When I first came into the financial services industry the standing joke was that “savings bankers wanted to be commercial bankers, commercial bankers wanted to be money center bankers and money center bankers wanted to be savings bankers.”
These ambitions were surly rooted in jealousy over the investment powers of alternative charters to do the business of banking as well as the perceived prestige that society afforded the larger and more powerful of the lot. Indeed, much of the regulatory change that has taken place over the past two decades has been a hop-scotch process of follow the leader, with the latest stages embracing global ambition on a grand scale. Nobody ever paid much attention to, or for that matter truly believed in, the final portion of the gag…. that money center bankers wanted to be savings bankers.” It might be time to think a little harder about that given recent events.
Mutual institutions, sometimes called cooperatives in other parts of the world, exist in great numbers in the U.S. and the world. They represent a uniquely local stanchion in the broad spectrum of financial institutions that bears some reflection in today’s stumbling financial marketplace. In large measure they bear no responsibility for our current problems, but will shoulder a good deal of responsibility for the correction that will necessarily come.
Mutual savings banks, cooperative banks, building and loan societies, savings and loans and credit unions were all created as a means of meeting the financial needs of a market segment that the broader financial services industry seemingly missed.
These local institutions share a common thread that it is too easy to forget amid a market stabilization plan that seems to focus solely on the needs of the largest, most international and multi-form financial institutions on the planet. True, there are provisions of law that allow these local institutions to shape-shift into publicly-held companies. However, for the most part these institutions have remained committed to a cooperative form of ownership that has served the country well.
Cooperatives are a nearly $ 2 trillion segment of the financial services industry. Yet anyone who is reading this should by now know that in Washington, D.C., absolutely no one is thinking about, or the least bit concerned with, these institutions. Our policy makers are too busy giving hundreds of billions of dollars to the largest and most global financial institutions in the world and handing out holding company charters like jelly beans. I am convinced that there are global stabilization goals that merit this attention. However, it is now time to consider what we need from the forthcoming regulatory framework, which promises far fewer charters and a vastly changed regulatory framework.
It is time to be clear and concise about our functions, values and financial services niche. It is also time to be sure that in the aftermath of the current crises, the functions we perform are preserved, and that the “new regulatory framework” does not smother that successful function in an attempt to restrain the risk associated with less successful global, cross-industry forms.
It is time to seriously address the concept of too big to fail. This is not just our issue; it is Washington’s issue possibly even a global issue. Financial institutions that have revenue flows that exceed the Gross Domestic Product of most countries in the world are not too big to fail, they are too big to tolerate.
We are now finding that they are impossible to regulate, and evidence would suggest too big to manage. Any institution that has gone through a six-month process to relocate a branch must question the priorities of a regulatory framework that missed the run-up to the current collapse.
Perhaps the most difficult resolution to make amongst mutual financial institutions is that of charter distinctions.
In the pre-deluge world of the Hatfield and McCoy’s where savings institutions castigated commercial banks and everyone heaped scorn on credit unions, it is now time to focus on the essential purpose and function of the mutual form with a minds’ eye to making it better, more durable and competitive. Taxation is a moot point in today’s financial marketplace and should not deter a meaningful discussion of functional success. In the grand scheme of things these distinctions, while useful in leapfrogging our powers over the past two or more decades, are meaningless.
Our credit union charter, your mutual banking charter has been placed in jeopardy by a policy framework that has provided hundreds of billions of capital at the disposal of institutions who can now focus on domestic deposit gathering to fill their dire liquidity needs in an effort to stave off insolvency. The pressure on margins for prudent financial institutions has never been greater as the Fed pushes asset yields to unprecedented lows in an effort to salvage the mortgage market from imminent catastrophic distress.
Regulatory reform is on the immediate horizon and will be punitive and non discriminatory unless we articulate the need for a distinctive positive reform of the successful mutual form of banking business. This reform must come from the institutions themselves, since trade groups and related industries that pander to regulatory segments, and regulators alike, are incapable of abstracting themselves from their own self-interest when things get really serious. Let’s begin a collaborative discussion of what that future should look like, and communicate that vision to the country.
