Mississippi’s banks withstood the blows of the last decade’s national banking crisis far better than many of their counterparts across the country. But it’s unclear how well they will withstand the regulatory consequences of the crisis.
Career banker George Marx is trying to make sense of it all has he begins his year as chairman of the Mississippi Bankers Association. New federal rules for qualified home mortgages and Basel III’s new capital requirements are chief concerns, said Marx, president & chief executive of Copiah Bank, a bank he joined in the mid-1975.
Marx took over leadership of the Mississippi Bankers Association in May. Today, his thoughts are centered on the advocacy role the MBA should take in working through the fallout from the near-collapse of the nation’s banking system.
He said he thinks the MBA will have to become more politically active. “Bankers for a long time use to stay away from politics,” he said in an early June interview. “But it has become increasingly important for us to be involved not only in politics but in advocacy at both the state and federal level.”
To that end, Marx and other MBA policymakers, as well as longtime association President Mac Deaver, will be in Washington in July to voice their worries about Basel III, an international banking tribunal that has persuaded U.S. financial sector regulators to adopt higher capital requirements for banks of all sizes.
“You can only loan so much on your capital” under Basel III, Marx said in citing a key worry brought on by the new international rules adopted by U.S. regulators.
“Some banks could perhaps see their capital percentages go down 2 to 3 percentage points,” he added.
Federal regulators are phasing in the mandates on capital reserves through 2019, but as KPMG warned in a recent report, banks must begin demonstrating capital and liquidity resilience much earlier to meet interim deadlines along the way.
Don’t wait until all the “ambiguities are resolved,” the international audit and tax advisory firm advised – not when a “paradigm shift in capital and liquidity standards are ahead.”
While many of the nation’s banks already have Tier 1 ratios above Basel III’s required 4.5 percent, changes mandated by Basel III “are expected likely to cause even well-capitalized banks in Europe and United States to find it hard-pressed to be compliant,” the KPMG report said.
The report further predicted that political issues and debate around implementation will tend to induce fear of an “uneven playing field.” That fear may be justified, KPMG said.
It’s real enough in Mississippi, according to the MBA’s Marx, who said the Basel III capital rules will have “a disparate impact” on community banks such as the $170 million Copiah Bank.
The other major concern as Marx begins his year-long MBA chairmanship is the ability of Mississippi’s banks to meet “qualified” home mortgage rules set by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. “That’s a big item,” he said of what bankers simply call “the QM rule,” a measure that addresses a borrower’s ability to repay a home mortgage.
Implemented by the U.S. Consumer Financial Protection Bureau, the QM underwriting standards went into effect in early 2014. The Bureau has backed away from an earlier timetable for imposing the standards on banks that provide financial services in underserved areas, including Mississippi’s more rural counties.
But while not fully implanted, the rules still have caused some Mississippi bankers to pull back on balloon mortgages loans and other non-conventional home lending. These loans can’t be sold on the secondary market and thus can’t enjoy “safe harbor” legal protections granted QM loans.
Some Mississippi community banks report double-digit drops in mortgage lending as a result of anxiety over making loans that can later expose the banks to suits from borrowers.
“For years, we have made balloon loans with 10-year amortization or a 5-year balloon,” Marx said of Copiah Bank.
Some flexibility may soon be restored, according to Marx. “Several initiatives are under way in various committees of Congress,” he said. “A lot of people are talking about the unnecessary burdens of community banks that are going to filter down to the customer. We are encouraged but we can’t take anything for granted.”
Unlike some previous MBA chairmen, Marx said he thinks regulators made a mistake after the banking crisis by not getting rid of the “Too Big to Fail” doctrine that led to the federal bailout of the nation’s largest banks.
Supporters of the doctrine say the largest U.S. banks would lose an international competitive edge were the doctrine’s protections removed.
“It is obvious that a lot of greed and hybrid financial products led to a lot of this happening,” Marx said of the widespread trouble the financial sector encountered starting in 2008.
Marx conceded he might feel differently if he headed a $10 billion bank. But he emphasized that all banks – not just the giants – have paid a huge regulatory cost.
“Community banks were never a part of the huge problem that started in 2008 but we got drawn under that huge net,” said Marx, who has spent the bulk of his lengthy career at his hometown Copiah Bank for which he has been president and CEO since 2000 and chairman since 2005.
Regulatory worries aside, Marx said he has a priority of addressing cyber fraud during his term.
The entire U.S. banking sector has “experienced large loses in debit fraud” related to cyber crime, Marx said.
“You tend to worry about things you don’t have your arms completely wrapped around,” said Marx, who started in banking with Deposit Guaranty in Jackson in 1970 after graduating from Mississippi State University with a finance degree.
Be assured, he said, that the cyber criminals the banking industry is up against are skilled, well-paid and on the job 24-7.
He plans seminars and conferences on the subject throughout the year, Marx said.