Editor’s note: This rebuttal was written in response to a column by Harry Dennis III in the Dec. 19 edition of BizTimes Milwaukee.
The Wisconsin Bankers Association (WBA) disputes and wishes to clarify some of the points made in a recent article by Harry S. Dennis III for BizTimes Milwaukee and BizTimes.com, headlined, “Banking: Protect your assets.”
The banking industry is one of the most highly-regulated industries with very complex, technical rules that must be followed. While the industry as a whole is facing challenging times as a result of the current economy, the banks in Wisconsin as a whole are strong.
As Mr. Dennis indicates, one of the best ways, if not the best way, to determine the financial stability of your local banks is to go and talk with them. Talk with the president or CEO, and ask them for their most recent published financial statement. Contrary to his article, most banks in Wisconsin are not publicly traded. However, all banks are required to file quarterly “Call Reports” with the FDIC. You may obtain copies of these public documents from the bank or the FDIC’s Web site.
WBA strongly disagrees with Mr. Dennis’ statement that a cease and desist order is a “big clue” that a bank is in trouble. This statement is a careless one to make without greater explanation. The myriad of banking regulations are complex and challenging to maneuver. Banks pay hundreds of millions of dollars each year to help ensure compliance with all these laws; however, mistakes do occur from time to time. Some laws, such as the flood insurance rules banks are required to follow, require the mandatory issuance of a cease and desist order in the first instance of a technical violation. Such a cease and desist order in no way indicates the bank is in “trouble” from a safety and soundness perspective. While the issuance of a cease and desist order is not something to completely ignore, by itself it is in no way a “big clue” that a bank is financially unstable.
FDIC insurance coverage rules are another area that is fraught with complexity. WBA encourages consumers with questions about their specific account situation to contact their local banker or access the FDIC’s Web site, which is specially dedicated to walking the public through the complexity of FDIC insurance coverage. Again, Mr. Dennis’ representation of FDIC insurance coverage is incomplete at best and inaccurate in several instances.
First, through Dec. 31, 2009, all non-interest bearing accounts at institutions participating in the FDIC’s Transaction Account Guarantee Program (which are most banks in Wisconsin) have unlimited FDIC insurance coverage, including business accounts.
Second, the FDIC insurance coverage rules affecting revocable trust accounts are very complex and are calculated not only based on the number of “owners” of the account, but also the number of “eligible beneficiaries” identified in the trust documents. It is not as simple as each account receiving only $250,000 of FDIC insurance coverage. If there is one owner and three eligible beneficiaries, and other requirements are met, the FDIC insurance coverage would actually be $750,000 for that single revocable trust account at one bank. There are so many ways to structure accounts for individuals at banks to maximize FDIC insurance coverage, it is impossible to explain it in a few simple lines. In fact, it is fairly easy for people to structure their personal accounts at a bank in such a way that FDIC insurance coverage could exceed $1 million.
The inaccuracies in the article continue with the statement that when a bank fails, the FDIC or the assuming bank can change the terms of a loan. In fact, when a bank fails, the FDIC or the assuming bank, whichever retains the loans, must work within the context of the original loan documents. Neither can arbitrarily alter the terms of any loan unless there is a provision in the original loan documents that allows for a loan to be called. Notably, in that instance, the original bank would have had that same right. The only way to change the terms of a loan is if the borrower and the FDIC or assuming bank agree to do so, for instance, in a loan modification for a troubled mortgage.
While we all agree we are facing challenging times, it does no good to be careless and inaccurate with statements about an industry as complex as that of banking. If you are really concerned about the welfare of your financial institution, then go talk with them in person. Wisconsin bankers are historically conservative, and that nature serves them and their customers well during these turbulent times.