'TARP is Not a Bailout' - Interview with Alex Sanchez, President/CEO of the Florida Bankers Association

'TARP is Not a Bailout' - Interview with Alex Sanchez, President/CEO of the Florida Bankers Association
In the public eye, the federal government's Troubled Assets Relief Program (TARP) is commonly referred to as the "banking bailout." But Alex Sanchez, President/CEO of the Florida Bankers Association, wants to disabuse people of that notion.

In this exclusive interview, Sanchez shares insight on:

His member institutions' attitude toward the TARP program and government investment in banks;
Top banking/security challenges in 2009;
What FL institutions are doing to strengthen and ensure customer confidence.

Sanchez serves as President and Chief Executive Officer of the Florida Bankers Association (FBA). Founded in 1888, and located in Tallahassee, the FBA is the leading voice for Florida's banking industry. Sanchez' responsibilities include representing and advocating for Florida's banking industry before all legislative and regulatory bodies in Tallahassee and in Washington.

Before joining the FBA, he was an attorney at Sinclair Louis, a Miami based law firm, specializing in business law; Consolidated Bank, Assistant General Counsel; and the Florida Department of Commerce, General Counsel. From 1989 to 1993, Sanchez served as Senior Corporate Attorney for GTE Information Services in Tampa.

TOM FIELD: Hi, this is Tom Field, Editorial Director with Information Security Media Group. The topic today is Banking Today, and I am privileged to be speaking with Alex Sanchez, President and Chief Executive Officer of the Florida Bankers Association. Alex, thanks so much for joining me today.

ALEX SANCHEZ: Hey Tom, great to be here with you, and I look forward to the interview and hopefully informing your audience as to what is going on in the banking industry from Florida's perspective.

FIELD: Well, that's a good place to start. Why don't you tell us a little bit about the association, its membership and its mission?

SANCHEZ: Tom, we are proud to be announcing, especially in these days that we are living in, that we are proud to announce that this is our 121st year. We don't take that for granted, but the association was formed 121 years ago in Jacksonville, Florida and we represent over 400 banks and trust companies throughout the state, and the association has a rich tradition here in our state, and here again we are proud to have been operating for so many years and hopefully another 121 to go.

FIELD: Well, let's get through this next one first because it is a challenging one for all of us.

SANCHEZ: I know it. I know it.

FIELD: Alex, what are the issues that are really of the greatest concern to your membership right now in this economy that we are in?

SANCHEZ: You know, Tom, right now obviously the economy is not where we want it to be. Nobody wants it to be where it is right now, so obviously serving our customers and our banks serving their communities is job number one right now because everybody wants to see us get through these days so we can get to the other side. And as The Doors once sang, break on through to the other side, if you remember that song.

FIELD: Absolutely.

SANCHEZ: So that we can break through this cycle we are in, get out of it, recover and get out country back to normalcy again. I think that there are going to be a lot of issues that we are going to have to deal with as a nation and not just as a banking industry. Involving our industry as well, but just overall there are a lot of issues that we have to deal with as a country.

So let me go through some of those issues. Number one for our industry is I want people to understand what TARP is and what it really means. The media keeps using, Tom, the "bailout" word and well, this is not a blank check with no strings attached of money given to the banks by the federal government. Not all banks want TARP monies, need TARP monies, or have asked for TARP monies. I think the federal government asked our bigger banks in our nation to take it, no questions asked, whether they wanted it or not, and most of our banks did not.

And then for our community banks that are now in the process of applying and receiving that, not all of them need it, and if you do ask for it, it doesn't mean anything bad. It is an investment in the purchase of stocks of banks, and it is not a blank check.

So what does that mean? That means that the federal government now owns part of our banks, and our banks have to repay that to buy back their stock ,and it is very expensive to do this. So it is not a "bailout" as many claim. I want to get that out on the table because I think that is very important.

As far as our nation is concerned and relating to TARP, banks are making money and how do they make money? By lending money. People are saying that banks are not lending money. Well, if they didn't lend money, they wouldn't make money and they wouldn't survive. So banks are in the business of lending money to customers.

