Banking Law

Minnesota's senior (and until the Franken-Coleman contest is resolved, only) US Senator, Amy Klobuchar, stepped away from some of her more notorious bank-bashing brethren and wrote an editorial published in today's The Washington Post that offers the startling opinion that while a number of banks were bad, the vast majority of the commercial banks in this country were, and are, good boys and girls. It's tough to sort the wheat from the chaff, though, when the main stream media and some cynical politicians who exploit the media's need for snark continue to lump all banks into one black kettle.

I come from a state with many sound, responsible banks. To borrow from our unofficial poet laureate, Garrison Keillor, Minnesota is a place where all the women are strong, all the men are good-looking and all the bankers are above average.



From the largest entities, with tens of thousands of employees, to the small-town banks and credit unions, our financial institutions pretty much stayed away from the highflying, way-too-risky deals of the past decade. They made meat-and-potatoes loans to consumers and businesses in their communities. They did well, both for themselves and for the people they serve.



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Unfortunately, we now live in the cyclone of 24-7 financial news coverage. One pundit's idle chatter or a leader's words taken out of context can create a storm of controversy that wipes out stock prices in a whole sector of the economy.

This is the challenge confronting banks across America. Many banks have solid records, relatively little red ink and the prospect of long-term stability. But they are now grouped with the irresponsible highfliers that are about to crash and burn, if they haven't already.

Senator Klobuchar, a Democrat, calls on President Obama to rectify this unjust perception, and to do so pronto. She offers specific suggestions:

...[T]he administration must make clear that, while some banks will require extraordinary help, there are plenty of banks that remain solid and will come out stronger in the end.

Ultimately, the success of America's market economy depends on trust. This includes trust between buyers and sellers, between lenders and borrowers, and between investors and the companies in which they invest. That trust has been sorely tested in the past several years.

As with any test, it is essential to distinguish between right and wrong answers. It is wrong when we, in effect, throw safe and sound financial institutions into the same category with banks and lenders that climbed too far out on a limb with no way to return.

If the government wants to apply a "stress test" to our large banks, it should announce the rules as soon as possible. This would provide much-needed clarity for the public, the banks and their investors. And however this test is administered, it should be set up in a way that allows for differentiation on the basis of performance. This is likely to require a more nuanced approach than simply pass/fail.

The threat of "nationalization," better described as temporary government receivership, has cast a shadow over all banks. The sooner the federal government can decide which, if any, banks will be subject to either this extreme measure or simply more capital infusion, the sooner banks that are better off can escape the shadow of suspicion and go ahead with their business.

This is not just about banks and their money. This is also about confidence: the confidence of consumers to spend, the confidence of investors to invest, the confidence of businesses to hire and the confidence of bankers to lend.

The confused situation in which we are mired hurts more than our banks. It hurts the home buyer who needs a mortgage. It hurts the homeowner who needs refinancing. It hurts the small-business owner who needs an extended line of credit. It hurts millions of Americans who need loans to buy cars or send their children to college. And it hurts everyone with a retirement fund that continues to decline as long as the financial markets are governed by fear and uncertainty.

In the midst of the financial turmoil, we must keep in mind that all banks are not created equal. Some banks chose not to go to the enchanting and, ultimately, illusory world of Oz. They acted sensibly and stayed home, keeping their promises to Auntie Em.

It is time for Uncle Sam to give due credit to their responsible behavior so that they may continue their business and help revive our economy.

I assume that Senator Klobuchar will eventually shed her sheen of Minnesota niceness, decency and fair play and, after swimming with the sharks for a few terms, will become as cynical and exploitative as some of her fellow predators, such as one who shall not be specifically identified but whose last name rhymes with "Dodd." Until then, I'm certain that bankers will enjoy gnawing on any bone she might throw their way. Her official biography states that she was a partner in two large law firms, so maybe she's already learned how to maintain a sense of truth and justice even when riding on a bus loaded with bozos. Stranger things have happened in the history of the universe, I assume.

Amusingly, Senator Klobuchar's home-state newspaper, the StarTribune, cringed at her corny Lake Wobegon reference, but approved her overall sentiments. Less amusingly, that article elicited the usual quota of comments from anonymous tin foil hat wearers, spewing personal vitriol that seems to temporarily quell the voices raging inside their heads.

(h/t to Minnesota Bankers Association General Counsel, Teresa Rice, for giving me a "heads up" about this editorial)