Borrowers who can refinance probably already have since rates just prior to Operation Twist were the lowest in six decades.

Interest income for those who depend on bank deposits such as retirees, or those who need to be liquid are seeing the lowest interest rates in history, reducing their income.

Those who have a mortgage that is underwater or a Loan-to-value that is too high to qualify will not be helped by this program, and are not able to refinance, a fact that hurts the general economy as one in five homes are in this condition.

If we can stipulate that the economy is not suffering because of high rates, then why are we taking this action at this time, which will neither create jobs, nor create any confidence in the economy?  Banks have more than $1Trillion dollars sitting on the Fed’s Balance Sheet at near zero percent interest, so liquidity is not an issue either.

Banks do not lend because the demand is not there, or they don’t see profitable opportunities in the market place, namelylending to borrowers who do not demonstrate an ability to repay the loan.  This is the definition of “pushing on a string.”

While the Federal Reserve is apparently doing all it can to help the economy; acting alone, or without the policy makers in Washington supporting its actions with concrete plans to jumpstart the economy with a laser focus on Jobs and Growth creates this lopsided approach which will have many unintended consequences, and will not soothe the markets.

For more information see the following related articles…

• Forbes: No Help For Housing In Bernanke’s Operation Twist

• Associated Press/BusinessWeek: Fed does the Twist: $400B plan to help economy

• CNNMoney.com: Federal Reserve Launches Operation Twist

Recently, I wrote a book review on Brian Townley’s Inspiring Leadership: Unleashing Motivation in the Workplace that was published in the American Bankers Association Banking Journal. To see the online version, click here, or you can read the review below.

Brian Townley’s Inspiring Leadership brings a refreshing perspective to the genre of motivational guides. He shares lessons from his perspective as a bank employee who was battle tested in an institution that was acquired in a failed bank transaction in 1991.  He is still with that banking company today, as senior vice-president and director of both marketing and HR, and is also head of an affiliated motivational consulting firm.

The book begins with a terrific quote by President Harry Truman: “A great leader is a (person) who has the ability to get other people to do what they don’t want to do, and like it.”

Simple, accepted ideas come to life through a solid assessment of what should be considered a bank’s most precious asset:  unleashing motivation in the workplace and creating an environment of growing leaders. From the development of leaders to coaching, from attracting talent to keeping an “I” on employees, or creating a lean mean winning sales machine, Townley deftly guides his readers through the motivational process and in the end proposes a manual for on the job training along with a well-knit list of forms, quotes, lists, and to-dos. Frequently Townley makes key points through stories drawn from his own career.

Two paragraphs from the book help express Townley’s leadership philosophy:

“Employees have to feel it’s about them before it can be about the organization, and as leaders we must communicate it that way. Then we have a cohesive team with players who are all working toward the same goals and objectives that benefit both the company and the employees.”

“A good leader can create an environment where people actually like their job and want to do it well. That is the difference between being a ‘boss’ and being a ‘leader.’ A boss gives orders. A leader inspires and influences others. Leadership is the power to encourage people, not power over people.”

Townley’s discussion on how to handle multiple generations–whether they be veterans, boomers, Gen X, or Gen Y–will help anyone understand how to maximize a work force that may appear to be polarized. Townley demonstrates how such a group can actually be homogenized into an unstoppable unit.

For C-Level managers who understand that people do business with a banker, not a bank, and who understand that employee training is not only the job of HR, this book will give a fast and understandable look into how to create the customer service environment that all community bankers talk about.

In Townley’s words: “When we inspire others to motivate themselves, then they will be great travel companions on this successful journey. What is an inspiring leader? Someone who takes pleasure in seeing the best qualities in another, unleashed […]”

Inspiring Leadership takes us on that journey.

This week on CNBC I discussed what we at NJCB are hearing and seeing from our customers… Clearly there is a crisis of confidence… 

We have heard questions like:

• Should I cancel the contract on the home we just made an offer on?
• Should I be looking to cut back on my staff? Even though I just made some hires?
•  We are in contract to acquire a competitor, should we cancel?

Our answer in each case is to step back from the noise of markets and make decisions based on your own individual circumstances. If your job is secure, you  have a bit of savings and your own personal situation hasn’t changed, then why would you let the noise around whether the US raises the debt ceiling or not, or the S&P Downgrade, or the debt crisis in Europe, challenge your decision?

We live in a challenging economic, political, regulatory, and global environment. 

However, this may be one of the best times ever in history to take advantage of the vast opportunities that lie before us… Never before have we had interest rates so low, or assets in some cases so depressed…Those who can see through the fog of the media, and the endless distractions will be the winners in this environment.