Now, what got us into this mess, Tom, is that many non-bank lenders were lending money in a loosey-goosey way. Banks have always had high standards for lending money and continue to do so today. So yes, loans are being made, loans were being made five years ago, and they will be made five years from now, but you have got to qualify. Many of these non-bank lenders were doing loans without checking income and all the other things that you need to do to verify that it is a credible borrower. Bankers are doing that, and I think that is important for our country.

That is one of the problems we have a lot of loans being made by some of these outfits that are gone today. The Miami Herald reported that there were 10,000 mortgage brokers in our state who probably never should have gotten that license because some of those folks had a criminal conviction, and they never should have been licensed or allowed to have been a mortgage broker.

I think these are some of the issues that we are tackling. I think as a nation we are going to have to rebuild, and there is a song that was sung a few years ago that was saying if you want change you have got to start with the man (or let me add the woman) in the mirror. We are going to have to live within our means now, and you may be surprised by the head of the banking industry in Florida saying this, Tom, but I can tell you that our bankers want their customers to use credit, but they want them to use it wisely and prudently. Our bankers will give you a reality check and say look, you don't qualify for this loan. I would rather have a banker tell me that than have a non-banker lender tell me I qualify when in effect I really don't.

FIELD: That makes sense.

SANCHEZ: All bankers in Florida want to see you buy a home, but more importantly they want to see you buy a home you can afford to stay in. So we are going to have to live within our means, we are going to have to save more. We are going to have to go back to our parents' values ,and it is something that as we were blowing and going and running and gunning here in the last few years that we may have forgotten as a nation.

FIELD: Alex, let me follow up on a point that you were making about TARP. I think you made a strong point that this is not a bailout and it comes with strings and the strings are pretty heavy ones.

What do you see as Florida institutions attitude, if you can typify it even, about the government essentially buying a piece of banks, and then there is talk now of this bad bank program that we may hear more about next week where the government would buy up some of this bad debt? What do you hear from your members?

SANCHEZ: I think that again it is--I have not given a lot of thought to the second question about the bad bank being created, but as I said for TARP monies, some of our banks just don't want the federal government. It's a philosophical thing.

They don't want the federal government to be owning their stock and all that implies because these banks have done well. and they have a rich history, a rich position of serving their communities and will continue to do that without TARP.

There are some banks who are applying for TARP, and you know what? They are going to do good things with it. They are going to lend it out, and hopefully that will help jumpstart the economy. I know lending is up 5% nationwide, up to $336 billion dollars in the last quarter of last year. So, you know, just adding again that just because a bank does get TARP money doesn't mean it cannot lend it out in a willy-nilly way. It is still the borrowers who have to meet certain qualifications.

I think it is important for the public to know, and for your listeners to know, Tom, bankers are having--it's a mixed thing, again a philosophical--it's a mixed bag on the thoughts out there on TARP because, again, some bankers do not want the federal government to be stepping into private industry, and they just have a problem with that.

FIELD: Sure. Now one thing that we have all discovered in the last year or so, and I think a lot of this is a result of these non-banking institutions you were talking about, is that there is a trust issue. There is a crisis in confidence with customers in their financial institutions. What are your member institutions doing to bolster customer confidence? Where are they having some success there?

SANCHEZ: You know, Tom, they are dong what got them where they are, and that is opening their doors everyday and serving their communities. No one is running and hiding. No one is hiding underneath a rock. They are visible, and I think that is part of the solution to this is to show people, 'Hey look I'm out here and I'm on the different not for profit boards, and I am helping the community and life is normal to the point of normalcy that we can get.' Again, during these more challenging and tougher economic times that we are going through right now, and I think that is what we need to see. I mean it is incredible that part of our healing process is--I know people don't put much into it, but having the Super Bowl yesterday was a great American event and actually having it. Can you imagine if it was canceled? People would say 'Oh my God, we canceled the Super Bowl, so times are really tough'. Even if it was just an escape for a few hours for us, it was a good escape because that is something that we have always done every year, and it may remind us that we have been here before, we have seen Super Bowls in other tough years and you know what, we got through then and we will get through now.

I think that is, you know, that is part of the solution is getting back to a normalcy. We saw that of course after 911 when our nation was attacked that part of our challenge was to get back out and do what we normally do on September 12th, September 13th, and September 14th because it was challenging, and it was difficult, and we didn't know what the future held for us in our war against terrorism. But part of the challenge in our country was the getting back to normalcy and that is what our bankers are attempting to do in each community that they serve.

