One industry that is consistently at the forefront of any economic discussion is banking. From financing issues to community giving, bankers are involved in the Silver State at a micro level. Recently, executives representing this industry met at the Las Vegas offices of City National Bank to discuss everything from regulations to education.
Connie Brennan, publisher and CEO of Nevada Business Magazine served as moderator for the event. The magazine’s monthly roundtables bring together industry leaders to discuss relevant issues and solutions.
Can we Expect an Economic Downturn?
James York: I think the economy and competition [are the biggest challenges]. There’s a lot of banks chasing after a lot of the same deals. As the economy does what it’s going to do, it’s being smart and making good, solid loans and building good, solid assets that are going to weather another downturn, which we’re going to see. Our interest rates are higher than the rest of the world, the economy’s stronger than the rest of the world, it’s not going to last forever. Although I feel like Las Vegas is one of the last ones to come out of this storm, I feel like we deserve another solid five years because we’ve only had a couple.
BJ North: We’re seeing a slow down. We’re a rural bank, but we’re in the Reno market and some of our other larger markets are seeing [an economic] slow down. We have two loan officers, they both did $29 million last year each; that was crazy. This year, they’re seeing activity, but they’re actually having time to get out and make some calls. They’re getting a slow down and the type of requests they’re getting are a little bit different. We’re seeing a lot of very large projects up in the North. We just are seeing a little bit of a slowdown. I think it’s across the board. It’s an election year, you’ve got all this chatter, you’ve got trade, you’ve got politics, you’ve got talks of recession every time you look at the news. And looking at our numbers, manufacturing’s down. There’s a lot going on and, for us in the North, manufacturing is huge, logistics is huge. People are starting to believe what they’re seeing.
York: It is self fulfilling.
David Navarro: I agree, on a macro level. We’re seeing some signs that point to some kind of downturn or recession. In Nevada, there’s some heartening news here, our economy over the last ten plus years has continued to diversify from gaming. We continue to see new businesses enter the market, new things happening. We see construction everywhere but we don’t have the same amount of construction jobs, which is good and bad, because now construction labor costs are going through the roof. Our clients, consumers and businesses, a vast majority of them went through the recession and most of them have learned lessons from that. I see it every time I look at clients that we’ve had for a long time at the bank. I look at their balance sheet shortly after the recession and now, they’ve made moves to ensure that they can withstand a downturn. It’s heartening to see that because these cycles are inevitable and all we can hope is that our clients and the banks themselves make appropriate moves no matter what cycle.
Paul Stowell: This environment provides the opportunity for bankers and our industry to be proactive, get out in front of this and talk with our clients. The last thing we want is someone coming to you and saying, “Why didn’t you say anything? Why didn’t you talk with me about this?” It goes back to the relationship aspect of our industry and having those conversations. At the end of the day you want to be perceived as a trusted financial advisor and someone your clients can turn to for information, reassurance and understanding of what’s really going on in this economy.
John Guedry: I agree, the one caveat is, I don’t know what it is we’re supposed to be advising on. At least when you look back to the last recession, you could see a bubbling housing market. Nobody predicted the depth and breadth of the recession that we went through. This time around, I don’t see those signs pointing to what would lead to a recession. I see a lot of government activity. Is it becoming a self-fulfilling prophecy or are we talking so much doom and gloom? Maybe it is because we did go through such a bad time and so [people are] overly cautious and any little bit of bad news will blow that out of proportion. In the business clients we serve, balance sheets look better than they ever have. We don’t see over-leveraged companies like we did see before the last recession. Income statements look better than they ever have. Companies are sitting on much more cash than they did in the past. So you would typically see some weakening in those areas if you were expecting that we are hitting a point where we’ve run the cycle and we’re ready for a downturn, and we’re not seeing that. I don’t know when a recession will come. It’s inevitable, so it will. We’ll go through that cycle again.
Is This Industry Over-Regulated?
Diane Fearon: From the experience of a new bank, working with the regulators in regards to getting the approvals, both the FDIC and the state of Nevada were encouraging about what it would mean to the overall economy and availability of credit. They haven’t lost their rule book but they did find one or two “Yes” stamps in the country. It used to be only “No” stamps. That was a feeling most of us had during really difficult times in banking when they were also defensive. My experience has been that the regulators are more involved in having you get it right and taking an approach that has to do with mutual best outcomes. I’m encouraged by that for the regulatory environment.
