Community bankers don't have much love for bank regulators, but FDIC director Thomas Hoenig is one they call a champion.
On a swing through the Twin Cities on Friday, the maverick bank regulator repeated his calls to separate investment banking from commercial banking and to reject the tough new bank capital rules that U.S. regulators have proposed called Basel III.
"I have nothing but respect for these geniuses who put these formulas together, but they've never been in a bank," Hoenig said in remarks during a Bank Holding Company Association seminar in Bloomington.
Outlining his ambitious agenda to "reground" the country's banking system, Hoenig was on home-crowd territory with a receptive audience in the room full of community bankers from around the Upper Midwest.
"He was right on," said Bill Rosacker, president of United Bankers' Bank in Bloomington, which helps community banks find loan opportunities.
Hoenig, former head of the Kansas City Fed, was known for his dissenting views as a member of the Federal Reserve System's Federal Open Market Committee from 1991 to 2011. In April he joined the five-member board of the Federal Deposit Insurance Corp. (FDIC), where he continues to voice his opinions.
Hoenig's remarks in the Twin Cities come amid mounting opposition to the proposed Basel III banking standards, which U.S. regulators are adopting but haven't finalized. The proposed rules are a hot-button -- some say sizzling -- issue with community bankers. The Oct. 22 deadline set by the FDIC, Federal Reserve and the Office of the Comptroller of the Currency (OCC) for public comments on the rules is approaching.
As community bankers see it, they weren't engaged in the reckless behavior of the global megabanks that contributed to the financial and economic crisis, so they shouldn't be subjected to stringent new rules aimed at preventing another one. They fear the requirements could limit their ability to make loans, particularly residential and commercial mortgages, which are a bread-and-butter business for most community banks.
Anxiety is running high enough that a national OCC conference call in August on the topic for bankers got frothy, with a banker from central Minnesota getting cut off after resorting to coarse language, a local banker said.
Specifically, Hoenig wants to ditch the complex maze of new standards involving risk-weighting bank assets and replace it with old-fashioned ratio of tangible equity to tangible assets. And that far simpler ratio should be upped to 10 percent. When the 2008 financial crisis hit, many of the large banks that got in trouble had a ratio around 3 percent, he said.
"Tangible equity capital is the best predictor of survival," he said.
A bipartisan group of 53 senators has also lined up against the tough new bank rules. In a Sept. 27 to federal bank regulators, the senators said small banks simply don't have the resources to comply with the new obligations. Sen. Amy Klobuchar, D-Minn., signed the letter.
On Wednesday, an influential body of state bank regulators rebelled, calling the Basel III capital rules "highly reactionary." Risk management practices and the existing bank supervision process can handle the issues, the Conference of State Bank Supervisors said in the news release it issued.
On Friday, Hoenig was cautious when asked what the odds are of getting Basel III changed, drawing chuckles when he answered: "Before I came on the FDIC, the chances for you were zero."
The Independent Community Bankers of America, which has been pushing hard to change Basel III, said it thinks traction in Congress is growing.
But Isaac Boltansky, a policy analyst for Compass Point Research & Trading in Washington, said in an interview that he doubts community banks will get their wish.
"My sense is that although the chorus of opposition is growing, the federal regulators have no intention of changing Basel III rules at this point, because I think there is a committed group of regulators who have taken the process this far," Boltansky said.
Jennifer Bjorhus 612-673-4683