November 23, 2011 

 

You couldn’t have picked three more different banks to participate in a panel on the future of banking. ABA’s purpose may have been simply to have representatives from small, midsize, and large institutions, but in reality it created a grouping that spoke to the commonality of interest among diverse players. There were differences, of course. PNC Financial Services Group, USAA Federal Savings Bank, and the First National Bank of Kansas ran the gamut of different charters and asset sizes, but on the subjects of risk, technology, regulation, and customer service their shared views outweighed their differences.

Regarding regulations, for example, David Bohne, president of USAA FSB, the San Antonio-based banking unit of USAA, said that the impact of new regs from the Dodd-Frank Act and other laws has been significant. The savings bank, he said, had previously allocated 10% of its capital investment dollars to handle regulatory requirements. Now it’s 50% “to handle all the new laws coming our way.”

Community banker Craig Meader made this notable statement: “Our efficiency ratio was 60% before the Dodd-Frank Act was passed. Now it’s 73% and rising.” The CEO of $70 million-assets First National Bank of Kansas was asked by panel moderator Mark Olson, co-chair of Treliant Risk Advisors, how he managed regulatory burden with only 23 employees. Meader said that he had two FTEs—nearly 10% of his staff—dedicated to nothing but regulatory paperwork.

On the other end of the spectrum, James Rohr, CEO of $269 billion-assets PNC Financial Services, said that regulatory risk was the bank’s top risk. Many regulations are good, he said, but how you implement them is critical. False steps can be costly, which is one reason he puts reputation risk high on his list, as well.

All three banks are awash in deposits and challenged by how to use them profitably.

“The Fed set the [rate] bar low for the next two years,” said Meader. It’s difficult to find good quality investments to park money in, he added.

Said Rohr, “You can’t make any money on the deposit business [right now].” He believes it will take years to run off the housing inventory, affecting mortgage loan demand and the economy overall. His advice is to manage your expenses and your capital.

“We’re all chasing the same customer,” observed Bohne. He predicts banks will be “muddling through” excess liquidity and low rates for several years. “We would have killed for liquidity a few years ago,” he added, “but we need to look ahead and be prepared for the future.”

The best way to do that, said Bohne, is to spend on technology and other innovations. USAA in fact has been a leader in that area for some time. The savings bank caters to the needs of military servicemen and women and their families and has done business,  successively, by mail, phone, the internet, and now mobile. It has only one branch.

As a bank with more than 2,500 branches, PNC is “continuing to rationalize” its branch system, according to Rohr. He said branch utilization is down 7% this year, and that 78% of his customers and prospective customers want multi-channel capability.

“We built 50 branches and closed 80 this year,” he said, adding that while people under 30 are the largest users of the internet, the second largest group is people over 70.

While the regulatory pendulum eventually will swing back, he noted, “this customer trend [toward new channels] will be with us for a long time. It’s the biggest issue for us.”

First National Bank of Kansas has “all the bells and whistles” in terms of technology, said Meader, except for mobile banking, which would cost too much for the 300-500 customers that would use it. But, said Meader, “We’re still ‘boots on the ground’ people. Customer service is the reason we’re here.” Excessive regulation threatens that business model, he said. “Now when I open the door each day, I wonder, ‘Who’s going to punch us in the head’ and prevent us from serving our customer?” His top priority right now is to get in front of the regulators and say, “You’re choking us; you’re killing us.”