Frank Keating: It would be nice to see things calm down. I came from representing the life insurance industry that was clearly in the bull's eye because A.I.G. was one of our members. But by speaking with one voice and explaining the essential importance and positive nature of life insurance products, they were not included in the Bureau of Consumer Financial Protection. It was lightly tapped by the Volker Rule in the derivatives discussion. For me, the goal for the next few years is to explain the wholesome, indispensible and white-hat nature of banking and the banking industry. And explain how community banks permit communities to survive and prosper. And to speak as one voice, no matter how many trade groups are out there. We need always to speak with one voice, and that includes our friends in the credit union arena.

CU Times: You mentioned community banks, which are well thought of. But some of your members, especially the larger banks, took some big risks that helped cause the financial meltdown. Have some of those banks learned from their mistakes, or are we likely to see a repeat?

Keating: When I moved back to Oklahoma from the FBI in the early '70s, I went to a savings and loan to get a mortgage to buy a duplex and I was turned down. The person behind the desk was paid whether he approved or disapproved it. He said, "You don't have enough assets or income, so you need to have the owner collateralize the loan." The owner did do that and I bought the property. Now fast forward to the last couple of years, the person behind the desk was only paid when he made the deal. Hopefully that lesson has been learned. There are tighter underwriting standards and greater care and prudence in the selection of borrowers. All those are good things. And there were mistakes made at all altitudes. There were unregulated mortgage brokers and unregulated financial institutions. Also, leverage and risk were inexcusable and outrageous. That's part of our nation's history and hopefully Dodd-Frank and better leadership will address those excesses and hopefully they won't recur.

Dodd-Frank, with respect to its interchange proposal, the Durbin amendment, capital issues, FDIC premiums, the Bureau of Consumer Financial Protection, there are lots of challenges in that bill. It's a 2,000 page bill with many thousands of pages of new regulations to come. My concern is that many of the smaller institutions will simply not be able to comprehend or function with such onerous regulations on their back. So as an industry and with our friends in the credit union arena we are doing everything we can to postpone, delay and reform the act so that all players can serve their customers, borrowers and depositors as they are chartered to do.

CU Times: How do you think regulators can do a better job of striking the right balance of ensuring the safety and soundness of financial institutions while not stifling innovation?

Keating: I am not a regulator and haven't ever been a regulator. But keep in mind that 89% of our members have $1 billion or less in assets. So we represent the largest players, but most of our members are community banks. My grandfather owned a community bank in southern Illinois, my brother was a community bank CEO for 30 years, I was on a small bank board and my father was on a state bank board, so I have community banks in my genes. Most of those banks make decisions based on the fact that they know their borrowers, know their creditworthiness. The decision about who to lend to and what the standards should be ought to be made by lenders. They realize that there is a difference between borrowers. They may have the same financial statement, but one may be reckless in the payment of their debts and the other person may be very prudent. I vote for the prudent and the careful. Regulators need to allow banks to be able to permit quality borrowers to borrow and use that money to create jobs and jump-start the economy. Because remember two-thirds of all jobs are created by small businesses. Those people mostly do their banking and borrowing with small banks.

CU Times: You mentioned capital. What are some of the biggest capital-related challenges facing your members?

Keating: It's important that the capital requirements relate to risk, strength and the realities of the marketplace. And they shouldn't be arbitrary rules that stifle the making of loans. Regulators need to look at institutions on a case-by-case basis and borrowers on a case-by-case basis. And you don't want to prevent the creativity below from flourishing. A command and control, top-down approach to banking regulation, including on capital issues, is simply not a prudent way to regulate.

By the way, I've had one meal with [NAFCU President] Fred Becker and tomorrow night I'm having dinner with Mr. Cheney and at those functions and others I will emphasize, as they do as well, the importance of unity and conversation and the importance of having all of us on letters to regulators and members of Congress where we can find common ground. Because the credit union industry is so well-respected, and it is important to use their muscularity, wisdom and experience to help all of us do a better job of helping the American public.

CU Times: You cited areas where credit unions banks agree. But on issues such as credit unions' tax exemption and increasing the cap on member business loans, the two sides haven't seen eye to eye. Will the bankers rethink their position on these issues?

Keating: I have not gotten on that playing field yet. But as a citizen, I have always believed that if you are in the commercial world you pay taxes; otherwise people will pay more than they should. I think the purpose of credit unions to serve modest income people is a great purpose. If credit unions want to get in the hotel or golf course business, they should get bank charters. But I think this is an especially perilous time for the country's finances. The president's commission on deficit reduction recommended the tax exemption be eliminated, and I was on another commission that recommended the elimination of certain exemptions and deductions to dramatically reduce rates for everyone. These debates are swirling around as a result of our need for revenue. But the bottom line is that people who engage in commercial operations should pay taxes. But now we and the credit unions need to be united on the issues at hand, such as the implementation of Dodd-Frank. There will always be time to fuss on the tax issue.

CU Times: During the past four years some of the big banks have been vilified for having acted imprudently though most of your members are small banks. Have you found a lot of tensions between the big banks and small banks so far?

