FROM THE OFFICE OF PUBLIC AFFAIRS

October 26, 2004
JS-2063

Wayne A. Abernathy
Assistant Secretary of the Treasury for Financial Institutions
Before the North Carolina Bankers Association’s
2004 Management Team Conference
Pinehurst, North Carolina

A Good Time to Be In the Banking Business

Thank you for inviting me to visit with you today.  I always enjoy coming to North Carolina.  I have so much family here.  I believe that my Dad liked to say that everybody in Catawba County was either related to me or married to someone who was.  That might have been a mild exaggeration, but I do know that there are a lot of Abernathies in North Carolina, and it always feels familiar and friendly to come here. 

I take it as a duty, and as a privilege, on behalf of President Bush and Secretary Snow, to thank you, the bankers of North Carolina, for the important role that you have played and are continuing to play in promoting job creation and economic growth.  Our economy is strong and growing, and that economic growth is steady and sustainable.  For over a year now, the nation has been adding new jobs every single month, 1.9 million jobs and counting.  Real after tax income is up by more than 10%.  We are approaching a homeownership rate of nearly 70%.  That means that this morning, something like 7 out of every 10 Americans woke up in a house that they own.  That is a record high, never seen before in this nation for as long as we have been keeping homeownership records. 

Let me share with you another important homeownership milestone.  For the first time in our history, minority homeownership rates have broken the through the 50% mark.  That means that over half of all minority families woke up this morning in a home that they own.  We have never been able to say that before.  And because that is important, it is important that we continue to make progress.  That is why President Bush has set the goal of 5 million more minority home owners. 

It is important because homeownership is important to the economy.  It creates tremendous stability for the economy.  But as important as homeownership is to the economy, it is even more important to people and to their communities.  When you own your own house, that means something to you.  It changes people.  People who own their own homes are more likely to put down roots, to get involved in their communities, in their churches, in their schools.  People who own their own homes are more likely to build financial strength for their future, for their family's future.  Homeownership is an investment, but it is also an achievement, a source of satisfaction that you are reminded of every time you come home from work and open the door to your own house. 

America is a society of owners.  People come to America to own a piece of America, to own their homes, to own their futures.  And as people own, they build.  And as people build, America grows and prospers, economically yes, but even more importantly, America grows socially.  America progresses.  We become increasingly a society of communities, of communities owned by the people who live in them.  My father grew up here in North Carolina, in a little town called China Grove, just south of Salisbury.  He had a nice house, but his family did not own that house.  The mill owned that house.  But my father's children grew up in a house that my father owned.  And my wife and I own our house.  And I want my children to be able to own their homes.   

Of course, that is where all of you come in.  America's bankers help people build.  They help people save, invest.  They help transform savings into financing, the financing that someone with a good idea needs.  That man or woman with a good idea needs that financing in order to put that good idea to work, and in the process put the neighbors to work, creating new jobs with the financing that fuels that new idea. 

You and I know that most of the new jobs created in America are created by small businesses.  That small business is not likely to go to Wall Street to get the money it needs to expand and hire new people.  That small business is likely to go to the local bank for a loan.  Then, that small business is likely to call upon the local bank to help with managing the finances of the business and for many other financial services that are part of business today.   

As we emerged out of the recent recession, America's banks were there with the resources to fund that growth.  The latest statistics from the Federal Reserve Board show that bank lending to businesses, especially small and medium sized businesses, is strong.  America's banks emerged from the recession in strong condition, ready with the money needed to put people to work.  You have been doing that here in North Carolina, and your colleagues have been doing that all across the nation. 

President Bush's idea is that we ought to keep that going.  When we were in the midst of the recession, President Bush had a visionary idea.  His idea was that we could help get the nation back on its feet if we let people keep more of their own money, so he sent to Congress a proposal that do just that.  He proposed to lower taxes for all taxpayers.  A lot of people were critical of that idea.  Well, it was the right thing to do, Congress passed the President's plan, and every American taxpayer got a tax cut.   To keep the recovery going, we believe the tax cuts should be made permanent.  

A word on deficits: you do not have to raise taxes to cut the budget deficit.  You can't tax your way to prosperity, and you can't eliminate the budget deficit without prosperity.  The two ingredients to reducing the deficit are economic growth and controlling government spending.  In the budget that President Bush submitted to Congress this year, he proposed that we apply both ingredients. 

Let me give you a good example, one that I think bankers will increasingly find to be of great value, of real value to your customers, and so of real value to your banks.  Healthcare costs too much in America.  But we are unlikely to reduce the cost, or improve the quality, by increasing government control of healthcare or by raising taxes to pay for government controlled programs.  What we can do, is empower more people with resources of their own to buy and control their own healthcare, to make their own decisions, to bring the consumers of healthcare back to being more in charge of their own healthcare spending.  

