When I came into the DFI one of the first things we did was create a mission statement: To ensure the safety and soundness of Wisconsin’s financial institutions, to protect consumers in their financial transactions and to facilitate economic growth.
I was spending 20 to 30 percent of my time on banking and securities – that’s changed to about 80 to 90 percent of my time, due to the tremendous amount of information coming from the federal government that will impact our banks. I spend the other 20 percent of my time on the things I’m really passionate about: economic development as it relates to angel investing.
I moved to the Valley in 1985 and I became an entrepreneur when I started my business, Wisconsin Investment Consultants. I took my business plan to three banks. One of them turned me down flat because I didn’t have a credit history. But I had no debt and I was driving a $14,000 Toronado. The other two banks, interestingly enough, offered me jobs. And I eventually then created the fixed income department at Valley Bank Corp., and I grew that from $10 million under management to $150 million under management.
People who found or charter banks (they are called De Novo banks) are entrepreneurs. They put their capital and their livelihoods on the line in hopes of making a good solid rate of return. Many times when you walk in and you ask for a loan, you’re talking to someone who really understands what your situation is.
Our community banks are lending to borrowers who are credit worthy; they have capital. Where the liquidity is really being challenged is where the need is very high, for larger businesses.
Three Wisconsin banks – Nicolet, M&I and Associated – received money from the Capital Purchase Program, which sprung out of the Troubled Asset Relief Program or TARP. There’s a misperception that the federal government is bailing out these banks, but it is only giving the money to banks that have a high likelihood of getting their rate of return, to shore up their balance sheets with that hope that then they’ll lend out to the market.
We think that our community banks are managing the challenging environment fairly well. There’s no doubt they’ve been challenged by some of the loan participations that they’ve gotten into, particularly in the real estate area, and of course the consumer foreclosures have had an impact. Of the 216 banks the state regulates, 213 are community banks (banks with under $1 billion in assets). As of Sept. 30, our community banks had a capital ratio of 10.3 percent – vs. the U.S. average, 9.7 percent. The higher the capital, the stronger the balance sheet, because you’ve got that equity. Among our community banks, the past due ratio was 3.31 percent, which is really high – it tended to be 1 to 2 percent. But the national average past due ratio is 3.71 percent.
We have to be very careful of not regulating where the problems did not occur. Our banks are already heavily regulated in Wisconsin and this is not where the problems have occurred. They have occurred in the investment banks, and there’s a very big difference between an investment bank and a depository bank. An investment bank is there to create a security to sell on the market to investors – they don’t have a long-term relationship with that person who took out the loan.
The biggest risk going forward is the threat to the dual banking system, which gives a bank the choice of chartering with a state or the U.S. Treasury. The majority of banks in the United States are state chartered, but the majority of assets and money are with national chartered banks. So the threat is the concentration of power in Washington, D.C. They would totally eliminate all the powers of the state commissioners – and that is not where the problem is.