Bankers should appreciate FDIC's new approach on reserves

Northwestern Financial Review, Oct 15-Oct 31, 2003 by Bengtson, Tom

I applaud the Federal Deposit Insurance Corp., for looking at its p risk management approaches. I have written in the past about my concern over the way the FDIC reserves for projected future losses. When the FDIC reports the balance of the Bank Insurance Fund, it does not include money it sets aside for handling projected bank failures. That means the overall fund actually has more money in it than the FDIC is using to figure its coverage ratio. If the coverage ratio falls below 1.25 percent, all banks would be required to pay a premium to get the fund back up over that level. Well, if you don't count the money set aside for projected future losses, then you are going to fall below the 1.25 percent level sooner than if you include that money in your fund balance total.

The FDIC hired McKinsey & Company to make suggestions for improving its risk management practices. The consulting firm last July suggested that the FDIC reconsider the way it calculates its reserves. It made four specific, technical suggestions. The result should be a more accurate projection of the amount of money needed for future losses. The recommendations would have improved the accuracy of the reserving amount by 20 percent if applied over the last five years.

I am against the idea of the reserve in the first place, but if the FDIC has to have one, then let it be as accurate as possible. There is no benefit to over-reserving, as the FDIC has so often done in the past.

. . .Aubrey Patterson, the ABA chairman for 2002-2003, gave the commencement address at the graduation ceremonies for the Graduate School of Banking at Madison, Wis. recently. Patterson, a Mississippi banker, is a 1977 graduate of the school, which has graduated nearly 19,000 people in 60 years.

Patterson urged the graduates to become active in the political process. Without active participation, he said, competitors will be able to cherry-pick the most attractive financial services components delivered by banks, while locking banks out of many areas that provide great opportunities. Reflecting on his own career, Patterson said the Graduate School helped to develop his leadership skills and accelerated his career.

. . .A number of bankers in the North * Western Financial Review readership area serve in leadership positions at the American Bankers Association. Elected to the board at its annual convention were Leslie Andersen, Bank of Bennington, Neb., and David Hickman, United Bank & Trust, Tecumseh, Mich. Upper Midwest bankers in the middle of three-year terms on the board are Robert Weiss, Beacon Bank, Shorewood, Minn., Daniel Krieger, First National Bank, Ames, Iowa and Earl McVicker, Central Bank and Trust Co., Hutchinson, Kan.

. . .In a disappointing development, the National Credit Union Administration on Sept. 24 adopted a final rule making it easier for credit unions to make business loans. I wrote about the proposed rule last April. Despite the comment letter I wrote to the NCUA, and all the other letters it received opposing business lending expansion, the NCUA went ahead. The good news is, NCUA did scale back its original proposal. But from my perspective, there is no need for any tax-exempt organization to be making small business loans.

. . .First National Bank of Omaha, Neb., has again been selected by Working Mother magazine as one of the "100 best companies for working mothers." The magazine honored the company at a banquet in New York on Oct. 1. It is the second year in a row the company has been so recognized.

First National Bank offers flexible work arrangements, compressed work schedules, job sharing, work at home, benefits for part-time employees, flexible spending plans, subsidized discounts on bus transportation and health club fees, and an employee assistance program.

In addition, the bank provides employees with networking opportunities through its Single Parent Task Force and Parents At Work group. A spokesperson for the company notes that 19 percent of First National's executives are women and 15 percent of its board members are women.

. . .Congratulations to the following banks which won "Best of the Best" awards at the ABA's Sept. 15 annual marketing conference: Union Planters Corp., Kalamazoo, Mich; The PrivateBank and Trust Company, St. Charles, Ill.; MB Financial, Chicago; First Midwest Bank, Itasca, Ill.; First National Bank, Omaha, Neb.; and Comerica Bank, Troy, Mich. Nine other banks in the Midwest were honored with certificates of excellence. The awards recognize marketing innovation and creative excellence in the banking industry.