Dear Sen. Warren: Stop “helping” us

9. August 2017.

Community banker Guy Williams has not yet met Sen. Elizabeth Warren in person. We’d like to be there when it happens, though.

During a recent interview with Williams, the president and CEO of Gulf Coast Bank & Trust—a $1.6 billion-assets bank that’s based in New Orleans—had this to say about the Democratic senator from Massachusetts:

“Elizabeth Warren thinks she’s in favor of community banks, but just does horrible things for them. The simplest example is her premier achievement: the Consumer Financial Protection Bureau, which was not supposed to affect community banks but does, and has raised our costs significantly.

“The thing that Sen. Warren doesn’t understand is that complexity favors the large. Citigroup has more attorneys than we have total employees. It’s not a big deal for them to digest an 800-page document. It’s a big deal for us. Any time you pass a very complex bill you have favored the biggest banks.”

Something tells us Sen. Warren would have a comeback if the two faced off. It would be fun to watch.

The “History” page of Gulf Coast Bank’s website reads, in part: “We make banking easy and secure for our customers by providing straight talk instead of the old runaround.” As the previous paragraphs demonstrate, the man who has led the bank for the past 27 years embodies the concept of straight talk.

While everything has its place, the ability to ruffle feathers can be useful. Williams is on his third go-round of industry leadership. He was president of the Louisiana Bankers Association for the 2004-2005 year and served on the board of the American Bankers Association for three years beginning in 2006. He currently is on the executive board of Friends of Traditional Banking, a group that seeks to elect individuals who support traditional community banking.

Williams also manages to run a good bank. Gulf Coast Bank has not had an unprofitable year since Williams and a business partner acquired the failed American Savings Bank in 1990 and renamed it. That record stands despite the challenges posed by Hurricane Katrina and the BP oil spill.

The bank avoids significant concentrations and doesn’t make big loans, says Williams. Roughly one-third of its lending is in commercial real estate (it is a big SBA lender), one-third in commercial and industrial lending, and one-third in mortgage lending. It also has a large trust and investment group, and a specialty unit that buys bad loans from other banks. The bank has 19 branches plus a mortgage origination office in Florida.

Williams does not consider himself a “political junkie.” His interest in government is out of necessity, he says, because it has such an impact on banking—especially community banks.

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The following dialogue, edited for length and clarity, is based on an hour-long interview with Williams.

Banking Exchange: Not all bankers are interested in Washington, but you are and have always been. Why is that?

We are a highly regulated industry, and if you don’t pay attention to Washington, you can end up in deep trouble. So you have to play the political game. You don’t have to like it, but it’s important to be involved—to know the candidates and talk to their staff. And, unfortunately, you have to support political campaigns financially.

Friends of Traditional Banking looks for people who support the normal community bank model and pay attention to them. Legislators have a lot of things going on and will do things that are just really dumb without intending to.

I will never forget at the beginning of the Obama administration, a very nice person from the White House came over and said, “Look, the president loves you guys; it’s the big banks he hates.” Well, nine years later if I could replay that moment I’d say, “Could he hate us and love them?” The four biggest banks now have almost 50% market share among them. They’ve become financially bulletproof.

At a certain point, companies become so big in scale that it’s almost impossible to compete with them. You see this with Amazon and Google, and we’re rushing toward that with the biggest banks.

When you tell people like Elizabeth Warren and [former Congressman] Barney Frank that what they’re doing is hurting community banks, they don’t believe it. They always say, “That’s an anecdote; that’s not really true.”

It’s not just members of Congress. I said to the head of one of the regulatory agencies, “You know, we treat the consumer worse today than the first day I walked into a bank 40 years ago.” He replied, “Oh, I hope that’s not true.” I said, “It’s absolutely true, and it’s your fault.” He said, “Well, that wasn’t our intention.”

Unintended and unforeseeable are different. When an entirely foreseeable consequence occurs that you were warned about by the industry, it’s not believable to say it’s an unintended consequence. You’re either completely ignorant, or you’re just so pigheaded and stubborn that you won’t listen to people that are actually doing the business.

All these consequences we’re experiencing now were entirely foreseeable. As community banks, we warned Congress what would happen with Dodd-Frank. They ignored us. They told us we weren’t going to be affected. They were wrong.

Banking Exchange: Have there been some good things that have happened as a result of banking industry involvement in government relations?

Unfortunately, we’ve been on a long losing streak. I feel like our lobbying efforts have been largely ineffective. We’ve lost every major issue we’ve fought. And we’ve lost some that are just evil. One in particular being allowing Congress to tap the Federal Reserve for highway funds—I mean, come on.

But Dodd-Frank was a significant loss. The credit union expansion continues to be a significant loss. The Affordable Care Act was a big loss for banks and small businesses. So it’s hard to see any wins for us. I think it’s been almost an unmitigated string of disasters in Washington for community banks.

At least there is some awareness of the issue. But the interesting thing is everybody in Washington loves community banks, but nobody loves them enough to do anything that would be helpful.

Banking Exchange: Some community banks are aligned with the ABA, some with the Independent Community Bankers of America, and some with both. Is that a good thing for the industry?

It’s bad. Any time you have two lobbying groups, it allows legislators to say, “When you all get together, come back”—which allows them to do whatever they want to do.

It would be far better for banking to be represented by one lobbying group. And it really almost doesn’t matter which one it is: ABA or ICBA. Having both is terrible, though, because Congress can say, “Because of the dissension in the industry, we really can’t do anything.”

