Renee Charpie of Linsco Private Ledger finds conditions challenging for investors to remain active in the market. Kent Brown of Gold Bank (left) and Mike Miner of AG Edwards share her opinion.

Rethinking Glass-Steagall

In November 1999, legislation was enacted to repeal prohibitions on banks, securities firms and insurance companies venturing into one another's businesses. Known as the Gramm-Leach-Bliley Act, the law effectively ended a tradition that dates back to 1933 when Congress passed what is commonly known today as the Glass-Steagall law, which keeps banks from doing business on Wall Street, and vice versa.

"We all rushed into [Gramm-Leach-Bliley] thinking it was a great thing," mused Kemper, then asked, "Is there going to be any rethinking of the breakdown of the walls between banking and insurance?"

Barry Sullivan admitted having "seen a difference in the behavior of megabanks in regards to their credit appetite" and argued that "firewalls need to be put up."

Although unwilling to predict how things would turn out, Baum likewise regretted the "incestuousness" between underwriters and investment bankers and questioned whose interests they serve.

Kemper then raised the issue of shared national credits, a program established in 1977 by the Federal Reserve, the FDIC and the Office of the Comptroller of the Currency to provide a consistent review of any large syndicated loan. Today the program covers any loan or loan commitment of at least $20 million that is shared by three or more supervised institutions. Said Kemper, "We're seeing a huge impact from regulators coming down very hard on any bank that offers these kinds of loans."

Interest rates

Mike Boles of Capitol Federal discusses the mortgage lending practices at his bank. Tom Rohling of First National Bank of Kansas, Stan Ricketts of Intrust and Rob Givens of Mazuma look on.

Kemper then asked what the effect has been of having not only the lowest interest rates in 40 years, but also an almost unprecedented steadiness in those rates.

Capitol Federal's Mike Boles spoke of the mortgage-lending aspect of the issue and the long-term ramifications of low rates. "What we're looking at now," he said, "is at what point do we make changes in how we do our daily operations."

"On the commercial side," said Turner, "one of the factors creeping into everyone's underwriting is refinancing risk." This is a particular problem, he noted, if one is facing low cap rates, low interest rates and not a lot of principal. Turner expects to see "some gnashing of teeth pretty quickly" on how one pays these off.

Tom Cohen, another mortgage banker, was entirely keen on low interest rates, noting that they "drive our industry." He added, "We're seeing a lot more business. It's pretty extraordinary."

Kemper acknowledged that on the residential side, dependable low rates "stimulate a lot of new consumer activity." But he wondered if there was any real stimulation on the commercial side, or if the activity was really just a matter of moving the proverbial deck chairs "to the sunnier side of the deck."

Turner admitted that in the absence of demand, "There is virtually no new speculative construction." Still, he saw no downside in his industry to the low rates other than the refinancing risk.

Stan Ricketts asked Turner if he sees people trying to refinance more of their mortgage. Turner admitted "it is possible to take money out of the project today," but that mortgages are typically limited to 75% to 80% of value. Cohen added that they work for investors who do have floors and need to get a particular yield.