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 Crackdown on bank-fintech partnerships would hurt subprime borrowers published by American Banker on December 26, 2019 by William Isaac

BankThink Crackdown on bank-fintech partnerships would hurt subprime borrowers published by American Banker on December 26, 2019 by William Isaac

December 26, 2019

Partnerships between fintech firms and banks provide access to safe and affordable credit to more than 160 million Americans.

These are people who have generally been excluded from traditional financial institutions because they have a nonprime credit score of less than 700.

For nonprime Americans, a surprise expense like a car breakdown or an important medical attention could mean relying on costly, predatory loan providers. This is exactly why regulators have long supported bank-fintech partnerships that allow FDIC-insured banks to lend to nonprime Americans in a safe, convenient and responsible way.

Just as technology companies are providing revolutionary, on-demand food delivery and transportation services, financial technology companies are partnering with traditional banking institutions to improve customer experience and increase access to financial products and services.

Federal regulators recognize the need for policies that reflect technological advances and online services, but some legislators and consumer groups cannot seem to understand why these partnerships exist or how the consumer is safer with them than without them.

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Why the Financial Accounting Standards Board must hit pause on CECL by William M. Isaac and Thomas P. Vartanian

Why the Financial Accounting Standards Board must hit pause on CECL by William M. Isaac and Thomas P. Vartanian

July 24, 2019

“Those who fail to learn from history are doomed to repeat it.” Winston Churchill’s words should serve as a warning to the Financial Accounting Standards Board (“FASB”) regarding the Current Expected Credit Loss accounting standard (“CECL”).  If FASB looks to the past, it will appreciate why the implementation of CECL should be paused and substantially rethought.

The CECL raises questions that many admit require further market experience to evaluate. A similar rush by FASB in the face of unanswered concerns resulted in disastrous financial consequences in 2008 when “mark-to-market accounting” was redefined by FASB. Despite warnings from the banking industry, FASB 157 was activated, and things went south almost immediately, causing massive write-downs of loans by bank and non-bank lenders alike. Accounting or paper losses of $500 billion in U.S. banks triggered a global financial crisis that required a decade to work its way through the economy — a lost decade that brought irreparable harm to millions of people.

A broken accounting system in need of repair by William Isaac and Thomas Vartanian published by The Hill on May 28, 2019

A broken accounting system in need of repair by William Isaac and Thomas Vartanian published by The Hill on May 28, 2019

May 28, 2019

The Financial Accounting Standards Board (FASB) continues to forge ahead with its plan to require banks to forecast and book current expected credit losses (CECL) over the life of loans without even an offsetting credit for expected interest income.

Bank regulators should not follow FASB down this dangerous path much as they did two decades ago. We are reminded of FASB’s ill-conceived mark-to-market accounting rules, which needlessly destroyed some $500 billion of bank capital in the U.S. alone and led to a global banking crisis and panic. As the saying goes: “Fool me once, shame on you; fool me twice, shame on me.”

CECL, as was the case with mark-to-market accounting, would be procyclical, meaning banks will be hit hardest in bad economic times when they can least afford it. It would also create a financial monoculture of risk that could deepen and prolong economic downturns when most banks’ balance sheets react the same way in a crisis.

We don’t have to guess about these things as we’ve been through them many times in the past, most recently in the financial crisis of 2008-2010. Why is it that we cannot learn and apply the lessons of the past?

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BankThink FASB’s accountability problem by William M. Isaac and Thomas P. Vartanian published by American Banker on April 26, 2019

BankThink FASB’s accountability problem by William M. Isaac and Thomas P. Vartanian published by American Banker on April 26, 2019

April 26, 2019

Great news for banks. We’ve decided to establish a self-governing body to create federal common law principles governing corporate conduct.

Since Congress has never legislated in this area, the field is wide open. Our new Corporate Conduct Principles Board, or CCPB, will consist of lawyers, financial institution executives and former regulators. It will function as a self-perpetuating, standards-setting ecosystem, exactly like another model we found.

