As the economy continues to improve in the Silver State, the banking industry is seeing an uptick in growth. However, there are still challenges for an industry with substantial regulations and bankers are working to navigate those challenges. Banking executives recently met in the Las Vegas offices of City National Bank to discuss the health of the industry and what Nevadans can expect moving forward.s the economy continues to improve in the Silver State, the banking industry is seeing an uptick in growth. However, there are still challenges for an industry with substantial regulations and bankers are working to navigate those challenges. Banking executives recently met in the Las Vegas offices of City National Bank to discuss the health of the industry and what Nevadans can expect moving forward.
Connie Brennan, CEO and publisher of Nevada Business Magazine, served as moderator for the event. These monthly meetings are designed to bring leaders together to discuss issues relevant to their industries. Following is a condensed version of the roundtable discussion.
What is the state of banking in Nevada?
SHIREY: Five years ago, companies needed capital. Last year, there were more companies that were actually engaged in acquisition activities and were starting to expand their business. This year, there’s a lot of confidence in the economy. When businesses are investing in themselves, that’s generally when banks benefit. We’re really seeing the changes in C&I (commercial and industrial) lending and in small business lending, better balance sheets and more viable expansion opportunities with our clients.
PHYLLIS GURGEVICH: There are a lot of different banks and bankers and occasionally there can be people who forget what a Nevada banker is, not understanding that everyone sitting around this table is a Nevada banker. Nevada bankers live here in the state. They work here in the state. They pay taxes here in the state. They promote the economy. They are employers. More than 4,000 people are employed by the banking industry. [I’d like to] just bring home that understanding of what a Nevada banker is and that having a healthy banking community means you have a healthy economic community.
JAMES YORK: I think banking post-recession is different than it was prior. We’re all reinventing ourselves to some degree. It’s not the same and we’re not the same. If we go back to doing the same thing, we’re going to be in a lot of trouble. It’s making a profit safely, not just being commercial real estate lenders, but getting back to community lending. [It’s] taking care of the entire community and not just doing niche banking, but getting back to what the economy needs and what the local businesses in the community need. It’s different with technology. We have to be different and we have to adapt.
What updates are there in technology and security?
COMMISSIONER GEORGE BURNS: As technology expands to reach more of the public – be that with mobile access, because it’s beyond PC access and ATMs now – the exposure to vulnerability exponentially expands. That’s a problem because there’s a whole lot more vulnerability on a mobile app. Those new technologies require so much more concentration on how to secure that technology. That slows the pace of going into those realms. But they’re realms that all of our bankers have to go into because the new generation of customers demand it.
PATRICIA OCHAL: There is an internal focus on cyber security within the financial institutions. It’s a very voluminous, concentrated effort within each bank to meet cyber security needs. That’s something that is new and has been rolling out in the last two years. We’ve always had security. We have to meet security needs. We have to be careful with our customer information and cyber security is one of the newest things we’re dealing with and rolling out.
YORK: As far as protecting the customers, it’s constant self-audit, self-testing and intrusion prevention. We have outsource companies that test our systems. They test every product. They try to hack and get in and we see if we pass or not. We test ourselves on an ongoing basis. The more products we offer, the more we test it on more levels and in deeper ways. That’s partly thanks to our regulatory agencies because it’s a big deal. Security and IT is becoming its own audit and we’re going to get our own separate grade for it. It’s becoming as important as anything else we get graded on. The attention to it is there and we’re doing a pretty good job of it, but it will be a challenge as it constantly becomes more mobile and more adaptable.
T. RYAN SULLIVAN: [Cyber security] has become such a focus that, at times, it can slow some adaptability and change in employing new technology. We want things to be safe and, by and large, the industry does a great job in the financial and payments networks. It’s not banks that are the weak link in the chain. But, because we focus so heavily on cyber security, it can mean that we’re slow to adopt some of the newer technologies because what we have today works just fine and we don’t want to rock that boat.
AL WELCH: It’s been an interesting evolution from our perspective. Users going online, digital, mobile, all of these things, now it’s continued evolution. We spend a ton of time with fin-tech (financial technology) companies because, the scary part about this is, it moves very fast. What is absolutely cutting edge today, give it six months, and who’s going to do the next thing? How do we pick the right technologies and invest in the best people? It’s going to look totally different 24 months from now than it does today. It’s going at a speed that I’ve certainly never seen in my career.
SHIREY: I do believe technology and adapting and serving the next generation of bank client is one of the biggest challenges facing the industry, particularly for smaller banks who may not have the technology budget of Bank of America or Wells Fargo. We’re all competing in the same space and competing for the same customers. The need for community banks, in particular, to get on par with a lot of larger banks around technology is really important for their ability to compete in the future.
How does technology affect competition?
YORK: I use the same outsource providers that Bank of Nevada uses. They provide us with the same products and services and we get every whistle and bell that Bank of America and Wells Fargo has for our clients. It’s not that difficult in the 21st century. Back in the 1980s and 1990s, it was very difficult because it was all proprietary products that the big banks had. I’ve worked for the big banks and the little banks just couldn’t get in that market. Today, they’re very accessible.
BRUCE FORD: Coupled with technology, the consumers are so much more informed. They can force us to compete just by saying, “Hey, I just saw this offer online and here’s what your competitors are doing.”
