WILLIAM ISAAC’S PUBLISHED WORK

Bill Isaac has authored hundreds of articles in top publications and has frequently testified before Congress.

RECENT PUBLISHED WORK

columns from William Isaac in top financial publications

BankThink Congress should intervene to let more banks make small-dollar loans William M. Isaac published by American Banker on November 29 2017

BankThink Congress should intervene to let more banks make small-dollar loans William M. Isaac published by American Banker on November 29 2017

November 30, 2017

When it comes to short-term, small-dollar loans, banks are between a rock and a hard place.

Consumers are demanding short-term credit, and officials such as former Consumer Financial Protection Bureau Director Richard Cordray have urged banks to meet this need. On the other hand, stringent regulation meant to shut down predatory lenders is understandably causing banks to hesitate about jumping into the market.

Many banks lack the technology to effectively underwrite these products. Partnerships with financial technology companies could be effective in helping banks meet both consumer and regulatory demands. But those partnerships continue to face a legal cloud. Thankfully Congress is considering adding a dose of needed clarity.

About 160 million Americans have nonprime credit scores or are credit invisible because they have no credit score at all. Most have incomes well above the poverty line, even above $100,000 a year, but they still cannot qualify for traditional loans. Lost jobs and mortgages in delinquency during the 2008-9 recession dented their credit scores. Or, take a recent college graduate with a bright career ahead but no credit history; he or she is not an attractive borrower to traditional creditors.

More Americans have incomes that swing month to month; coming up with even just $400 might be a challenge. Jobs tied to tourism, pay tied to tips or households where income earners may come and go all make for an uncertain income stream. Meanwhile, emergency expenses are a part of everyday life. Deposits for a first apartment, payments for higher education and moving costs require the same lump-sum payments as a medical emergency.

Americans need credit to smooth out the bumps in their financial and personal lives. But since the crisis, a lot of folks have had to fend for themselves. The Office of the Comptroller of the Currency recently spoke out on this problem: “As a practical matter, consumers who would prefer to rely on banks and thrifts for these products may be forced to rely on less regulated lenders and be exposed to the risk of consumer harm and expense.”

Link to full article here

Regulators Can Help American Workers Get the Credit They Deserve, Published in The Wall Street Journal, By William M. Isaac and Ken Rees

Regulators Can Help American Workers Get the Credit They Deserve, Published in The Wall Street Journal, By William M. Isaac and Ken Rees

October 30, 2017

Nonprime lending isn’t as risky as it’s made out to be, and fintech firms can help traditional banks.

 

This month the Consumer Financial Protection Bureau issued new rules likely to curtail payday and title loans. On the same day, the Office of the Comptroller of the Currency removed its ban on short-term subprime lending by banks. Now some banks are sorting through ways to help meet demand for these loans.

These changes come amid turbulent times for millions of Americans. Average savings have dropped to less than 5% of income today from around 13% in the 1970s, according to the U.S. Bureau of Economic Analysis. A 2016 Federal Reserve report estimates nearly half of Americans would not be able to muster $400 for an emergency. Making matters worse, according to the Brookings Institution, income volatility has risen 30% since 1971. Access to credit has become an essential tool for millions of people dealing with unexpected expenses and income shortfalls.

Banks have also undergone dramatic changes. Automated credit scoring systems have replaced local loan officers, who once made credit decisions based on bank statements, income assessments, community connections and character. These technologies penalize those without pristine credit histories. Regulatory pressures have made the situation worse, forcing banks to curtail lending to the people most in need of it while battling for the relatively small pool of affluent customers.

To regain the trust and business of working-class Americans, bankers and their regulators must encourage innovations that help the underserved. With new leadership coming to the federal banking agencies, we offer five important insights:

• America is a nonprime nation. An astounding two-thirds of Americans have a nonprime credit score (below 700) or no score at all, according to the Corporation for Enterprise Development and FICO. Due to high credit-score requirements, some 160 million Americans find it difficult or impossible to access traditional bank credit. The way for banks to grow and better serve their communities is to figure out how to lend again, safely and profitably, to a much broader range of customers. Banks need a new generation of nonprime credit products.

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The Fed Should Stop Worrying and Learn to Love Low Inflation, By William M. Isaac and Richard M. Kovacevich, published by The Wall Street Journal on September 17, 2017

The Fed Should Stop Worrying and Learn to Love Low Inflation, By William M. Isaac and Richard M. Kovacevich, published by The Wall Street Journal on September 17, 2017

September 18, 2017

America’s central bankers ought to be focused on revving the economy and adding jobs—period.

