Clear message aids bankers in varied legislative battles

Northwestern Financial Review, Nov 1-Nov 14, 2003 by Plagge, Jeff

Q: Is there anything you can say to give bankers hope about their battle against credit unions?

Although we haven't gotten a lot in the arena of taxing credit unions, we have, at least in Iowa, prevented them from grabbing more powers. The level of progress varies by state. We have to continue to look at the courts as an avenue, although it is just one of many avenues. Legislatively, I think we have the opportunity to get attention when some of the bigger credit unions do something that shocks the system, as the Iowa City situation did (where a credit union attempted to buy a bank earlier this year). It is going to take some of those shocks for legislators to wake up to the public policy side of it, which has always been my angle. It is just bad public policy to continue to let the financial services industry shift to a tax-advantaged system. It hurts the economy, it hurts state budgets, and it hurts national budgets.

Are lawmakers generally savvy on credit union issues?

Credit unions have done a very good job of framing this issue as big banks fighting little credit unions when, in fact, it is just the exact opposite. The real issue is big credit unions against community banks. We have to do a better job of getting that understood. My $150 million community bank is fighting a $1 billion credit union. Generally, however, I think lawmakers understand it.

Bankers are divided on the importance of the credit union issue with one-third saying they are gung ho, one-third moderately interested, and one-third saying it is not worth the fight. What needs to happen in the industry to reach industry-wide consensus?

There is a lot of education that needs to happen. Everyone needs to be involved. We can't just leave it up to our lobbyists. Bankers who are less-than-enthusiastic about fighting the credit union battle certainly understand the issue, but maybe they are frustrated. They say: "Congress is going to ignore us anyway, let's just work on these other issues." As for those who don't care about the issue, perhaps they just don't have credit unions in their area. We've got to test some messages. We've got to find a message that resonates, not only with bank CEOs and bank employees, but with legislators. The one about taxing undistributed earnings seems to have some appeal, at least here in Iowa. Again, it may be a long process.

Aside from credit unions, what would be the most pressing issues on the national scene?

The real estate powers issue is important, as is deposit insurance reform. This real estate powers issue is important, not because a lot of bankers want to get involved in real estate, but because it is an attack on the Gramm-Leach-Bliley Act. If the realtors are successful in holding that off over time, I am afraid that will be one of a hundred different single interest groups that will say, "we don't want them in this business either." The FDIC insurance issue is not so much about coverage, because I think there are things out there like CDARS that can really help us. I am worried about the integrity of the fund. We saw it in Iowa where the state had budget problems and all of a sudden they grabbed the bankers' funds. I think that's a real risk to the FDIC funds.

Do you get the sense that there is an appetite among legislators to delve into privacy issues?

There are some people in every state who would love to see it delved into. But I think a lot of states believe it is such a big can of worms. They may know there are issues, but they don't want to kill the whole system in trying to fix it. Remember, we have seen a huge paper flow go out to our customers. And there has been virtually no reaction. Very few opt outs. I think that speaks well of our banking industry and it says there's a trust factor. Now, I am sure that varies state to state, but our message is don't mess with it. Leave it alone. Let the current rules work and make sure that we keep a national standard, as opposed to a different set of rules for individual states.

Jeff Plagge is coming off a year as chairman of the Government Relations Council for the American Bankers Association. He also chaired the ABA's Credit Union Task Force. He is president and CEO of First National Bank in Waverly, Iowa. North*Western Financial Review Editor Tom Bengtson caught up with him at the Iowa Bankers Association Convention in September.