Iowa superintendent honored

Northwestern Financial Review, May 15-May 31, 2003 by Dullum, Justin

Thomas Gronstal, Iowa's superintendent of banking, received an unexpected honor from Gov. Thomas Vilsack during Iowa's "Day with the Superintendent," April 25 in West Des Moines. Gronstal was named "2003 Leader of the Year," which the Governor said is roughly the state's equivalent to employee of the year.

"For once I'm speechless. I'm sure glad I wore a tie today," said Gronstal, who was nominated for the honor by the employees within his department, who he credited with the department's success.

The award was the positive note on which the Governor ended his otherwise cautionary address. Vilsack told the 300 bankers attending the meeting that budgetary concerns could slow the process of renewing Iowa's economic vitality. "I can guarantee you that no one in the state of Iowa is going to be satisfied with the budget we'll pass."

Neil Milner, president of the Conference of State Bank Supervisors, updated bankers on happenings in Washington. The banking agenda, said Milner, is mostly comprised of leftovers from last year's agenda - FDIC reform, for example. Milner said some form of FDIC reform will likely pass. "There is universal agreement on merging the BIF and SAIF funds," said Milner. "Risk based premiums are being discussed as well. As for increasing the coverage amount, that is the lightning rod in this bill." Milner said a reform bill provision that would index coverage levels for inflation every five years has a good chance of passing.

Milner also explained the group's opposition to legislation that would bar national bankers from engaging in the real estate business. Many state-chartered banks already have real estate powers. "We just think it's the right thing to do," Milner said. "The strength of the state system is that it's been a laboratory for experimentation and change. Once we find something that works, it should be expanded to the whole industry. We also worry about the trickle down effect of federal legislation."

Gronstal ended the meeting by comparing the performance of Iowa banks to that of other U.S. banks. "There's good news for Iowa banks," Gronstal said.

Iowa banks compared favorably to other banks in many categories, such as loan charge-offs. In 2002, Iowa banks charged off 0.27 percent of loans, compared to a national average of 1.11 percent. "We're a little behind on return on equity, 12.67 percent compared to 14.53 percent nationally," said Gronstal. "But look at our leverage ratio at 9.31 percent versus the national average of 7.84 percent and I think that pretty well accounts for the difference in return on equity."

Although Iowa banks are weathering the economic downturn, Gronstal mentioned some concerns. "If you want to know why interest rates are low, look at the commercial loans compared to total loans nationally. That line looks like it's dropped off a cliff. Nobody wants this money right now," said Gronstal. "So far, we've resisted the temptation to borrow short and lend long. I'm worried about this changing - more than anything else. Almost all the growth in our loan portfolio the last 10 years is represented by real estate loans. If low interest rates persist, there is going to be tremendous pressure on banks to lengthen the maturities on those loans. It's incredibly important that we manage our balance sheets and keep an eye on this."

Gronstal then offered a prediction. "I can tell you precisely when interest rates will rise," he said. "The day after I buy a lot of long-term bonds."