FIELD: Now, we've got a new administration in Washington, what sort of changes do you anticipate for the banking industry coming from this administration and the Democratic Congress?

SANCHEZ: You know ,Tom, it may be too early to tell. I think President Obama has picked very good, qualified people for his administration and it is--I think that his administration comes at the right time; a new year, different times that we are in, which means a new President, which is good, so a different look at things, which is always good to have someone else to look at things differently. So I think our country is again is--change is coming. Change not only in the political sense ,but in other ways as well, we are all going to have to look ourselves in the mirror and re-evaluate what it is or what we are not doing.

I think my words to Congress are that they should take things slow, and usually when Congress jumps in headfirst we usually have issues that are passed to law that have great unintended consequences. But when Congress thoroughly mulls over and contemplates and thinks over and closely examines issues, I think you have a better success rate. So I hope that Congress will take the latter route versus the former.

FIELD: Do you expect a fair amount of regulatory change? I mean historically we know that Democratic administrations do tend to lend toward more regulation?

SANCHEZ: You know, again, it depends on a lot of things, but my words to Congress are look, the FDIC regulated industries of banks we are heavily, heavily--I think they have so many non-regulated financial providers out there that they do need to regulate that are barely or hardly regulated like the FDIC insured banks. I think they need to concentrate their efforts on those groups versus us, who are already heavily regulated.

So I think Congress needs to start with those that are not regulated at all or just barely regulated, and I think there is a call and rightfully so for those financial non-regulated entities to receive regulation.

FIELD: Well you make a good point and certainly we have seen instances of that at financial institutions over the last year, but the other thing that comes to mind is the Heartland Payment Systems breach, which just occurred. Again, it's a business that is a financial institution and deals with critical information but doesn't have the same types of regulations that banking institutions do. Perhaps this is one of the areas that we see the new administration start to look at.

SANCHEZ: Well that's right, Tom. And that is why Congress and our new President need to concentrate on those that are not regulated in the marketplace, and certainly FDIC insured banks are, which is why I think the government told some of our few remaining Wall Street investment firms they would become bank holding companies because they felt that the regulatory regime for FDIC insured banks was stronger and better and more stable.

And as far as the breach of any confidential information by whomever it may be, I mean that is the lifeline of our industry, the banking industry, the FDIC insured banking industry, as I like to say, because we have to have the trust of our customers, Tom.

If we don't have that trust that is the basis for our existence, and that is why bankers have always been trusted with valuable information from the days of Dodge City to today. So we see that as paramount that we protect the privacy and trust of our bank customers, and that is very important.

FIELD: Alex what do you when you see a situation like the Heartland breach? Because it is not happening at the bank, but it is affecting your customers, and the banks are the ones who have to go out there and explain to the customers. How do they respond to something like this, and what do you think needs to be done to prevent these types of incidents in the future?

SANCHEZ: Well I will let those who are experts in prevention to answer that Tom; I am not. I will say, though, that our bankers are not happy about it and we again, protecting the privacy of and trust and keeping the trust, protecting the privacy and keeping the trust of all of our customers is paramount to us and something our industry has always done. It is something that we will always do and I think that is very, very important.

FIELD: You made a key point a few minutes ago, you brought up the word trust and as you said, it is the lynchpin of the industry. We've got banking institutions now that certainly have got limited financial and human resources. What advice do you offer your institutions in terms of maximizing these resources so that they can secure their systems, they can reassure their customers and they can maintain that trust? How do you that with the thin resources we have today?

SANCHEZ: Well I think that the good news is that technology has gotten more affordable. When some of these technologies first came out years ago, it was very expensive and only a few could have it. I think there are all sorts of flexibility and all sorts of software products and services that provide this type of protection, and depending on your resources at the institution will, I guess, decide which type of system you have. The important thing is to have a system that has been shown to work, and I think that is the most important thing. Again, our bankers know that and they practice that to keep the privacy of their customers in order to keep their trust.

FIELD: Well said. Alex, I appreciate your time and your insight today.

SANCHEZ: No, no Tom, thank you. Was that helpful?

FIELD: Very good. We've been talking with Alex Sanchez, President and Chief Executive Officer of the Florida Bankers Association. For Information Security Media Group, I'm Tom Field. Thank you very much.

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