Dr. Johnson asserted that the large banks could no longer manage risks.  His remarks were similar to those earlier in the week by Federal Reserve Governor Daniel K. Tarullo who compared the financial industry to a dense network of opaque relationships in which risk is unknown until one company fails.  The Governor states, “The more apt metaphor is of a dense network whose connections are often obscure to many participants, in which the risk is not simply of counterparty exposure, but of the potential for liquidity problems at a firm with which they have no relationship to affect their own balance sheets and liquidity positions.”

This dangerous state of affairs has prompted numerous discussions of how to avoid “too big to fail” situations in the future.  One policy prescription offered by Dr. Johnson was more vigorous enforcement of the anti-trust laws.  In plain English, place limits on how big any one institution can become through mergers and acquisitions.

Anti-trust law and the Federal Reserve’s current analytical frameworks for considering mergers need to be overhauled.  Currently, a bank cannot acquire another bank if the post-merger bank will control 10 percent of the nation’s deposits.  One bank, Bank of America, is already at the 10 percent limit.  Yet, the question is begged whether a bank of that size can remain safe and sound.   Much ink has been spilled this week discussing the shotgun marriage of Bank of America and Merrill Lynch.  If the Federal Reserve had the power of a do-over, would the Federal Reserve have taken the same course of action in cajoling or coercing this merger?  Was this merger necessary to save the financial industry in this country or did it convert Bank of America into a “zombie” bank.  No one may ever know for sure, but clearly robust discussion and debate regarding industry consolidation is sorely needed.

It is time to revisit other limits on consolidation.  For example, under current guidelines, the Federal Reserve Board cannot approve a merger without ordering divestitures if the post-merger bank has more than 30 percent of the deposits in a state.  Is it wise, however, to allow one bank to own about one third of the deposits at a statewide level.  When a bank becomes that prominent in a state, is it able to exert undue influence over setting bank fees and interest rates?  Is the bank encouraged to take on too much risk when it perceives itself to be immune from competitive pressures?

How should the Federal Reserve measure concentration levels? Are deposits the best measure in today’s financial industry?  Do we need additional data on more types of financial services since banks are also in the insurance and securities business thanks to the Gramm-Leach-Bliley Act of 1999?  Should the Federal Reserve develop and apply separate thresholds for different bank products and order appropriate divestitures if any of the products exceed the established thresholds?

Also when banks become too large, are they less likely to be innovative in terms of meeting their CRA obligations?  Will they be as receptive to local needs and design specialized home or small business products which may need to have different features in various parts of the country.  NCRC has heard over the years from our member organizations regarding how bigger banks can become less flexible and tend to pursue more standardized and uniform products.  Another by-product of consolidation is that fewer mergers occur in future years.  The merger application process is a key time for CRA enforcement.  The recent emergency mergers (JP Morgan and Washington Mutual, Wells Fargo and Wachovia, Bank of America and Merrill Lynch) may have also reduced future opportunities for CRA enforcement.

The Community Reinvestment Modernization Act of 2009 (H.R. 1479) has some important mechanisms to offer alternative enforcement mechanisms to the merger application process.  For example, CRA ratings on a state and local level become more important as lower ratings trigger the requirement for banks to submit improvement plans to their regulatory agency, which must consider public comment on the plans.  Yet, even were H.R. 1479 to pass, it is vital for Congress and the agencies to reconsider and reinvigorate anti-trust policy in the context of regulatory reform.

NCRC’s Jim Carr made the astute observation at yesterday’s forum that policymakers should answer the question whether big banks offer products and services that smaller banks cannot.  If the answer is unclear, either banks should be limited in size or the large banks, which pose significant risk to the taxpayers, should be required to offer extraordinary benefits to the public.  Mr. Carr mentioned a special benefit of providing basic banking services and deposit accounts at cost, with no allowance for profits.  An additional possibility is super-charging their CRA responsibilities; that is creating extra rigorous CRA exams for the largest banks in the country (thoughts in the form of blog posts invited).  Mike Lutz made the point that any victories on the bank policy front will likely to be met with a counter-attack.  Yes, we are in interesting and tough policy times.  Jim Carr repeated the saying, “A national crisis is a terrible thing to waste.” Join us in advocating for a robust anti-trust policy and the passage of the Community Reinvestment Modernization Act of 2009.

“We are seeing a blossoming effort to [reform] Wall Street, Nancy Cleeland, director of the Bailout Analysis Project at the Economic Policy Institute, tells an NCRC forum in Washington June 11. She says several organizations next week will announce the formation of a broad-based national coalition to pressure the White House and Congress to end a system which allowed large financial institutions to take reckless risks and bring down institutions which had nothing to do with causing the crisis.