Jamie Dimon, CEO of JP Morgan Chase describes America as having the greatest economy in the world, and advises Americans to stay optimistic despite the drop in the market. You can watch the full interview here:?video=3000038447&startTime=28&endTime=106

As reflected in our Second Quarter Report, we still continue to grow our loan portfolio, open accounts, and acquire new client relationships. To learn more about NJCB, you can visit us at www.njcb.com

We at NJCB have not changed our game plan because the market is up or down on any given day… Neither should you…

I am pleased to report that our impressive second quarter numbers are our best to date. Our continued success in generating high quality assets contributed to another quarter of record earnings. This was all accomplished while we continued to prudently increase the reserves against our loan portfolio. All of this leads to NJCB being named as one of the Top 5 best performing banks in the nation by SNL, the leading bank analytic firm. Some of the highlights of the quarter are as follows:

• Loans increased by $37 million from $533 million in the 1st Quarter to $570 million in the 2nd Quarter
• Assets increased by $25 million from $631 million in the 1st Quarter to $656 million in the 2nd Quarter
• Deposits increased by $23 million from $530 million in the 1st Quarter to $556 million in the 2nd Quarter
• Net income before payment of our Preferred Stock Dividend increased by $70 thousand from $1.543 million in the 1st Quarter to $1.613 million in the 2nd Quarter

While the numbers speak for themselves, there are some other exciting developments that we are pleased to report. As the bank continues down a path of consistent and stable growth, we have continued to add outstanding talent to our Executive Management team to help us maintain and enhance our leadership. As a result, we have split the role of Chief Financial Officer and Chief Operating Officer, both currently held by Laura Criscione. As we previously announced, in June Frank Baier joined the team as Chief Financial Officer. His extensive experience at a large community bank and his background in the capital markets will be a welcome addition as we continue to grow the institution both in size and complexity. Laura Criscione will now be able to focus chiefly on her role of Chief Operating Officer, as she will be responsible for all operational, regulatory and compliance functions. Additionally, Elizabeth Magennis has been promoted to Executive Vice President, and is responsible for all lending, business development, and relationship management activities.

We are also pleased to announce that Steven Goldman, Esq. has joined our Board of Directors. Steve brings his immense experience in corporate law along with his recent regulatory experience as the former New Jersey Commissioner of Banking and Insurance. Steven brings a level of experience not commonly found on most bank boards, and we are proud to have him join our board.

We have opened a new branch office in Holmdel, NJ. Monmouth County now represents our third county in NJ. The bank already has a significant client base developing in the county, and with the similar demographics to Bergen we expect to leverage our game plan and extend our reach into this new market. If you are in the area, stop by, meet our wonderful staff, led by Carleen Lombardi and enjoy a great cup of coffee.

While we continue to face the headwinds of a challenging economy, new and undefined regulatory pressures, and increasing competition, NJCB has met the challenges and continues to seek out new business opportunities. Our relationship focus has allowed us to continue to offer many fee-free services. We continue to develop new clients simply by asking “Have you looked at your bank statement lately?” and then demonstrating the savings they will enjoy by banking with NJCB.

For more information please see our website at https://njcb.com or click here for a link to our Second Quarter Report.

Today’s Record published an Opinion piece that I wrote…To see the online version click here or read the following…

Recently Matthew Shay, President and CEO of the National Retail Federation, cried out that banks nationwide are fleecing retailers’ customers by charging market rate debit interchange fees. Interchange fees are those charged by banks and paid for by the retailer when a consumer uses a debit or credit card. In general, consumers pay the same price when using cash, check or debit/credit cards.  What Mr. Shay is really saying is that he is in favor of government regulating one industry with price controls in order to benefit another, namely retailers…

Mr. Shay further states that any savings that would result from this price control would inure to the benefit of consumers, something that is difficult to believe and was proven ineffective when exactly the same type of legislation and regulation was instituted in Australia. The consumer never saw any savings, and in fact actually saw the cost of their financial services increase. Bottom line, banks increased their other fees, merchants kept the transfer income, and the consumer lost… It is easy to see why retailers are putting on a full court press on this issue.

What Mr. Shay did not care to discuss are the benefits of debit card use, namely that they provide guaranteed payment in contrast to checks which may be returned for insufficient funds, or the fact that the retailers actually can reduce their own losses from employee theft by the handling of cash.

Savings to merchants

There are also savings to merchants in the form of fewer bank transactions, or the counting and handling of cash to be deposited at a bank. Also, what is the value to the merchants of having immediate credit to their accounts for sales made? What incremental effect might the retailers benefit from by consumers being able to spend more than the available cash in their pockets? Would retailers like to give up the internet sales that are now possible because of debit and credit card purchases?

For those merchants who would like to provide a discount to their customers, and avoid interchange fees, why not just offer the discount for cash payment?

Consumers certainly benefit from debit cards as they tend to carry less cash, which of course can be lost or stolen. They can shop online, and therefore make purchases that otherwise might not be contemplated. They often can proceed through the check-out process more quickly, and with less chance of an error. Probably most important, consumers using debit and credit cards are protected from losses as a result of fraud, lost, or stolen cards, the cost of which is borne by the banks and not included in Mr. Shay’s cost of service calculation.

Interchange fees are not a standalone business for the banks… They are part of a relation-oriented product-set that allows consumers to use their finances in an organized, efficient and inexpensive manner.

