ABA Banking Journal - November 2008 - (Page 52)

100 years ent situations, different circumstances.” Offering a somewhat different view, Guy Williams (Gulf Coast Bank & Trust) agreed that the small business segment is very important, but he feels “the bank charter doesn’t give you an advantage on the lending side. It gives you an advantage on the funding side, because of deposit insurance, and on the payment system side. The price we pay for that is an incredible burden of regulation.” Williams feels that regulation hinders banks’ ability to be flexible and responsive—in lending particularly. Service trumps rate Another key differentiator identified by the group is superior customer service. For the community banks present this was a critical difference, enabling them to compete with a host of larger bank and nonbank competitors. (There was some goodnatured ribbing of the larger banks at the table by the community banks, because of the fact that the former referred to themselves as “community banks.”) Warren Luke (Hawaii National Bank) offered these analogies for how quality service trumps rate: “Why do people stay at a Ritz Carlton versus a Holiday Inn? Because they have certain expectations. And when you go to a top restaurant, you don’t say, ‘Wow, your prices are too high. If you don’t lower them I’m going to eat across the street.’ You have to differentiate yourself, in other words, and give what the people expect.” A closely related point—good people—is both a strength and a challenge. The advantage is fairly obvious. Said Gurgovits: “A difference in our bank, versus competitors, is with the people that we employ, and their passion for customer service. I hire for attitude and train for skills. That’s critical.” The challenge, he continued, is that as good people approach retirement age, as many will at FNB in the next dozen years, “How are we going to replace them?” The typical 25-year old, he said, is not going to stick around beyond five years. There was no universal solution offered. Kathleen Marinangel (McHenry Savings Bank) said that in her market, there are so many bank competitors now that when somebody leaves she can replace them quickly, because there is a 52 NOVEMBER 2008/ABA BANKING JOURNAL “We better create more focus on fewer things we do well, rather than be spread out over many services” pool of people trained by other institutions. Williams noted, however, that such availability varies by locale. In his market (New Orleans) “the big local banks were bought out, and now the big national banks that own them only have branch managers and tellers; the pool of management talent has moved elsewhere.” Kathy Marinangel said that traditional banks have been losing deposits for some time to ING Direct and other “direct” banks—those that operate primarily over the internet and typically offer higher rates than traditional banks. “One of the reasons is because they have a lot of money for advertisements,” she said. “ING spreads its marketing materials throughout the marketplace constantly—billboards, direct mail, TV— and you can’t compete with that kind of marketing. The ads are very effective because ING offers the high rates to bring the money in.” The group did think that the direct banks, despite their rate advantage, were vulnerable in one respect: the lack of a physical presence. Traditional banks can match the direct banks on rate if they choose, and can match them in terms of online capability thanks to the array of technology and technical help available. But direct banks can’t match the face-toface service of branches. Branches, Luke said, are a place where the customer can come to see the reality behind the claims that a bank is friendly and consumer oriented. “They come in and meet the bank’s people,” he said, “and if they are greeted properly, they say to their friends, ‘Why don’t you try my bank? It’s friendlier’.” He also said that he likes to tell business customers that there are not many places where “you can come in and talk to the guy who owns the bank.” Even people who prefer to access their bank products electronically still like the Subscribe at www.ababj.com Direct banks are a deposit threat The panel had no lack of challenges that banks will face (or continue to face) in the future. Among those discussed: deposit competition, particularly from internet (or direct) banks; the changing role of branches; different generational needs and preferences; and margin squeeze. Fortunately there were some offsetting potential solutions. The deposit environment has seen major changes since the group met in July—notably the flight to safety following the collapse of Lehman Brothers, which accelerated when the Emergency Economic Stabilization Act included a temporary increase in FDIC coverage to $250,000 for all nonretirement accounts. A final kick came with the Treasury’s mid-October plan to provide temporary unlimited coverage of all non-interestbearing accounts. Indeed, some banks have said that the huge inflow of deposits presents some definite challenges. But the point of the roundtable discussion was the future of banking, and when conditions stabilize, the same competitive pressures will likely return, especially as depositors begin focusing once again on rates (if indeed they ever stopped). http://www.ababj.com

Table of Contents Feed for the Digital Edition of ABA Banking Journal - November 2008

ABA Banking Journal - November 2008 Contents Editor's Column Banking 2.0: Credit, Banking's Essence, Set for Rethinking Snapshot: The Few, the Proud, the Banks that Can Raise Capital Will Strong and Simple Banks Inherit the Business? Back to the Future ABA Resources ABA Chairman's Position Farm Lenders Must Take Care When Lending in Indian Country Pass the Aspirin Into the Breach Adventures Across A Century What the Future Holds, Post Crisis Paul Volcker: A Financial Legend Still Speaks Strong Ed Yingling: Weathering the Storm Dick Kovacevich: "Boring" Banking to Dynamic Financial Services Jim Culberson: Community Banking: What has Changed and What Shouldn't Walter Shipley: How a Chemical Reaction Helped to Mold Today's JPMorgan Chase William Isaac: Challenges and Opportunities Ahead for Banks A Hundred Years from Our Pages Eight Tech Innovations that Brought Banks into 21st Century Bank Cherokee: Third Generaton Marks 100th Year The First National Bank of Altavista: Railroad Gave Birth to a Town, a Hope Chest, and a Bank Rosedales Federal Savings and Loan Association: How a Friendly Game of Cards Turned into a 100-Year Mutual New Washington State Bank: Cooking Up the Next 100 Years Mailbox Banker's Mart To Advertise/Index of Advertisers The Economy

ABA Banking Journal - November 2008

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