EPI hosted a meeting the day before at which community bankers they are feeling the brunt of a crisis they did not create and are now being left to fail while the large institutions that were the cause of it are being bailed out. Thirty-seven independent banks have failed thus far in 2009 and 300 others are on the watch list of the Federal Deposit Insurance Corp.

“We have just passed the one million mar in foreclosures,” notes Cleeland. “We must make sure this never happens again.”

James Carr, chief operating officer of NCRC, says the plan put forward by the Obama administration to deal with foreclosures is an improvement over the actions taken in the Bush administration but they still don’t deal with principal reduction on mortgages or when foreclosures are caused by unemployment and a loss of income.  He said the new coalition will have as a major goal the passage of the Community Reinvestment Modernization Act of 2009 (HR 1479) that aims to end the practices that led to the foreclosure crisis.

But this week a coalition of citizens groups have taken the offensive, organizing to demand a seat at the table in making a bank system that works for all of us, not just corporate profiteers. As part of that effort, a group of organizations including Campaign for America’s Future, National Community Reinvestment Coalition, and A New Way Forward met on Capitol Hill today to discuss a growing citizen’s movement to bring the voice of working families to the debate over banking system reform.

Simon Johnson, former chief economist of the International Monetary Fund, argued at the event, at the Rayburn House Office Building, that financial reform is important not just to rebuilding our economy, but to fixing our democracy. As banks grow bigger through deals and mergers, they increase their ability to corrupt the political process through campaign contributions and lobbyists. The more banks grow, the more money they have available to use this influence lawmakers to write rules in their favor and prey on ordinary Americans through predatory lending and other practices. Most recently, we have seen a particularly gross example of this: grossest major banks using our taxpayer money via the bailout to lobby against very popular legislation that would allow judges in bankruptcy cases to readjust homeowner mortgages at current market rates.

Johnson argued that the sense of crisis that has driven a populist push to break up so -called “too-big-to-fail” banks this spring In the wake of the bailout and outrage over AIG bonuses scandals has diminished as the media drums up the myth that the economy is recovering. However, the financial crisis remains very real for ordinary Americans: Unemployment is on the verge of reaching nearly 10 percent and foreclosures are increasing as laid-off workers are unable to pay their mortgages.

Financial reform is one that we as a progressive movement need to begin dramatically organizing around, Johnson said. He estimated will be an approximately five-year-long fight. Similar fights over breaking up trusts in the early 1900’s and regulating Wall Street during the New Deal took equally as long and required a great deal of public pressure to achieve real reform. The fight won’t be easy, it will be long, it will require serious organizing done by citizens taking to the street to be heard in order to create a Wall Street that works for Main Street.

In this vein, the National Community Reinvestment Coalition and A New Way Forward are sponsoring over 100 events today throughout the country, from rallies to town hall meetings with elected officials to community organizing meetings. In Chicago, workers of United Electrical Workers from Moline, Ill. , whose factory Quad City Die Casting is being liquidated by Wells Fargo, are marching today threatening to occupy their factory, following the lead of workers who occupied and successfully reopened Republic Windows and Doors in Chicago back in December. As John Taylor, CEO of the National Community Reinvestment Coalition said, “In the era of ‘too big to fail,’ the public must be too loud to be ignored. Today’s actions, in communities across America, loudly say that enough is enough—it’s time to return integrity and trust to the financial system.”

The fight over financial reform is important not just in reforming the financial system, but showing the progressive movement’s ability to defeat special interests. At today’s event, Mike Lux, author of the Progressive Revolution and honorary co-chair of a New Way Forward, argued In order for the Obama administration to be successful, it must be able to take on these big lobbies. Every time the administration succeeds in defeating one major lobby, it will make passing subsequent reforms easier. Lux argued that when you have early success against special interests, as FDR did in his first 100 days, it weakens the choke-hold that special interests often have on lawmakers.and makes passing subsequent reforms easier.

The fight over banking reform is a crucial battle in the progressive movement’s drive to put people power back into the political process. Now is the time to get involved. Visit A New Way Forward and the National Community Reinvestment Coalition to see how you can get involved in events happening across the country.

Growing up the son of a union organizer in Pittsburgh,Pa., Mike has been a part of the labor movement for nearly his entire life.He has worked as a union organizer for the United Electrical, Radio, and Machine Workers (UE) and the Obama-Biden Campaign. Mike served as a research fellow at the Instituto Marques de Salamanca in Rio de Janeiro, Brazil helping to set up worker run cooperatives.

