Since summer, there has been a wave of shared experience started by a largely unknown French economist that produced “Capital in the Twenty-First Century.” Written by Thomas Piketty, the tome has become the conversation piece du jour among bankers. In case you missed it, the book is about economic inequality. This is no Fifty Shades of Grey, as considering the book is 700 pages packed with data, French economic history and obscure references to Jane Austen, it is wonderment that it is a bestseller.
We think this is a brilliant calculation and sums up the current environment nicely. According to our friends over at Continuity Control (with a cool phone number of 888.We.cmply), there were 82 new regulatory changes in 3Q that took up 3,404 pages – the most since 1995. In response to those changes, community banks had to spend 653 hours (the full-time employee equivalent of 1.86 bankers) just to read, understand and comply. That is a 26% increase over 2Q and equates to a cost of about $45,264 per quarter or $181, 056 annualized.
Many banks, including us, make the mistake of talking about being a relationship bank, but market on transactions. We tout checking products, loans and business banking solutions and then wonder why our product per customer count is not higher or our lifetime value is not larger. We struggled with solutions until our friends over at Infusion Marketing Group taught us a new trick about the “convenience universe.”
Banks all understand interest rate risk, so understanding how hedging managing risk is an easy one. However, there is currently a conflict with banks that on one hand say they don’t believe rates are going up so taking more fixed rate exposure is acceptable, yet have a rate view of that of the forward curve (which does show rates going up). This issue is compounded by the fact that these very banks mostly have loan growth for 2015 exceeding GDP (3%) which would indicate faster than expected expansion and indicates higher than expected rates.
At our core, banks are risk-adverse. It’s a good thing too, as we are all more leveraged than the average hedge fund such that each decision is amplified. Every time the sun comes up it is a roll of the dice as the market forces of credit, interest rate, liquidity and a dozen of other risks assault a bank. What separates success from failure is a bank’s ability to understand what risks to avoid, what risks to broker, and what risks to exploit.
Leaders of the G20 Nations met over the weekend and agreed to introduce new banking regulations that will result in deposits being treated more like an investment and less like "cash and cash equivalents." Watch our animated video to learn more and get our take on what it could mean for community banks.
Most banks feel comfortable making smaller sized loans. The obvious reasoning is that a smaller loan will present less of a loss should it go into default - less of a loss means less risk, and, therefore, higher return. That reasoning could be faulty and could end up getting your bank into trouble as often times it is the larger loan that presents less risk. There are three reasons for this. First, the acquisition cost of a larger loan is just slightly more from a dollar value perspective (and lower on a percentage basis) than that of a small loan.
If you are looking for examples of how banks have to change, stop by Grow Financial Federal Credit Union the next time you are in Tampa and see Natalia Spratlen. Grow Financial FCU presents a nice, open small footprint branch space and creates an environment of high productivity. That is not unusual these days as lots of banks are now redesigning their branches. However, what is unusual is our interaction with Natalia.
One thing we love about the banking industry is the patriotism and respect for the armed services. On this Veteran’s Day, like many banks, we want to personally thank all those that served or serve protecting our great country, our ideals and, most importantly, our freedom. We also want to highlight all those banks, like CenterState, that actively recruit and train Veterans as bank employees as they tend to make above average bankers. Finally, we want to highlight those banks that have specific military product offerings.
The Republicans were not as popular as the ‘Alex from Target’ meme yesterday, but it was enough for a strong win. Ironically, the party that has been in full obstructionist mode trying not to change anything now has to find a way to build consensus and govern for change. For banks, moving control of the Senate Banking Committee is said to be favorable, but we have our doubts as we see little public support for restructuring Dodd-Frank too much.
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