Free Services

Consumers now enjoy free checking, free internet banking, free debit and credit card services among a host of other products. Upsetting this dynamic will force banks to begin to charge consumers for each of these services and will have the unintended consequence of reducing the amount of spendable income available to consumers, while the retailers will be benefiting from this potentially price controlled system and gorging themselves, aided by government, and paid for by the very consumer they claim to be concerned about.

As for the claim that community banks would be exempt from this price control, it is naïve to think that a system with two separate prices for the same product is sustainable… Economic and competitive forces will always drive business to the lowest cost or price. Why would anyone believe that if a bank over $10 billion in size had their interchange fees capped at 12 cents, that community somehow will be able to charge more? Merchants will certainly find a way to force business to the lower cost provider. 

Reason for concern

Federal Reserve Chairman Bernanke was recently quoted while testifying before the Senate (Senate Banking Committee, May 12, 2011)  stating that he “can’t say with certainty” that the exemption would work, that there are “market forces that work against it” and that there is “good reason to be concerned.”

FDIC Chairman Sheila Bair (Senate Banking Committee, February 17, 2011) recently said “the likelihood of this hurting community banks and requiring them to increase the fees they charge for accounts is much greater than any tiny benefit retail consumers may get for that.”

So what or who should we believe? Mr. Shay and his retailers, who readily admit they need and want the income from interchange fees derived from price fixing, or the laws of competitive economics and the chairs of the FDIC and Federal Reserve?

 My bet is on the latter…

 Please let me know what you think…

It has become very clear that one of the issues restraining the growth of the economy in 2011 is the inability of homeowners to take advantage of low market interest rates on their existing homes because of a drop in the appraised value.

As property values continue to decline, homeowners are left without many options even though interest rates have been driven lower by the actions of the Federal Reserve… A perverse form of mark-to-market accounting has been forced onto a segment of the economy that has no real lobby, and an inability to get regulator attention. The value of a home is set by an appraisal, which must take into account some very pro-cyclical inputs, such as short sales, foreclosures, fraud, and temporary imbalances due to unemployment. Further, homeowners in their original purchasing decision could not use economic analysis to “shop” the relative pricing of homes in a given market where jobs are located, or where economic and social conditions make them desirable. They needed to buy a home in the geographic area where their job is located…

On the other end, are the banks that make the loans to the homebuyers.  These banks, which are forced by regulation to obtain appraisals to validate the purchase price or the value at the point of refinance are helpless in this existing environment of failing home prices.

Deflation of leveraged assets is what the Federal Reserve has been fighting with their QE1 and QE2 programs since the fall of 2008… So while the stock market and comodity markets soar, home prices continue a deflationary trend that trap homeowners with no escape or relief from the very programs intended to help the economy.

In 1933 we faced another deflationary time and the US Govt reacted by creating the FDIC to save the banking industry from fear of further economic deflation… In 2011 it may be time for government to act again, and create a similar guarantee product for the purchased value of real estate equity that has evaporated from the housing market. The program would not be a guarantee on the actual loan made, but rather a guarantee that the value of the home would not decrease, or in the case of an existing refinance; a guarantee on the original home purchase price, or the equity, or down payment originally made on the purchase.

Let’s look at an example:  a home purchased in 2005 for $400,000 would have required a down payment of $80,000, and would have today a mortgage of approximately $330,000 ($340,000 – amortization). That home would probably have a 30 year fixed mortgage at approximately 6.75% or payments of  $2075 per month.. If that borrower could refinance at today’s rates of even a 5.00% rate, they would now have a monthly payment of $1610, saving $5580 annually. . If the homeowner chose to refinance with a 25 year mortgage they would still have an annual savings of $3,864, and an overall savings of $96,600 without extending the life of the mortgage.

The problem, however, is that a new appraisal which will be required for the refinance will probably value the home anywhere from 25 – 40% less than when purchased, or at approximately $300,000,which at a loan-to-value ratio of 80% would only qualify for $240,000, or almost $90,000 less than the original amount.

Interestingly, the beneficiary here is a bank that is taking advantage of the low interest rate environment, but not able to pass along the savings to the homeowner.

Why couldn’t a Home Deposit Insurance Corporaton (HDIC) be created for the purpose of creating a guarantee for just that loss of value; be funded by a nominal fee on all mortgage transactions, with a cap, just like the FDIC, and have an underwriting criteria that rewards those otherwise healthy homeowners to be able to refinance based on their available other assets, and cash-flow, just as the FDIC rates banks on their capital, and earnings?

As homeowner equity is used by 95% of all Small Business Loans, this would also open the spigot for Small Business owners, and the many that would like to start a business, but cannot find the funding…

Home owners and small business owners win from the release of collateral and lower payments, and the economy can finally work off an existing overhang, with no cost to the taxpayer…The efforts of the Federal Reserve will finally make their way to those that have been harmed and need it the most, instead of creating Billions of dollars in profits at those banks that created this mess…