stifling regulatory environment.
    Contact Congress Now!

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    The Community Bankers School Registration Deadline is July 1

    The Community Bankers School (CBS), which consists of two, one-week sessions over a two-year period at Illinois Wesleyan University in Bloomington, allows participants to immediately contribute to the overall success of the bank, and provides the knowledge necessary to get ahead in community banking. Scheduled for July 14-19, 2013, CBS features a nationally-recognized faculty, an updated curriculum, and timely topics. Topics covered during this intense week for Class I participants include compliance, accounting, deposit and loan documentation, lending, bank security, auditing, investments, and technology, while Class II focuses on management aspects.

    Benefits extend beyond the classroom with outside case studies, an invaluable student notebook with supplemental materials, and networking opportunities with peers, instructors, and senior bankers. Participants gain a background and experience for broader responsibilities and greater effectiveness, as well as insight into a community bank's overall management responsibilities. Deadline to enroll is July 1, 2013,
    Register Today!

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    The Baker Group Springfield Seminar Set for August 5th - Register Now!

    The Baker Group - Focus 2013 – Investment Strategies and Interest Rate Risk Seminar

    The Baker Group’s upcoming Investment Strategies and Interest Rate Risk Seminar will address specific bond portfolio strategies to improve margin and mitigate unnecessary IRR. Experts will discuss security selection processes and liquidity management, present tools for analyzing portfolio risk, and explore stress tests for the entire balance sheet using Interest Rate Risk Monitor software. Financial institution managers will come away with sound ideas for using the bond portfolio as an effective tool in managing liquidity, cash flows, and interest rate risk. Attendees will also gain insight into the remarkable changes that the banking profession is experiencing in the current market environment.

    Don't delay!
    Click Here for more information and to register! Registration deadline - July 30, 2013.

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    Baker Market Update

    We’ve all been warned about the potential folly of making wishes. They might come true. Market participants were wishing that Fed Chairman Bernanke would clear up that little misunderstanding about the prospect of “tapering off” the Fed’s monthly $85B asset purchases. Well, Ben cleared things up a bit, but it was clearly not the kind of clarity the markets wanted to hear. His lucidity about reducing the size of the asset purchases later this year and ending them altogether in 2014 sent equity and credit markets reeling. The sell-off in bonds may have stabilized with the yield at around 2.50% on the Treasury’s Benchmark Ten Year. In the words of Danish author Isak Dinesen, “When the gods really want to punish you, they grant you your wishes.”
    See Baker Market Update.

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    Main Street Economic Growth Climbs

    According to the most recent Rural Mainstreet Index (RMI), the rural economy in the Midwest strengthened to its highest level since last December. The Index is based on monthly surveys of community bankers across a 10-state region including Illinois. Factors include loan volume, deposits, farmland prices, farm equipment and home sales, hiring, retail business, and overall confidence. For Illinois, the RMI rose above growth neutral for the ninth straight month.

    Dr. Ernie Goss, the founder of the Mainstreet Economy Report, is a noted professor of economics at Creighton University in Omaha, Nebraska. He will speak at the Baker Group’s upcoming Investment Strategies and Interest Rate Risk Seminar on August 5th in Springfield.
    See Mainstreet Economy Report.

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    Did Bernanke Say Too Much?

    Fed Chairman Ben Bernanke’s comments last week that the economic recovery was surpassing forecasts sent the markets into a tailspin over fears that the Fed would begin easing its bond-buying program and soon raise interest rates. As a result, the stock market indexes dropped around 5 percent and long bond rates climbed.

    Some economists, however, questioned the appropriateness and timing of the Chairman’s remarks, including St. Louis Fed President James Bullard. He publicly noted that the Federal Open Market Committee’s (FOMC) decision to authorize Bernanke to “… lay out a more elaborate plan for reducing the pace of asset purchases was inappropriately timed”.
    See DealBook Article. See St. Louis Fed Release.

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    Consumer Confidence Advances in June

    Consumer confidence improved in June, the third consecutive monthly increase, according to the Consumer Confidence Index which rose to 81.4 from 74.3 in May and is at its highest level since January 2008. The indexes on consumers’ assessment of current conditions, the short-term outlook and the labor market all rose.
    See Consumer Confidence Report.

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    OCC Releases Quarterly Summary for Central District Banks

    The OCC’s Bank Supervision Committee last week submitted its quarterly report for March 31, 2013, regarding conditions for federally chartered community banks (national banks and federal savings banks). The report indicates that the condition of Central District banks continues to show steady improvement but notes that examiners need to be alert for emerging risks such as loosening underwriting standards to achieve loan growth and extending investment portfolio duration to improve interest margins.
    See OCC Quarterly Summary.