There’s no excuse for the Federal Reserve’s dawdling—not even its obsessive concern that inflation is too low. At 1.4% year on year as of July, core inflation is below the Fed’s target of 2%, but that goal is arbitrary and unrealistic for today’s economy. When the Federal Open Market Committee meets this week it should put aside this inflation fixation and raise interest rates, which have been dangerously low for much too long.

The current economic recovery has been the slowest in recent times, despite the lowest interest rates in history for the longest time. Easy money has benefited mainly the wealthy, while average consumers have been getting close to zero interest on their savings accounts. This is particularly tough for retirees who do not participate in the stock market.

Low inflation, on the other hand, has been good for the U.S. economy, workers and the middle class, including retirees living on fixed incomes. Over the past five years, hourly earnings in the private workforce are up 2.2% a year on average, which is only about half of what might be expected in a normal economic recovery. But thanks to low inflation, workers have gained some real income.

 If the Fed had been successful in achieving its 2% inflation target, it would have offset nearly all these wage gains. That in turn would have severely weakened the annual growth of consumer spending, which, at over 3%, is a bright spot in the economy.

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Address by William M. Isaac US Bancorp Financial Institutions Conference Willard Intercontinental Hotel Washington, DC

Address by William M. Isaac US Bancorp Financial Institutions Conference Willard Intercontinental Hotel Washington, DC

June 9, 2017

 

Address by William M. Isaac
US Bancorp Financial Institutions Conference
Willard Intercontinental Hotel
Washington, DC

 Excellence in Banking Leadership

 June 9, 2017

 

I’m delighted to be invited to keynote this conference hosted by US Bancorp for its correspondent banks for several reasons personal to me. After graduating from law school in 1969 I joined the Milwaukee law firm of Foley & Lardner. Today Foley & Lardner is one of the largest law firms in the United States. But back then the firm was focused primarily on Wisconsin, and its major banking client was Wisconsin’s then largest bank, First Wisconsin. I spent a good deal of time working with First Wisconsin including going about the state each year to talk with its various correspondent banks, including helping the correspondent banks do mergers and acquisitions, frequently financed by First Wisconsin. I left Foley & Lardner in 1974 to become Vice President General Counsel & Secretary of another regional bank, First Kentucky National Corporation.

I had every intention of coming back to Wisconsin to become general counsel of First Wisconsin, and I thought it would take about two years for First Wisconsin to miss me enough to offer me the position. First Wisconsin did finally reach out to me in 1977.   Unfortunately or fortunately, depending on your point of view, I was already under consideration by President Carter to be appointed to the board of the FDIC. So I declined coming back to Milwaukee.

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BankThink New GSE proposal seeks to fill capital void by William M. Isaac published by American Banker on June 9, 2017

BankThink New GSE proposal seeks to fill capital void by William M. Isaac published by American Banker on June 9, 2017

June 9, 2017

One of the chief considerations in reforming the government-sponsored enterprises Fannie Mae and Freddie Mac is the need for capital. As long as the GSEs exist, they must have adequate capital so taxpayers will never again be compelled to help them meet their financial obligations. If the GSEs were shut down, there would have to be adequate pools of private-sector capital to ensure continued stability and liquidity in the mortgage market.

The latest entrant in the GSE reform debate addresses these issues and deserves serious consideration by policymakers. “Blueprint for Restoring Safety and Soundness to the GSEs” — created by Moelis & Co. — lays out a feasible way to raise upward of $180 billion and establish strong regulatory standards so that Fannie and Freddie will never again require a taxpayer-funded bailout.

Here is the link to the full article

Address by William M. Isaac Said School of Business The University of Oxford Oxford, United Kingdom Excellence in Leadership April 28, 2017

Address by William M. Isaac Said School of Business The University of Oxford Oxford, United Kingdom Excellence in Leadership April 28, 2017

April 27, 2017

Address by William M. Isaac
Said School of Business
The University of Oxford
Oxford, United Kingdom

Excellence in Leadership

 April 28, 2017

It’s very special to be invited to speak at this important conference and to be among such a distinguished audience of business, government, academic, and student leaders at the Said School of Business at Oxford. Not very many universities can say that they “were founded so long ago no one can remember when, but we think it was around 1096,” which is what I found when I Googled the University of Oxford.

