Academic journal article ABA Banking Journal

Capital Taken Away-More Demanded

Academic journal article ABA Banking Journal

Capital Taken Away-More Demanded

Article excerpt

[ILLUSTRATION OMITTED]

Bill Isaac grew up in a small town. He knows that such towns lose "some of their heart and soul" when they lose their banks.

"This country desperately needs to do whatever it can do to maintain the viability of the community banking system--big banks can't replace them," said the former FDIC chairman during a panel he moderated at ABA's Government Relations Summit last month.

In addition to regulatory burden, his concern is over community banks' need for capital, severely impacted by the Collins Amendment of the Dodd-Frank Act, which took away trust preferred securities as a source of Tier 1 capital from all but the smallest institutions.

"We've got to come up with a way to get capital to the smaller banks," said Isaac, who is senior managing director of FTI Consulting. The bankers on his panel couldn't agree more.

"It's a very bad law," said Mark Macomber, CEO of Litchfield Bancorp.,

Litchfield, Conn., a mutual institution. Mutuals raise capital through earnings, he said, and trust preferred has worked well as another source. But earnings now are squeezed and trust preferred is gone.

Paradoxically, banks are all going to be expected to have greater capital and increased liquidity, noted Earl McVicker, CEO of Central Bank and Trust, Hutchinson, Kan. If banks can no longer use trust preferred as capital, he said, "it's simply going to force them to limit their growth, sell, or merge, or maybe bring in an outside partner who may not be a banker. …

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