To project a veneer of objectivity and independence, the CCPB and its members will be financially independent from the legal and banking industries. Its board members will temporarily separate themselves from their law firms and banks during their tenure to avoid questions about their allegiance.

Operating funds will primarily be derived from assessments on member companies, users of its intellectual property and the publication of its standards. Penalties assessed by the CCPB will support a scholarship fund, and its annual budget will be subject to regulatory review.

As some of you might have guessed, our model is the Financial Accounting Standards Board. Established in 1973, the FASB is a self-appointed pantheon of accounting gods that sits in Norwalk, Conn.

The FASB has hit the regulatory jackpot: It has been designated by the Securities Exchange Commission as the private organization to which the SEC offloads its statutory responsibility for establishing accounting standards for public companies in the United States.

Ironically, Congress formally sanctioned this delegation of authority in the Sarbanes-Oxley Act in 2002, after the economy was rocked by the Enron and other financial and accounting scandals of that period.

The CCPB hopes to piggyback on the privileges the FASB enjoys and what some have described as its “culture of entitled noninterference.” We expect Congress to authorize the role of the CCPB, and the courts and federal regulators to implement and enforce its rules, giving them the force and effect of law. What we particularly like about the FASB model is that unlike Congress’ enactment of a law or a regulatory agency’s promulgation of a rule, the FASB’s actions are not challenged.

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BankThink Accounting standards shouldn’t be left to the accountants, by William M. Isaac published by American Banker on January 4, 2019

BankThink Accounting standards shouldn’t be left to the accountants, by William M. Isaac published by American Banker on January 4, 2019

January 6, 2019

The SEC and FASB are at it again with a plan requiring banks to forecast and book “current expected credit losses” over the life of loans without even a credit for expected interest income. Bank regulators are dutifully moving forward with plans to implement the new accounting standards.

The impact could be very negative for most banks, but particularly those that hold mortgages and other longer-term loans. A typical community bank might have as much as half of its balance sheet in residential mortgage loans. Forecasting and booking losses over the life of a 30-year mortgage is highly speculative at best — and requiring it to be done would probably sound the death knell for long-term mortgages.

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BankThink A cautionary tale on brokered deposits By William M. Isaac

BankThink A cautionary tale on brokered deposits By William M. Isaac

November 9, 2018

The Federal Deposit Insurance Corp. is considering changing its rules governing brokered deposits, as American Banker recently reported. A number of bankers have urged the FDIC to liberalize the current rules so they might fund their banks more readily and extensively by purchasing money from deposit brokers. I would caution bankers and the FDIC to tread cautiously in this area.

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BankThink Don’t reinvent the wheel on housing finance: Restore Fannie and Freddie, by William M. Isaac published by American Banker on February 16, 2018

BankThink Don’t reinvent the wheel on housing finance: Restore Fannie and Freddie, by William M. Isaac published by American Banker on February 16, 2018

February 18, 2018

BankThink Don’t reinvent the wheel on housing finance: Restore Fannie and Freddie

Tackling the last piece of unfinished business from the 2008 financial crisis is a top priority for policymakers — the big question is how to do it.

Recently, an early draft of legislation aimed at reforming the twin housing giants Fannie Mae and Freddie Mac was made public. The proposed legislation, sponsored by Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., comes just weeks after Federal Housing Finance Agency Director Mel Watt laid out his own ideas about the future of the government-sponsored enterprises. At the same time, Treasury Secretary Steven Mnuchin has articulated three core principles for reform: protect taxpayers, end government ownership and preserve the 30-year mortgage.

Yet unlike Secretary Mnuchin’s and Director Watt’s stated policy preferences, the Corker-Warner proposal would continue to keep Fannie and Freddie in conservatorship until certain metrics of competition could be met.

As policymakers evaluate options, an enlightened blueprint for reform put forward by investment firm Moelis & Co. warrants close attention.

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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.”

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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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