Banking Law

Land of Enchantment Not Enchanted With Out-of-State Banks

Last week, the New Mexico House of Representatives voted 65-0 to enact a bill that would direct the state to move state funds to New Mexico-headquartered "community banks." Governor Bill Richardson said that he'll sign it if it makes it out of the Senate and onto his desk, which it appears likely to do at this point. Although the introduction of this bill predates the take down of Charter Bank by the OTS late last month, I can't help but believe that the hornets' nest of bad publicity didn't help the New Mexico House achieve a unanimous vote. It's amazing what happens when you tick off The Peeps enough that they start "going rogue."

Naturally, The Huffington Post was all over this story, claiming, with ample justification, that Arianna Huffington's and Rob Johnson's "Move Your Money" campaign had something to do with this populist piece of legislation. In fact, the New Mexico state representative who introduced the legislation told the Huffington Post that he got the idea for the bill from the "Move Your Money" campaign.

One aspect of the bill benefits credit unions in New Mexico. As noted by the Credit Union Times, credit unions in New Mexico, for the first time, would be able to bid for state agency deposits. The liberal/progressive news site OEN notes that New Mexico may have started something that will catch on with other states. Michael Bloomberg promises to move some of New York City's money to local credit unions, and in Oregon a gubernatorial candidate propose something similar. New Mexico community bankers are also excited about it. Poking a stick in the eye of large national banks is an activity that cuts across the political spectrum, and is one area where "Tea Baggers" and "Code Pinkies" can find common ground.

The trouble with this movement is that it doesn't do for community banks what many of them really need done. As we've repeated warned (and as even the Congressional Oversight Panel blared out last week), that problem is problems with commercial real estate lending and capital problems of community banks caused thereby. That's where we need creative answers and where a populist campaign that pushes the US Congress and the federal bank regulatory agencies to act to save, rather than destroy, hundreds of community banks ( the COP alleges that over 2900 are at risk) is required. As one astute observer e-mailed me last week, many community banks are trying to shrink their balance sheets to improve their capital positions, because real estate woes, exacerbated by dysfunctional regulatory examination positions, are eating into capital, and the little guys don't have the access to the capital markets that the Too-Big-To-Be-Responsible banks have. Deposits are liabilities, and you don't have to be a partner at Deloitte & Touche to understand that increasing the amount of liabilities on the balance sheet is exactly the opposite of what many community banks are attempting to do.

If we sound like a broken record, that's because we intend to be one. One more time: "It's the capital, stupid."

Full post as published by Bank Lawyers Blog on February 14, 2010 (boomark / email).