Sara Lindgren: Generally speaking, the banking industry is pretty notorious for being pretty highly regulated. We’ve had a lot of regulation impacts after September 11. There were a lot of things that impact anti-money laundering, “Know Your Customer” requirements and new clients requirements that we all, as institutions, have had to figure out how to manage the information regulators want to see on our clients. Clients have had to adapt too. They were being asked for so much more than they were ever asked for before and, at times, it could feel invasive.
Stowell: It’s interesting you bring up the client. The clients have had to learn a lot, go through this learning curve and provide more information. But, I don’t think in this environment today, being highly regulated, the client truly understands everything that we go through and how it impacts the bottom line. [For example,] the hiring of more compliance individuals within a bank, it takes away from the bottom line.
John Zaby: There’s numbers out there that 200 out of 300 employees at a bank are compliance or compliance related. The cost of doing that is squeezing the margins heavily.
Navarro: Regulations also affect a bank’s internal policy to comply with those regulations. Lately, the trend I’ve seen is, if there’s a more conservative approach to do something, the bank will do that even though there may be business consequences or make it a little more difficult for the clients. These regulations don’t just impact because there’s a new regulation. When the banks then set policies to meet those to ensure that they’re meeting those regulations, it almost becomes more restricted at times. Sometimes the banks feel it, but I think the clients have been the ones to really feel the brunt of the impact.
Phyllis Gurgevich: I think the worst case scenario is when the regulation is so robust that a bank can no longer offer products and services and they’ll decide to exit a space via home lending or small dollar lending. If you can’t compete in that space, that leaves the clients and customers with less safe choices.
Stowell: I don’t think the general public and regulators want to hear banks crying about the regulations. All we’re asking for is fairness and equality and to keep a balance. With the change and swing of the economy, you see the pendulum in regulations swing with it. If we could just find a happy medium and a balance, that’s all we’re asking for, as an industry. When it swings too far one way or the other it impacts the client, it impacts those that we’re trying to serve.
Guedry: I agree. The worst part of it is when regulations become so restricted that you get out of that business and then ultimately the very people it was meant to protect are the ones that are hurt.
How is Banking Affected by Technology?
North: For a community bank, one of our biggest challenges is just being able to keep up with the technology advances and delivery. Because we use a third party vendor, we don’t have our own platforms like some of the other bigger, more matured banks. That’s always a challenge. You’re always trying to catch up or find a vendor that can supply us with the same type of delivery products. The other [challenge], of course, is cyber security; watching out for the people that like to do bad things in the hacking world.
Lindgren: Technology is the thing I think about the most right now. That includes things like cyber security, which we all think about a lot. Innovation and disruption and how that’s going to affect our industry. All of the businesses we talk to are seeing disruption happen in their industries and thinking about how they’re going to manage disruption. Banks should be thinking about the same thing. We have an evolving customer base that has different needs and wants and desires and how they want to interact with their banks. That’s something that’s really important for our industry to be thinking about.
Gurgevich: Emerging technologies continues to be a challenge and it’s changing the way customers and banks communicate and connect with each other. Along the same line, that technology does bring in the cyber security and banks are at the top in cyber security. As the way banks and customers connect changes, everyone still needs to balance that safety and security and not get lax. Customers need to be diligent in partnering with the banks to protect their information. Here’s a little PSA: No legitimate business will pay you or pay on an account and ask you to refund part of that back. That’s a red flag. It’s a scam and it’s old school.
Navarro: Technology is becoming very disruptive and rapidly changing. Many other industries are not held back to the extent we are for adopting [technology] and so clients get accustomed to that and they can be very frustrated when they deal with the bank’s technology and our platforms. The other one is expertise. That involves making sure we’re attracting talent to be able to talk about commercial transactions or things of that nature with clients that are very sophisticated.
How does Cyber Security Factor in?
Lindgren: Our firm spends about $600 million a year on cyber security out of a total technology budget of about $11 billion. It’s the thing that keeps a lot of people up at night. We’ve seen, across various industries, breaches and hacks and how that can impact the brand of a business at a news level. You’ve also seen how it can impact how your clients feel about you. We protect a lot of personal information of our clients, all of us do as institutions so it’s important that we’re all thinking about it. I think it requires trying to stay one step ahead, and that’s the hard part. These hackers, a lot of them, spend all day every day doing this. The velocity of information they have to collect in order to do the damage they do, it’s a serious business and it takes a serious action on their part to get what they need. It’s constantly staying top of mind. It’s educating clients, too. We spend a lot of time on the advisor front. Are [clients] protecting their business, how are they thinking about it and are they coaching their employees?