Our bank belongs to both. I hope to be a part of merging the two associations.

I would say to my ICBA friends: If they had objected to Dodd-Frank, we would not have that law. They believed it wouldn’t affect community banks. But, in fact, it has accelerated consolidation, raised complexity and costs, and pushed a lot of people out of the business. They [ICBA] wanted to say they were doing something against the big banks. Well, it’s one industry. I’m not an apologist for the big banks, but when you start trying to say, “Well, only this half,” this is what happens.

Let me tell you why we joined Friends of Traditional Banking. I got so tired of only playing defense and never playing offense. It seemed like we’d always go up to Capitol Hill and there would be some horrible bill we’re trying to stop. Friends of Traditional Banking actually identifies people who are not friendly to community banks and supports their opponents.

It’s been great fun to say, “You know what, I’ve had it with you. I and my friends are going to support your opponent, and we very much hope to give you a retirement and a gold watch and send you home.” And we’ve been successful in doing that in a number of races. Every year, we pick two or three races where we think we can make a difference. And that’s something neither of the traditional lobbying groups have been willing to do. I think it’s a mistake.

If you never seriously oppose an elected official, there’s no downside to that person voting against you.

Banking Exchange: Which proposal—the Financial Choice Act, passed earlier this year by the House, or the Treasury’s regulatory reform recommendations—offers the better choice for change?

I think both are fine, but neither one of them is doing what the simplest change would do.

The biggest win for community banks and for banking as a whole would be a reduced corporate tax rate.

Think about it. Banks haven’t had any wins, compared to the Farm Credit System and credit union system, for 40 years. A reduced federal tax rate reduces their subsidy. If the corporate tax rate were 20%, the credit union tax subsidy becomes not so serious. So that is, by far, the best thing that Congress could do for banks.

The piddling around with regulatory reform at the edges is a nice thing, but none of the reforms really root things out.

However, the part of the Financial Choice Act making CFPB a real agency with a regular board and regular appropriations makes perfect sense. CFPB is a total disaster. One of the problems with CFPB is that it hurts consumers and you cannot explain that in Washington and have them understand.

We’re one of the biggest mortgage lenders in Louisiana. Every one of our mortgage service providers has raised their cost and closings now take longer.

If the industry had hurt consumers like that, they would throw us under the jail. CFPB can do it and say, “Well, that was an unintended consequence.” But it’s a logical outcome of what they’ve done.

The real solution is to eliminate CFPB. Let the Fed, OCC, and FDIC do consumer protection just like they always did.

Banking Exchange: What is your perspective of the Trump administration, so far?

One-third of what the president has done I absolutely love. The deregulatory push is wonderful—the “get rid of two rules for one new one” is a great idea.

Some of his appointments have been absolutely wonderful. I sat in the audience during the Neil Gorsuch hearings. He is a great judge; he actually reads the law and applies the law, not his personal feelings. I thought he was an inspired choice [for the Supreme Court].

The border wall is idiotic. I can’t believe he wants to do that. More Mexicans are leaving the United States than are coming in. And why do you want to keep the Mexicans out anyway? They’re perfectly fine, hardworking people.

Foreign trade makes the whole country better. It is reasonable to want trade to be fair, but it’s not that unfair right now. So trying to stop foreign trade, I think, is an awful thing.

So one-third of the stuff I love, one-third of the stuff I hate, and the rest is somewhere in the middle. Very mixed.

Banking Exchange: What are the biggest challenges your bank faces as an organization?

Our regulators are pushing customers away from banks and so now you have many people borrowing from fintech companies. The problem is the fintechs are getting pretty darn good at what they do, and they’re not going to stop with

just the marginal borrowers. They want the core business, and they essentially have no regulation. It is significantly more difficult to compete with somebody that just has an internet presence. So I think the competition for consumers is going to get really brutal. The same thing will happen in the small business realm, too.

The disruption is real. Look at what Amazon is doing to department stores. To think that money—the ultimate commodity that can be transferred electronically—is not going to follow that path is shortsighted. Unfortunately, much of it is going to be outside of the bank regulatory system because that system makes doing business so difficult.

So I think the technical arms race is going to be a real challenge and will be one more thing that pushes more consolidation. At some point, smaller community banks are going to realize they just can’t play.

One part of the technology challenge is that core systems are obstacles to progress. They’re always a generation or two behind. If somebody came along and did a Windows-based core with an open API system where you can just plug in apps, they would grab the market. But it would have to work. Switching cores is like jumping out of an airplane—that parachute better work.

Banking Exchange: Your bank has 19 branches and you emphasize personal service, yet a lot of technology takes away from the face-to-face. How are you dealing with that?

Well, our objective is to provide high tech and high touch. We spend a ton of money updating technology, and we have all the customer-facing technology the big banks have. The difference with us is when you want to actually talk to somebody, you still can.

Many people are happy just getting online reports, and we’ve got those. But if you want to deal with a person, that option is always available here.

[When you call the bank’s main number, a person answers —Ed.]

Our branches almost always have mortgage people, investment people, and commercial lenders in them. Because we have relatively few branches, we can afford to have each one be a little bigger and have more folks. That strategy has worked for us.

However, while we will finish our branch remodeling effort this year, we don’t have any plans for new branches. We expect to grow $100 million to $200 million next year without adding a branch.

We will be happy to hear your thoughts

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