I opined in the last article, “Vote”, that the election of 2012 could be one of the most consequential in recent history. While we need to wait for history to judge it, I still believe it to be of great consequence. Let’s review some of the likely outcomes that will result from the election.
- Partisan government will be more so. We have just experienced the solving of the “fiscal cliff”, right? First, it was not a solution. Second, it was a total win for the governing party with no give to the opposition. That’s not bi-partisan. Third, it was a made up scenario, so the politicians could whip up a frenzy of fear, “solve” the crisis, and start planning for the next crisis. There is no plan to really tackle the larger issues, we’re just jumping from crisis to crisis. Our national leadership—in BOTH parties has failed to seek to solve our nation’s real problems.
- The banking industry (I write about the community banking sector) will continue to be under pressure from new regulations/laws. A little known agency, the Consumer Financial Protection Bureau was created as part of the regulation from Dodd-Frank. It is funded by the profits of the Federal Reserve Bank, so it is not subject to budget review. Congress has no say in CFPB oversight. It is a law into itself. The best one can say is that its activities will be onerous to the Community Banking industry.
- The big daddy—Dodd-Frank, rolls on. Two years after its passage, it has enacted about 1/3 of the required laws/regulations, 1/3 are in process, and 1/3 yet to be dealt with. The best one can say is that its regulations will be onerous to the Community Banking industry.
- The election results (yes, as we have been reminded, elections have consequences) will have further consequences to the community banking industry:
- Industry consolidation will continue and probably accelerate. Currently, Banks greater than $10 Billion in assets control 80% of all bank assets. This is up from about 50% only 25 years ago. Put another way, the top 660 banks in America control 90% of all deposits. The other 6,586 banks control 10%--and this is shrinking. The big will get bigger and the smaller will disappear. Only the public can judge whether this is good or bad. But the net effect is that fewer banking decisions, whether about specific credits, supporting community activities, employment and other community values will be made in a distant headquarters with little community input. The pressure for consolidation comes from the increased costs of regulation that is borne disproportionately by the smaller community banks. As well the financial returns available to the owners of these community banks will be diminished due to the costs of complying with the new rules/regulations. Less returns cause pressure to seek higher returns thru a sale.
- The branch banking model will change significantly, largely driven by technology. For example, the costs of a bank transaction are; branch teller $4.00, call center $3.75, ATM $.85, online $.17, and mobile $.08. With that cost profile blended with customer demographics, branch consolidation will also occur.
I will admit that I am biased in this discussion. There are arguments that the larger banks can deliver more and better services — perhaps the arguments are a bit weak following the 2007-2009 financial crisis given the part played by the larger banks, but they are to be made. I, however argue for the Community Banking model.
There is a reason it is called the Community Banking sector and Community is the reason. Demand more of our politicians and ask them to discern between Community and Regional, National, and International banks. On a non industry basis, demand that they work on real problems and solve them to the nation’s benefit and not for a partisan political party.
President / CEO