WILL THERE BE ONE-THIRD FEWER BANKS IN THE U.S. IN 10 YEARS? Peat Marwick, I moved to Houston and worked for the Pennzoil Company as an auditor. Eventually, I was promoted to manager of investor relations where I served as the liaison with Wall Street and the investment community with regard to Pennzoil’s stock. My husband was transferred to San Antonio, Texas, and through networking, I was able to get an interview with one of the large bank holding companies in Texas - Cullen/Frost Bankers. I was hired to set up their investor relations function and, in the next three years, also became Assistant to the President and Corporate Secretary of the Board of Directors. I have been blessed to have had the opportunity to build my expertise in banking working in some very interesting and dynamic companies - senior mergers and acquisitions specialist for Security Pacific Bank in Los Angeles, which was the fourth largest bank in the U.S. at the time, as an investment banker specializing in bank mergers and acquisitions for several consulting firms, and the last fourteen years building my own firm as a strategic consultant to community and regional banks. How did you become a member of the Federal Reserve Board? I got a call one day out of the blue from the Federal Reserve Bank of Richmond saying that I had made it to the top of their short list for an opening on their Baltimore Branch board. It was a real surprise to me and, to be honest, my first thought was that it was a prank call from one of my business friends. I have since learned that I made it to their short list because of my community banking expertise. It has been a wonderful experience being a part of the Fed through this very difficult and interesting time in the history of our country. I was recently reappointed for another three year term and am delighted to serve my industry and my country. What is the current state of the community banking industry and where do you see the industry going? The next five to ten years will be quite challenging for banks; however, upheaval and challenge create opportunities for well-positioned banks. Community banks are the foundation for thousands of communities around this country providing capital for businesses to grow, loans for families to prosper, and safety and security for their deposits. The banking industry, and more particularly community banks, have a daunting task today of understanding and incorporating thousands of pages of new regulations from the Dodd-Frank Act [federal law implementing the most significant changes to financial regulation in the United States since the regulatory reform that followed the Great Depression]. In addition,
Basel III [new regulatory standards on bank capital adequacy, stress testing and market liquidity risk that will be phased in beginning 2015] will effectively require greater capital for most banks. The average community bank does not have access to the capital markets like the larger banks. Community banks are re-evaluating their business models in terms of meeting profitability goals while also remaining well-capitalized. Will you explain the public misconception that community banks were as much to blame for the financial crisis as the big banks? One of the things that the banking industry has been working on, both at the national level and at the grass-roots level in every community, is repairing the image of banks. Unfortunately, the industry was painted with a broad brush. The average person doesn’t know the difference between a mortgage bank, an investment bank, and a commercial bank. It didn’t help when certain folks in the Administration called the industry “fat cat banks.” There was this feeling that all banks were bad. But community banks had very little to do with creating the crisis. Obviously, they have suffered as a result of the crisis, as have the communities they serve. Do you see the banking regulatory environment changing in the future? If so, how? There are heightened regulations now as a result of Dodd-Frank. To the average community bank that has approximately $150 million in assets and roughly 37 employees, you can imagine the strain that this is going to put on their organization to comply with these regulations. I don’t see the regulatory environment getting any less stringent. The pendulum has swung pretty far. As an industry, we have to work through this new regulatory environment, and we will. Although it will directly impact the average bank’s business model and their ability to create sustainable, profitable growth, over time it will create a stronger industry. I believe there will be tremendous consolidation of the industry in the next 10 years, largely driven by anemic revenue growth, the increased cost of doing business and, as mentioned earlier, the need for more capital. I predict there will be one-third fewer banks in the U.S. by 2023. Some big challenges lie ahead for the banking industry. However, I am a believer that where there is great challenge, there is also great opportunity for the well-positioned banks. Fall 2013
The SOA Connection
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