North Dakota bankers debate privacy concerns, FDIC reform

Northwestern Financial Review, Sep 15, 2001 by Dullum, Justin

At the 34th annual convention of the Independent Community Banks of North Dakota in Bismarck, August 19-22, association leadership emphasized the importance of the state's unfolding battle over privacy legislation and the need to continue seeking deposit insurance reform.

North Dakota has been a hot bed of privacy activity during the last year. Prior to the Gramm-Leach-Bliley federal mandate on privacy, North Dakota was one of few states that had any privacy laws-much less an opt-- in provision. After financial modernization, North Dakota's rare law became misaligned with federal law. Bankers lobbied to bring the state into conformity with federal law, but the new state law bore unexpected opposition.

A grass roots referral effort, led by a group known as the Constitution Party, demanded the new state law be changed back to the old opt-in format. The party gathered the required 14,000 signatures. The signatures have been certified and the law will be brought to a public vote. During the referral effort, banks were blasted for supporting a law allowing the exchange of customer information to third parties.

To counter the bad press, the ICBND, the North Dakota Bankers Association and the North Dakota Credit Union League jointly signed a customer privacy protection statement two days before the ICBND convention.

"The new law is about economic development," said Joel Gilbertson, ICBND executive vice president, during a convention press conference. "We simply don't want to discourage companies from doing business because our laws are different."

Gilbertson told bankers the referral effort is incorrectly interpreting the new law, publicizing its conclusions and creating a public backlash. He added that its leaders, who had stated they would back off if financial institutions signed an agreement to not share customer information without written consent, back-peddled after the signing saying bankers had not gone far enough.

"We were pleased, but not surprised, that every member of our organization signed that pledge," said Richard Campbell, senior vice president First Western Bank, Minot, and 2001-2002 ICBND president. "ICBND's membership is made up of locally owned banks. We live and work in the community. We see our customers everyday at the local cafes and churches. Selling financial information has not and will not occur. Our customers, who are also our neighbors and friends, would not put up with it. Neither would we."

North Dakota Governor John Hoeven, while addressing ICBND members, said he believed the recent agreement would put the public at ease. "I'm not sure what further actions would be required," said Hoeven. "We might look at asking to change the effective date of the new law and extend the date of the old during an upcoming special legislative session. That would help take some pressure off."

During the convention, Hoeven also voiced support for FDIC insurance reform, including an increase in coverage levels. Throughout the convention, ICBND and ICBA leadership made clear this issue's importance.

"It's an important issue for us, and we can't give up on it," said A. Pierce Stone, Chairman-elect of the Independent Community Bankers of America. "I'm not going to sit here and tell you we're going to get it done anytime soon but that doesn't mean we're not going to hang in there and fight for it."

Stone admitted a lack of industry-- wide support is frustrating. He listed the American Bankers Association, America's Community Bankers, the U.S. Treasury Department, and the Federal Reserve as failing community banks on the issue. "The ICBA, when it gets right down to it, is the only organization in Washington that totally supports the efforts and issues of community bankers across this country," Stone said.

"The time to raise FDIC insurance coverage is now," said Jon Mund, First National Bank, Milnor, 2000-2001 ICBND immediate past-president. Mund said the erosion of the Bank Insurance Fund, due to the action of large brokerage houses, is unfair to banks that have paid dues for years. "The deposit insurance structure is dangerously counter-cyclical. Under the current structure, premiums are lowest when the industry is the healthiest and premiums are highest when the industry is weakest," Mund added.

U.S. Sen. Byron Dorgan (D-N.D.) told conventioneers he supports FDIC insurance reform, including a coverage increase. Dorgan also addressed the rural problem of declining population while asserting economic development is the only way to keep young people in the state. U.S. Rep. Earl Pomeroy (D-- N.D.) said he favors insurance reform, but industry-wide solvency must be kept in mind. Pomeroy, while addressing the bankers, admitted he has disagreed with the ICBND's stance for the taxation of credit unions. He added, however, that he would be supporting a proposal that would cut taxes for all small financial institutions. "The problem would be in defining small," said Pomeroy "I'm thinking at least under $500 million."

During the meeting, Campbell was named president. Brian Houkom, Western State Bank, Devils Lake was named president-elect and Kent Lovell, McIntosh County Bank, Ashley, vice-president.