    Meanwhile, the OCC also released its Semiannual Risk Perspective for Spring 2013 which details risks facing the banking profession. Some of the risks identified are cyber threats, weakening loan underwriting standards, and reaching for high yield. See OCC Release and Report.

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    Mitigating the Compliance Risks of Indirect Lending

    For many community banks, indirect lending is a path to growth. So, how can today’s institutions leverage this opportunity while minimizing the compliance risks? Read the full article to gain further clarification and see the steps that Continuity Control recommends banks take to reduce the risk in this area.
    See Article.

    A CBSC preferred provider, Continuity Control is an award-winning compliance management platform that combines advanced software with personalized service to help community banks effectively manage their regulatory burden. For more information contact Dana Carrington at 612-605-3929, or via email at

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    FFIEC Requires Community Banks to Educate Customers on Internet Banking

    Patricia Tobin, representative for Community BancInsurance Services, powered by Nicoud, reminds CBAI members that a financial institution’s customer awareness and educational efforts should address both retail and commercial account holders and, at a minimum, include the following elements:

      • An explanation of protections provided, and not provided, to account holders relative to electronic funds transfers under Regulation E, and a related explanation to the applicability of Regulation E to the types of accounts with Internet access;
      • An explanation of under what, if any, circumstances and through what means the institution may contact a customer on an unsolicited basis and request the customer’s provision of electronic banking credentials;
      • A suggestion that commercial online banking customers perform a related risk assessment and controls evaluation periodically;
      • A listing of alternative risk control mechanisms that customers may consider implementing to mitigate their own risk, or alternatively, a listing of available resources where such information can be found; and,
      • A listing of institutional contacts for customers’ discretionary use in the event they notice suspicious account activity or experience customer information security-related events.
    For more information on insurance coverages for a community bank’s cyber liability exposures, please contact Patricia Tobin at 217/414-4485 or

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    KASASA Ad 8 - “Plutonium Account”

    How can an account holder make money when it takes an outrageous minimum balance just to earn interest? Good question. Kasasa’s “Plutonium Account” radio ad points out the should-be obvious conundrum that faces the everyday majority of customers. After all, what good is a really high interest rate if the minimum balance to get it towers far out of reach? That’s why there’s never a minimum balance requirement to earn any Kasasa rewards – whether that’s interest, cash back, refunds on ATM fees, or iTunes® and Amazon® refunds.

    Free Kasasa checking and savings accounts reward account holders for balances large and small. Yes, even the smallest balances can earn high yields or other rewards. So it doesn’t take a lot of money to make more of it each month. Contact us to lean more.
    See Ad.

    Want Kasasa to take your community bank to the next level? Contact Steve Prost via email at steve.prost@bancvue .com, or phone at 847.341.8003. Kasasa is one of the many fine products of BancVue, a CBSC Preferred Marketing Partner.

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    Compliance for Loan Processors Set for July 30 & 31

    Over the last few years, lending compliance has become more and more confusing, as the rules have become more and more complex. Loan processors often have dealt with changes by learning the “buttons to push”, without any understanding of the actual regulatory requirements. This
    brand new course is designed to enhance understanding of the regulatory requirements and the “decision trees” that are important for processors to fully understand. Topics covered include the initial documents: Good Faith Estimate; Early Truth in Lending; ARM Disclosures and Booklets; Servicing Disclosure; Right to Appraisal Disclosure; Credit Score/Notice to Home Loan Applicant; Affiliated Business Arrangement Disclosure; and flood documents. The seminar also covers the closing documents: Final Truth in Lending; determining HPML Status; rescission; the HUD-1 and HUD-1A; Escrow Disclosure; PMI Disclosure; Servicing Transfer Disclosure; and Negative Information Disclosure. Leading this seminar is Bill Elliott, CRCM, senior consultant and manager of compliance at Young & Associates, Inc., Kent, OH.

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    Training the Credit Analyst Scheduled for August 1 & 2

    Designed for credit officers with little or no experience, this
    two-day seminar teaches participants how to write effective and comprehensive credit analyses which highlight the important trends shown on the financial spread sheet. Topics include identifying financial statement components, recognizing latent notes, and performing ratio analysis and cash-flow analysis. Preparing financial projections by utilizing sensitivity analysis, identifying factors which may impact the ability to repay debt obligations, and understanding how to grade a loan after analysis is completed are also covered. Leading this seminar is Jeffery Johnson, president and founder of Bankers Insight Group, Atlanta, Georgia.

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