Saturday, September 24, 2011

Our Finest Hour

Things look grim for us: community financial institutions (collectively, "banks") and those that serve those august institutions.

We lost the mortgage business a generation ago to category killers like Countrywide, Golden West, Fannie Mae, and Freddie Mac and the mortgage brokers that fed the beast. When the beast collapsed, we inexplicably donned the bullseye of blame.

But we faltered in our own right. We bought the bonds that kept that mortgage machine running. Those bonds cost us dearly. We lent to one another in the form of Trust Preferred Securities, and our investment portfolios choked as these banks faltered under the weight of poor decisions.

When the economy took its nosedive, we found ourselves over-invested in construction and investment property commercial real estate that were one or two bits of bad news away from disaster. The result: a rapid need to recapitalize. With no investor appetite to invest in us, the government stepped in.

We immediately regretted it. We were encouraged to take government capital, only to have the government change the rules on us afterward, and the public decry "government bailout". Even though the government made a significant return on its investment in us, the public thinks they gave us the money. Yet, the only losses the government suffered from TARP is because of AIG Insurance and General Motors. We still bear the badge of shame.

Now our politicians are doing everything in their power to get us to lend, while their examiner surrogates are doing everything in their power to criticize our loans. Regulations are nipping at our revenue, and piling on our expenses. The Fed, under the guise of helping the economy, is doing what it can to keep long and short term rates low, wreaking interest rate risk havoc on our balance sheets. Much is working against us these days.

But in our darkest hour, I envision tremendous opportunity. Our industry is changing. Excess regulation and costs are driving weak competitors such as mortgage brokers out of the market. Can we re-ascend as the place our customers get a mortgage? I think so.

Large banks, that own a significant part of the banking market, move farther and farther from the customers... turning them to self-service delivery channels to chart their own path in a complex financial world. Can we help our customers navigate turbulent and complex times? I think so.

We don't have the resources to make large technology investments to develop efficient processes, comply with the myriads of regulations, and deliver products and services to today's tech-savvy customer. But community FIs have access to robust, vendor-driven solutions that are on par with our larger brethren. Can we have competitive products and delivery channels delivered with similar efficiency to the large banks? I think so.

In times of great strain, opportunity rises from the ashes like a phoenix. We are closer to our communities, our customers, and our employees. Decisions are made in the office down the street, or the next town over. We don't have to navigate a bureaucracy in a different state or across the country to get to the closing table. Local depositors provide the capital to local borrowers and businesses.

Can we be different, more local, faster, friendlier, better?

We are a community bank. What we do next, is up to us. This can be our finest hour.

~ Jeff

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