That is the idea behind health savings accounts, or HSAs.  Rather than someone else buying healthcare for you, you invest your healthcare funds in an HSA at your local bank and spend what you need from it.  What you don't spend stays in your account.  It's yours, and it builds up and grows from year to year.  That is good for you, and it is good for banks as a growing source of funds that banks can then lend to finance new jobs and economic growth in their communities.   

I also firmly believe that repeal of the death tax is vitally important for small businessmen and women who hope to be able to pass on the family business to their heirs.  Some of the best banks in America are family owned banks that have been serving their hometowns for generations.  Too many of these businesses get busted up or sold off in order to meet inheritance taxes, and that is why this Administration has worked to repeal that tax and is working to make that repeal permanent. 

I was thinking of bringing with me today a new form for you to fill out.  I figured though, that the arrival from Washington of a new form for bankers to fill out would be about as well received as the arrival of General Sherman's army.  It would probably also be unnecessary, even though this was to be a happy form.  This would be a form that would say, please list for me what you see as the three biggest problems for banking today, the three things that make it harder for you to meet the needs of your customers.  I think that you would be happy to tell me, but the form would be unnecessary, because I think I know what your answer would be.  I have spoken with a lot of bankers, from here in North Carolina and from other parts of the nation.  At the top, or very near the top, of your list would be the crushing burden of excess regulation. 

I am with you on that.  On a table in my office is this quote from President Bush, something that he said on March 23 of this year, right after the end of a cabinet meeting.  President Bush gave us a standard by which to measure proposed new regulations.  He said, "We need to make sure that the regulations at the federal, state and local level are absolutely necessary."  That is a tough standard, and I think that a lot of regulations don't meet that standard.  But that is the standard to use.  And we apply that standard.   

We applied that standard when people said we need a regulation that says that banks have to keep a physical copy of the identification documents used by a new customer opening an account.  We asked, is it absolutely necessary to keep a physical copy?  The answer was, no.   

We applied that standard when some said that we should tell banks just what identification they should use and not use when a customer opens up an account.  We asked, does Washington need to be telling banks in North Carolina what identification works best for them in their cities and towns?  The answer was, no.   

Of course, stopping unnecessary new regulation is only part of the job.  We have joined with the leaders in Congress to find existing regulations that need updating, revision, or elimination.   

And, occasionally, there may even be some new regulation that is helpful and that can actually in effect provide relief.   One of the most significant examples of that kind of relief was legislation to strengthen uniform national standards for financial information, legislation signed in to law by President Bush last December.  These national standards mean that customers take their credit history with them wherever they go.  That means not only that a customer can do business in virtually any bank anywhere in the country without having to reestablish a credit record, but it means that every bank, large or small, can do business with any new customer, having the customer's complete financial record.  Because of that, today more people have more access to more financial products, at lower costs, than ever before in our history and better than in any other country in the world. 

That legislation, the Fair and Accurate Credit Transactions Act, or FACT Act, that your Senator Dole, as a member of the Senate Banking Committee, had an important hand in enacting, enables banks and law enforcement officials to use the national credit reporting system to fight identity theft and unmask fraudsters all over the nation.  We stop identity theft when bankers know more about their customers--even a new customer--than the thieves do.  And starting next year, because of that legislation called for by this Administration, customers will have expanded access to free credit reports and new rules to improve the accuracy of those reports.  Banks and customers will benefit from that improved information. 

And I think it would be a mistake for me not to mention today how important S Corporation tax treatment is for thousands of banks in America.  Recent legislation signed by the President not only preserves the S Corporation option for many banks, it expands the option to many more.  Under the tax laws, S Corporations are subject to individual income tax rules rather than corporate tax rules.  That S Corporation tax treatment is particularly important to banks in small communities, a major source or financial relief for these banks.  Similarly, raising individual income tax rates would directly affect the ability of these S Corp banks to serve their communities and pay their employees. 

If time would allow, I would discuss the importance for banks of this Administration's efforts to reform bankruptcy laws, to curb abusive predatory lawsuits, and to strengthen the resilience of our financial system against natural disasters and terrorist attacks.  I would also talk about our efforts to raise the financial literacy of Americans young and old, as well as our proposals to strengthen our deposit insurance system by merging its two separate funds and by allowing it to operate more like an insurance company.   

And if I had a lot more time, I would discuss with you this Administration's proposals to make sure that our system of housing government sponsored enterprises enjoys the world-class level of care and attention and supervision that we need to make sure that they are able to do their vital work today and in the future.  We need a reliable system to make sure that the secondary market for mortgages remains as strong as it is today, if not stronger.  

A lot of good work has been done.  More remains to be done.  Some of this work has been well begun and calls for perseverance to see it through.  

I congratulate you on the important work you are doing to help meet the financial needs of your customers and your communities.  Banking is a good business.  You are helping a lot of other people with their good businesses.  The economy is continuing to grow, we are getting more and more people into more and better jobs.  Inflation is low, interest rates are low, productivity is high, economic growth is strong.  In short, it's a good time to be in the banking business in America.  

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