Age: 61
Education: Nebraska Wesleyan University, Colorado School of Banking
Previous experience: Taught high school science and driver's education in Hayes Center and Seward, Neb.; Cattle National Bank in Seward, National Bank of Commerce in Lincoln, First National Bank (now Cornerstone Bank) of York and president of First National Bank of Syracuse.
Civic offices: Syracuse Hospital Board, York School Board, Educational Service Union No. 6 Board, Nebraska Bankers Association government affairs committee
LINCOLN — The next time a huge financial company starts to fail, if there is a next time, the soft-spoken former president of a small-town Nebraska bank might be among those deciding how to prevent a national meltdown.
Creation of a “systemic risk council” is one proposal Congress is considering to change the way government supervises financial companies, from small-town banks to the biggest institutions, plus giant insurance companies, multinational securities firms and others.
John Munn, Nebraska's banking director for nearly four years, could find himself on a systemic risk council because he represents state banking regulators on an existing national board. But he isn't relishing such a high-profile job. For the former mathematics teacher and president of a Syracuse, Neb., bank, the calculations under way in Congress don't always add up.
Tuesday's introduction of a bank regulation bill by Sen. Christopher Dodd, D-Conn., is “the first time anybody has stepped up on the idea of a single federal regulator,” Munn said.
Like nearly all his counterparts in other states, Munn has doubts about the new regulations, especially if federal agencies assume the states' role in supervising banks and other financial companies.
“One of the mantras of state regulators is that proximity matters,” Munn said in an interview at his office next to Wells Fargo & Co.'s main office in downtown Lincoln. “If banks are federally chartered, they call a toll-free number to talk to a regulator in Texas or Washington, D.C., but if they are state-chartered they can come to us.”
State regulators understand their states' economies, he said, and they save time and money. They can keep close tabs on local financial businesses, Munn said, learning who's trustworthy and who's not.
They coordinate their financial oversight with the Federal Deposit Insurance Corp., giving them important federal backing. The other federal bank regulators are the Federal Reserve System, the Comptroller of the Currency and the Office of Thrift Supervision.
Most of the 115 banks that failed this year were small and subject to state supervision, which shows that state regulators react quickly and close institutions when necessary, Munn said. Consolidating regulators would remove the “dynamic tension” among the four federal agencies that keeps officials on their toes, he said.
Although federal regulators might coordinate their work with each other, they also, in a sense, compete for business. Banks can choose different types of charters, and in some cases banks choose partly because they believe a certain regulator would be best for them.
Nebraska's 180 state-chartered banks out-perform national averages, Munn said, largely because the economy here has been more stable.
Only one Nebraska bank has failed since 1990. Sherman County Bank of Loup City came under scrutiny of state and FDIC examiners for unwise commodity trading, not economic weakness.
Munn said Congress is moving closer to taking action, even though the inquiry commission it appointed to find out the causes of last year's financial crisis won't publish its findings until December 2010.
“Apparently Congress isn't going to wait to hear the report,” he said. “It's a moving target, what's happening in Congress. But something will happen.”
He outlined his concerns in the three general areas Congress is considering changes:
• Bank conduct.
Dodd's bill would create a single “prudential” regulator, who would be charged with ensuring that banks and other financial companies operate in a “prudent” manner. That's the standard long established by regulators to discourage risky behavior.
The single regulator would take the examination role from all the existing agencies. While state regulation could continue, Munn said, every state-chartered bank would need a federal charter as well, and banks would logically gravitate to federal-only charters.
That eventually would end state bank regulation, he said. “It's worrisome for us state regulators.”
If a single prudential agency emerges, the Office of the Comptroller and the Federal Reserve would focus on other roles, and the FDIC would continue its insurance activities but not examine banks, Munn said. That could mean that the FDIC would be responsible for insuring deposits in failed banks but couldn't examine their books.
“That's a huge concern of the FDIC,” he said.
Legislation also could merge the Offices of Thrift Supervision and the Comptroller.
The Office of Thrift Supervision oversees federal savings banks, also known as thrifts. Nebraska has 11 federal savings banks, including Mutual of Omaha Bank and TierOne Bank of Lincoln. Federal savings banks trace their history to savings and loan associations, focus on real estate loans but have become more diversified.
The thrifts might be required to become commercial banks if they come under the comptroller's control, or the merged agency could retain a savings bank division with different regulations.
Ending federal savings bank charters, Munn said, would force them “to begin acting like commercial banks with just the wave of a wand.”
• Consumer protection.
The new Consumer Financial Protection Agency would enforce laws such as the Truth in Lending Act, Home Mortgage Disclosure Act and other rules now handled by existing bank regulators, plus new protections yet to be determined. President Barack Obama backs this proposal.
“For bankers, it's just another set of regulators coming into the bank and another agency that could prescribe different modes of contact to fit its rules,” Munn said.
But he said the consumer agency appears likely to win approval.
State regulators would enforce laws under their jurisdictions unless the new federal agency determined that a state's supervision was inadequate. Then the federal agency would take over.
The FDIC most likely would continue to have a role in consumer protection because the agency insures bank deposits.
Exactly how an overall consumer protection agency would function is unknown, but its influence could be extensive, Munn said.
Another question is whether a single person would be in charge of the agency or whether it would be under control of a council representing current regulators. “It's very scary to many people, to think of empowering one individual that much,” he said.
Congress also might set standards and let the states enforce them, thus continuing state government's role in bank supervision.
• Systemic risk.
The Federal Reserve might take the primary responsibility, with representation from the U.S. Securities and Exchange Commission, Commodities Futures Training Corp. and the insurance industry. But Congress also might form a new council headed by principals of the regulatory agencies and possibly state regulators.
Contact the writer:
444-1080, steve.jordon@owh.com
Copyright ©2012 Omaha World-Herald®. All rights reserved. This material may not be published, broadcast, rewritten, displayed or redistributed for any purpose without permission from the Omaha World-Herald.