I’m pleased to see many younger leaders in the audience today. I hope you will consider public service in your lives, as the world needs devoted and selfless leadership more than ever. I believe you will find public service incredibly satisfying.  Certainly my eight years leading the FDIC were the most rewarding in my professional life.

I have been asked to share my views on how business, academic, and governmental leaders can overcome today’s incredible economic and political challenges and create long-term sustainable value. I will keep my remarks relatively brief as I want to allow plenty of time for questions and discussion.

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The Shattered Arguments for a New Glass-Steagall By William M. Isaac and Richard M. Kovacevich Published by The Wall Street Journal on April 25, 2017

The Shattered Arguments for a New Glass-Steagall By William M. Isaac and Richard M. Kovacevich Published by The Wall Street Journal on April 25, 2017

April 26, 2017

The Shattered Arguments for a New Glass-Steagall
Investment banking isn’t risky. What’s dangerous is creating stand-alone firms that can’t diversify.

Gary Cohn may not be the first White House official you’d expect to favor reinstating Glass-Steagall, the Depression-era law that split commercial banks from investment banks. Yet Mr. Cohn, the former Goldman Sachs president who now leads the National Economic Council, urged just that in a private meeting with lawmakers, according to Bloomberg News. This is deeply disappointing, particularly coming from an administration that seeks to stimulate growth by removing the government shackles that suppress competition and burden markets.

The 1999 repeal of Glass-Steagall was unfairly blamed in the aftermath of the 2008 financial crisis. Some people—apparently Mr. Cohn among them—mistakenly believe that investment banking is so risky that it should be once again kept separate from commercial banking. The truth is exactly the opposite: Traditional investment banking entails very little risk. The danger is stand-alone investment banks that are not diversified enough to survive a shock.

Traditional investment banks primarily underwrite debt and equity for corporations; provide advice on mergers, acquisitions and divestitures; buy and sell securities for institutions; and help clients hedge their risks. These activities involve almost no risk on the investment banks’ own books. In contrast, commercial banks extend credit to people and businesses and retain a good deal of both the credit risk and the interest-rate risk. The repeal of Glass-Steagall allowed these banks to diversify their risks and revenues by providing fee-based investment services.

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A no-brainer for Trump team: Recapitalize the GSEs William M. Isaac published by American Banker on March 28, 2017

A no-brainer for Trump team: Recapitalize the GSEs William M. Isaac published by American Banker on March 28, 2017

March 29, 2017

The Trump administration has an opportunity to break an eight-year-old logjam on mortgage finance policy and begin setting a future course for the government-sponsored enterprises, Fannie Mae and Freddie Mac.

Here’s how: Treasury Secretary Steven Mnuchin should request that Federal Housing Finance Agency Director Mel Watt suspend the GSEs’ regular payment of dividends to the Treasury, thus enabling the companies to replenish their reserve capital and putting the future of housing finance on better footing.

Here is the link to the full article

Stock Options for the Little Guy, Helping companies give ownership to average workers is as easy as repealing 123.By William M. Isaac and Richard M. Kovacevich by The Wall Street Journal on February 13, 2017

Stock Options for the Little Guy, Helping companies give ownership to average workers is as easy as repealing 123.By William M. Isaac and Richard M. Kovacevich by The Wall Street Journal on February 13, 2017

February 13, 2017

One message from last year’s election is that American workers are discouraged and angry that the “system” is not working for them. The standard of living for low- and middle-income Americans is not keeping pace with historical growth. Worse, there seems to be a widening income gap between average workers and corporate executives whose income is increased by stock options and other benefits available to them.

Many people see this as a lack of respect for the contributions of the average worker. An important first step in turning around this perception would be to develop an affordable way for corporations to provide stock options to all employees. That wouldn’t solve income inequality, but it would help.

Stock options weren’t always reserved for those at the top of the corporate ladder. It used to be rather normal for employees to have the option of purchasing shares in the company for which they were working. But in 2006 the Financial Accounting Standards Board issued a rule called FAS 123, which requires companies to account for stock options as if they were a cash expense, therefore reducing the net income of the company. FAS 123 also requires stock options to be recognized as more shares outstanding, thus diluting share values for the company’s existing stockholders. This double cost became so expensive that nearly all corporations eliminated stock options for employees making less than $100,000 a year.

Congress should override FAS 123 so that it isn’t so expensive for companies to allow employees whose cash compensation is less than $100,000 to have access to stock options. Current accounting treatment for those employees earning more than $100,000 would not change.

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