When Mike is not scanning a twenty blogs at a time, he enjoys jazz, golden retrievers, and making friends of strangers.

Hint: It’s not because Warren Buffet and Bill Gates are good friends (which they are) and often play bridge together (which they reportedly do).

The reason Buffet committed–nay, will invest–more than $30 billion to the Bill and Melinda Gates Foundation over the coming years is because the Gates’ are not running a nonprofit charity.  They’re managing an accountable, transparent, evidence-based, philanthropic organization that understands the value of operating in a business-like manner.  As a result, over the years the Gates Foundation has earned a solid brand reputation for achieving and reporting results, which Buffet respects, values–and wants his philanthropic legacy to be a part of!   Yet this concept still eludes many nonprofits.

When asked how they would feel about operating in a more business-like fashion, as well as incorporating branding strategies into their daily activities, many nonprofit leaders still tell me that “it would make us look too much like the for-profit sector.”  And my response is always the same–”Get over it!”

In no way am I suggesting that nonprofits compromise their passion for their missions or co-opt their values or program strategies to appease business-oriented donors. On the contrary, it’s that very passion and focus on helping people that many of today’s donors are looking for in an organization.

The fact is there is a growing number of civic-minded individuals, foundations and giving circles (www.givingcircles.org) willing to invest substantial sums of money in nonprofit organizations.  But because many of them amassed their wealth by working in the for-profit sector, they are primarily seeking to invest in organizations that reflect the business environment from which they came– and understand.

For nonprofits seeking to attract these major donors this means:

• Being transparent
• Being accountable
• Tracking and measuring results
• Professionalizing your marketing and development efforts
• Having a web-based presence
• Actively promoting your brand

Being transparent
Would you invest heavily in a business you could learn little, if anything, about?  Neither would savvy major donors.   Subsequently, how open is your organization to public scrutiny regarding its finances, operational functions, decision-making processes and more.  This kind of openness facilitates relationship building among large donors who want to support organizations they understand, respect and trust–namely those that own and consistently demonstrate a quality, transparent brand.

Being accountable
It’s not enough to simply be transparent.   Accountable and ethical behavior are high on the list of reasons one organization may receive funding over another.  According to a reliable web-based resource, www.accountability-central.com, organizations of all kinds are “increasingly being held accountable for their decisions, actions, behaviors and performance by a wide range of external and internal stakeholders,” including funders.

At the very least, supporters want an accurate accounting of how their money is being spent and what impact it is making.  Which leads us to….

Tracking and measuring results
Touting “we make a difference” doesn’t cut it these days.  Nor are today’s funders satisfied with simply knowing how many people your organization served last year.  What they are most interested in is what long-lasting impact your organization has had on the individuals and communities it serves.

For example, if you provided homeownership counseling to 226 people over the last several years, how many are actually in the process of purchasing a home?  How many have bought homes? How many are still in the homes they bought?  If you are in the business of providing adult literacy classes, how many of those who have gone through your program can now read at an 8th grade level?  How many have gotten better jobs as a result of their new reading skills? What’s been their average salary increase?

The more measurable results and outcomes you can document, the more business-like–and better–you look to large, serious donors.

Professionalizing your marketing and development efforts
Can you name a successful for-profit company that doesn’t have a strong marketing or research development component?  Yet many nonprofits forego investing in these critical functions for fear they would be short-changing their programs and services.  The fact is that it is very difficult to grow programs and services if you’re not actively out there raising funds or promoting your organization.  Your executive director can’t do it all.

If need be hire professional communicators, marketers and fund developers on an as-needed, consultancy basis.  Over time, it will prove to be a worthwhile investment.

Having a web-based presence
You’d be surprised to learn how many nonprofits still don’t have a website.  If you’re one of them, seriously consider creating a website for your organization.  It’s the first place many donors go to learn more about an organization they may be interested in supporting.

If you already have a website, make sure it accurately reflects your brand, is easy to navigate and is updated on a regular basis.

At the very least, you should be regularly communicating to current and prospective donors with a newsletter, preferably an electronic e-newsletter that is brief and compelling.

Actively promoting your brand
For argument’s sake, let’s say you’re doing some, if not all, of the above.  How well are you communicating this information through a solid brand image and good brand messaging?  How easy is it for motivated funders to find you?  Do funders you seek to attract truly understand:

• Who you are?
• What you do?
• How you do it?
• And why they should care enough to support you?

If not, you need a new business plan–and better branding.