Keating: There will be a need for large banks and for small banks. Our largest banks contribute to the balance of payments surplus and America needs to compete in this area. Small banks keep small and middle size communities alive. If it weren't for the lending of these banks many of our communities would blow away. It's very important we embrace both large and small and encourage them to be successful in their own spheres. On the political side, our small banks know their House and Senate members and they are extraordinarily persuasive. The large banks know the regulators, and they are extraordinarily persuasive. What we need to do is saddle up both, which we are doing. But I have seen no disputes based on size, but I am a veteran of less than 60 days.

CU Times: Are there any economic or regulatory trends, in addition to what we've discussed, that worry you?

Keating: Regulation follows the economy. If the economy is prospering there is less clamor for more regulation. If the economy is struggling there is more of a call for regulation. Now we want to see an improved economy but also want to see an improved regulatory marketplace. Regulation exists for the purpose of safety and soundness. It shouldn't go beyond that and stifle creativity and the ability to serve customers. My real concern is economic. I have a concern about imminent inflation, which will have a particular impact on the ability of senior citizens to do well in retirement. And it will put a strain on the young and their ability to go to college and create small businesses. So we need to get our fiscal house in order and address the issues of debt and deficit and see to it that the good parts of Dodd-Frank survive and the bad parts don't.

CU Times: Are you concerned about a double-dip recession?

Keating: I just left a meeting with two Japanese housing officials, and they explained that one of the reasons their inflation is so low is that they are borrowing from themselves. We are borrowing 50% or better of what we need from other countries. The day is going to come when they will decide that they want to spend their money on infrastructure within their countries and that should be of concern to U.S. citizens.

CU Times: How do you change things, given the way Congress is structured and that there is so much provincial, rather than national, thinking?

Keating: I am optimistic that if the president's commission can find [Sen.] Tom Coburn on the right and [Sen.] Dick Durbin on the left able to embrace its reforms, perhaps the big pieces can be addressed. But ultimately, only the chief executive can lead on these issues.

CU Times: This is your second stint running a trade association, what's the best way to be effective as an association?

Keating: Take positions that are best for Middle America and advocate them strongly. Most members of Congress are men and women of good intentions. They may not have the facts at their disposal. You need to persuade them that your position is the right one and perhaps that the position they are holding will hurt more than help. If you make your case well, respect the institution of Congress and members, you will do well.

CU Times: In recent years, the ABA has increased its political giving, as have the credit union trades. How much of a factor is money in how successful groups are in influencing the political process?

Keating: When I was governor I didn't go through the list of my donors and see who did and didn't give money to my campaigns. It was too big an effort, so I didn't bother. But I assumed that people who contributed to my campaign agreed with my basic philosophy of government. Because of the ethics laws on Capitol Hill, you can't take members to dinner and can't have them in a social setting to discuss issues. The only thing you can do is have a fundraiser for them. And when you sit down in a campaign environment you have a captive audience with that member for 45 minutes over breakfast, lunch or dinner. Congress imposed that restriction on itself and it seems strange to say you can't have dinner with a member of Congress unless you bring a check.

CU Times: Do you think that money follows votes or votes follow money?

Keating: Remember,  the money is not a bribe or for the member's personal use. There is no question that in members' eyes there is more receptivity if the member receives a contribution from you. And we are very bipartisan in the way we give money. But it would be impossible to have sustained relationships with members of Congress if we just wandered into their offices because they are busy with meetings, votes and other things.

CU Times: How have your perceptions of the banking industry changed in the brief period of time you've been with the ABA? What has surprised you so far?

Keating: I am having a meal with [Independent Community Bankers of America President/CEO] Camden Fine soon. I haven't met him. But I've known [former ABA President/CEO Ed] Yingling for a long time, he's one of my very good friends. But what hurt the banking industry, unlike the life insurance industry, is that it spoke with two voices. And to have the ABA take one position on Dodd-Frank and the ICBA take another position at a very sensitive time was not helpful. The associations need to get a common position, common purpose, common language and don't worry who gets credit just worry about winning. If you speak with one voice you have more of a chance of that happening.

CU Times: Is there a chance the two groups might merge?

Keating: I think it would be a wonderful idea if that could be done, but that's not something I've heard.

CU Times: What are your concerns about the Bureau of Consumer Financial Protection?

Keating: I've met with [Elizabeth] Warren [who is setting up the bureau]. She's extraordinarily bright, a lovely person and a fellow Oklahoman. And I made the point to her that it is important that banks be viewed as part of the solution, not part of the problem. She told me that the bank in the small town in Oklahoma where she grew up closed and the town practically blew away. If regulators knew that and know that those kinds of things can happen they'd be more likely to work with small institutions and not work against them.

CU Times: Did you get a sense that Warren believes that most banks act responsibly?

Keating: We didn't really get into [that], but I sense she believes that you have to have integrity-filled lenders and integrity-filled borrowers. Part of financial education should be that borrowers don't rip off banks.

CU Times: Are you optimistic about the new bureau?

Keating: I am neither optimistic nor pessimistic. I am wary. Whenever you get the government in a new regulatory role there will be starts and stops. I hope we will have an excellent relationship with the people at the bureau so we can advance the interests of customers and banks.