A Look at Banking

“Bankers are good people. They support their community and they want it to survive,” is the message Gene Henson has for Americans. The president of the Memphis Region of Trustmark Bank addressed the Lunch Hour Republican Club yesterday at their monthly meeting at Salsa.

Henson went on to discuss the state of banks in the U.S. and the effects of regulation on them, a subject he, as immediate past chairman of the Governmental Affairs Association for the Tennessee Bankers, knows a lot about.

“The rate of failure may be slowing,” he said, citing the closure of 140 in 2009, 157 in 2010 and an estimated 100 for this year. “There are 7400 banks in the U.S. now, down from 8200 ten years ago. In Tennessee we have had no bank failures since 2003 and that had nothing to do with current problems. Banking has done well in Tennessee. For the third quarter, 80% of banks in Tennessee have recorded a profit.”

A trend he has noticed is “in the last ten years there has been a widening of the gap between large and regional banks. Fifteen years ago the top 5 banks controlled 13% of all domestic deposits. Today it’s a staggering 38% of all deposits. The top 15 banks control 50% of all deposits, with Bank of America controlling over 1/3 of that.

“In 2008 they really were too big to fail – they were top heavy in a few.” Henson thinks “history will treat TARP fairly well. I don’t think of it as a bailout. Within a week it was rolled out and banks were encouraged to take the money. $594 billion was distributed by the government, but only 40% of it went to the banks. Sixty per cent went to investment companies, mortgages and non FDIC regulated agencies.” Henson says the banks have paid back most of that money.

“In the public sentiment, however, banks got the blame and there was a huge clamor for regulatory reform. The result was Dodd-Frank – the most sweeping reform in history.” Henson said that much of Dodd Frank has not even been rolled out yet. “So far there are 3,396 pages of rules for banking with lots more to come.”

Although Henson believes some of Dodd Frank is good, such as raising the deposit limit from $100,000 to $250,000, it has caused problems. For instance, “the average bank has 37 employees. For banks that size they have to have 1.3 employees to handle just the regulations.They have to draw employees away from customer service to accommodate the compliance and regulations. So, many small banks feel they have no choice but to get with other small banks and get bigger.”

Of course we’re familiar with another result – the implementation of fees for debit cards use. “An amendment attached to Dodd Frank by Senator Dick Durbin (D-Il) put an arbitrary cap on fees associated with debit card transactions. The average fee for a merchant was .42 cents. The merchant lobby wanted the cap. Now a swipe fee is set between .21 cents and .26 cents. This means that half of the income associated with the most popular system we have, transferred that wealth from banks to retailers. $50 billion a year went to retailers and now banks need to make up that loss.”

Henson sounds an alarm on another part of Dodd-Frank. “The Consumer Financial Protection Bureau was formed without any oversight. They have total autonomy, can promulgate rules, have separate enforcement and regulate without any regard to oversight.” He fears they can be unfair and abuse the process without limits.

In Tennessee, Henson says “we are fortunate to have good Republican leaders in government. Corker is on the Senate banking committee and Alexander chairs the appropriations committee.” Both have been helpful and sensitive to the economy, he says. “In the House, with 7 of 9 representatives Republican, they are also doing a good job.” In particular, he acknowledges Diane Black, Marsha Blackburn and Stephen Fincher.

“It’s definitely not the same banking world today as it was years ago,” Henson said. “But banks are adjusting. We want to make good loans and support our community.”

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