SULLIVAN: We all compete against each other for clients and employees, but I think we, as an industry, have taken a stance that we’re all on the side of cyber security together. There’s actually a network called FS-ISAC (Financial Services – Information Sharing and Analysis Center). If there’s an issue that’s happening at Bank of America, we’re going to know about it at Bank of George.
KIRK CLAUSEN: I think that’s a really good point that, over the years, it’s really evolved. There’s a lot more sharing that goes on today. If there’s a robbery next door, I see a picture of it within minutes. It’s pretty quick as to who was robbed and what they look like. The collaboration is so much better than it was 10 or 15 years ago.
What is happening with the regulatory environment?
JOHN KLEY: Regulatory is always an issue. But, what the state does from a taxing authority point of view and what they did to change the dynamic of the state gets in the way. [It effects] how far we expand our model and how many new customers are seen coming in from out of area to absorb some of that product.
CLAUSEN: The truth is, it’s truly not one-size-fits-all. Whether it’s a state regulation or a federal regulation, it comes out and the cost to implement all these regulations, just for my company, is scary. I don’t know the number, but it’s probably scary. We hire literally thousands of people around compliance and legal help to work through all the regulations, whether they’re new or rewritten or existing. We can do that. If you turn to a smaller institution, it’s disproportionate. They most likely can’t afford to hire that kind of support, at least in house. There just seems to be something wrong with that.
SHIREY: I think that’s limited options for consumers. How many banks in here were issuing mortgages prior to the new qualified mortgage rules then stopped after? A lot of banks self selected out of even offering mortgage products because of the compliance and regulatory issues they would have to deal with and the costs that would occur. I don’t think that’s ultimately good for consumers.
BURNS: It goes back to rightsizing the regulatory environment. There’s certain types of regulations that apply to every institution regardless of its size or complexity. Cyber security is one of those. It all has to meet the same standard. When it comes to something such as stress testing, those same rules should not apply to a one branch, $150 million bank. It just shouldn’t. Because we’ve become such a litigious culture, everything is run by lawyers now. It’s not run by regulators. What I’m hoping will happen is they will drive more of the authority down to the examiner level and down to the local level as opposed to Washington D.C. trying to centrally run everything. They need to be delegating authority so when an examiner goes into an institution they can apply common sense and make an evaluation of that. When we do our joint exams with the FDIC, we, hopefully, bring balance to that federal agency that’s local and understands the market.
SULLIVAN: I agree with everything you just said. Every time we have a conversation with our regulators in the last three years, they always have their counsel on the line. If you roll all of this into the small bank environment, there’s thousands of employees as Wells Fargo and Bank of America, but at a small bank we have to hire five or six. Well, that’s 10 percent of our workforce now. And 15 years ago, it was one full-time person and bank-wide training. The shift that’s happened over the last two decades, particularly if you throw cyber security into the mix, is a huge burden on the smaller banks. Not only are we seeing where the rules are being driven directly out of D.C., but because that environment is so litigious, a regulator is always going to err on the side of caution. Even for rules that don’t apply to small banks, we receive recommendations that were intended to apply to much larger institutions under the description of best practice.
GENE GALLOWAY: It’s not the regulatory environment. It’s the congressional environment. I defend the regulators. They get the toughest job. I’m a big fan of the FDIC. They’ve been super supportive of us. I think it’s the political environment more than the regulatory environment. They’re just the scapegoats. They don’t make the rules.
How do you engage the new generation of bankers?
FORD: We’ve been pouring into them and trying to teach them and getting them ready [to be leaders]. Still, finding broad base talent is tough.
KLEY: A lot of it is how you position them and how you keep them walking down that road. They’ve got to buy in.
CLAUSEN: I think it’s having that conversation up front and early about what the possibilities are so you can engage their loyalty and, hopefully, keep them around. I think about when I started, I wasn’t thinking career. To the point about how smart younger folks are about their career, they are thinking about these things much earlier than I did.
WELCH: We create a value proposition, really talk about career development and put a plan in place; probably much more so than when I was in their shoes. Their minds are going a thousand miles an hour.
OCHAL: We have millennials and some of them say they haven’t been afforded the opportunities to even get in the door. That’s the one thing that I’m finding out with the millennials we’ve hired; they’re thrilled to be given opportunities. There’s just so much they can bring to the table and they have a different thought process. What I do is just try to let them show me what we can do differently.
GALLOWAY: It’s different for community banks versus much larger banks. We’re more generalists. We have a traditional relationship manager model. That means you know about lending, products, sales, collections. You can’t find those guys because, in my generation, we did away with commercial lending training programs and that was a feeder group for community banks. We’re morphing our model to go more sales and service to keep growing.
BURNS: I think that nowadays, banking is considered kind of boring. Generating interest [is important], because it’s not as high-flying as Apple and Google, you have to get down to working with the people that are coming out of college. I know a number of the folks here were involved with a commercial banking class at UNLV’s lecture series, getting them interested in the class in the first place. That generated some good interest.
GURGEVICH: As an industry, we are doing more to engage with students and let them know, at the college level, that this is a viable career path and it is exciting. Taking it all the way down to grade school, the legislature just passed and the governor signed SB249 which is the financial literacy bill. We’re improving the curriculum and the amount of attention finance gets in a student’s education so when they graduate, they’ve got a grasp of basic economic principles. That’s going to stay with them all their life. The hope is that, as we educate students about these basic principles of economics, they will be better prepared not only personally with their finances, but also more aware of and interested in the career paths related to banking and finance.