York: Some clients just want to fold their tent, as far as technology goes, and don’t even want to touch it. With education, you can teach them the best way to defend yourself is actually understanding the technology and having accounts tied to your device so you can see as soon as something is going on with your account, you’ve got an alert. You’re aware of it. Those things are very important. We’re not going to get away from technology. It’s here, it’s not going away. It’s just going to get more and more complex and it’s a wonderful thing if you can control it. The best way to protect yourself is to be plugged into it. Your employees and your clients need to be taught, especially in the over 40 crowd of clients. A lot of them are struggling with it still. They don’t know how and if they should embrace it. We can teach them how it works to actually protect a business. So, it’s using the checks and balances we can offer through technology to help protect them from the fraud.
Lindgren: Sometimes it’s just simple processes, like a call back. When they get an email about a wire instruction change, pick up the phone and talk to someone and validate it. That is not a technologically difficult lift for a company to do. That is something easy that anyone can do. A lot of it is sometimes those best practices that are easy to get off the ground.
What is a Common Mistake Business Owners Make in Regards to Security?
Fearon: If they have an option not to have two-factor authentication, they go with not having it. They’re cutting corners for convenience over security and safety. But they’re making choices they don’t expect to have to pay a price for.
Lindgren: Dual control in general [is important]. There’s various processes, banking and otherwise, where people can use dual control and they probably don’t.
York: Or, owners trust one individual with too much authority.
Zaby: Or, they give their passwords or credentials out to other people.
Stowell: A lot of this is so avoidable. We have smart criminals out there and we’ve tried to stay ahead of them with smart I.T. people and cyber security folks. The millions and millions of dollars we are all spending on this, it’s taking away from our bottom line. At the end of the day, it goes back to educating and some of it is so simple.
Guedry: I would add also, sometimes we’re naive in believing that we have all these electronic controls to monitor everything and we lose track of the fact that it starts with you individually, and every other employee, making sure that they’re protecting data. It’s not so much somebody stealing money out of the account as it is getting control of the data and actually controlling it to the point where the bank doesn’t have the ability to access it. Then you’re held hostage, and that’s when it can cost you lots of money. A lot of that stems from just employees not following basic fundamentals. Technology has made us a lot more efficient and cost-effective to be able to run, but you have to invest in the technology. You have to invest in the security that comes with that. If you do that part, the other part is where I think we fall short. Often we fall short in making sure our employees and our customers are trained on the things that they can do to protect themselves. To me, that’s where we need to do a better job, as an industry, educating our customers and employees, then being religious about following certain protocols.
Is There a Labor Shortage in Banking?
Stowell: The biggest challenge we see down the road in our industry is going to be the talent pool. There’s not a lot of folks going into our industry and you look at the university systems and there’s not a lot of young people coming out that are looking at banking. That will be one of our greatest challenges.
Zaby: The biggest challenge we’re going to face is finding the people, the talent that can innovate and make that difference and become advisors and be of service to our clients through the changing times and the issues. Finding those people that can execute on that vision and differentiate banks is the biggest challenge.
Guedry: The problem that we have in the labor market stems from not home growing for the jobs we have today, let alone for the future. All of us have experienced this. You hire someone from out of state and cross your fingers that they decide to stay. If you hire someone that’s grown up here, the likelihood of them staying is much, much higher. The problem is, we’re not getting enough qualified people. I know [this industry has] worked in support of education. We are all believers in supporting education and most of us would say we’re believers in funding it as long as there’s a responsibility in how the money gets spent. It’s crazy that we have to recruit from out of state to fill positions of companies that have been here for multiple generations, but there’s no steady workforce coming out of the education system.
Gurgevich: In terms of workforce, one effort the Nevada Bankers Association and its members worked together to create is a banking program at UNLV. The program covers two years of elective coursework completed during a finance major’s junior and senior year. The hope is that students will learn about and be excited to look at banking as a career choice. For students that don’t become bankers yet work in finance, the coursework will help them better understand and manage their company’s relationship with their bank.
Navarro: [In regards to], the UNLV Commercial Banking Program, it’s really exciting to see a bunch of bankers coming together for a cause. It was identified pretty early that there was a huge talent gap in our industry, not just here in Nevada, but across the nation. All of us are accidental bankers and have been very successful in our careers. You can only imagine what happens when you have purposeful bankers. It’s very exciting and we’re starting to see some results. There’s been internships, job placements and addressing the lack of bank specific education. Bank training programs are going away. It’s very important to have that [training] before you go into a bank. I’m happy we’re all, for the most part, trying to help that cause.
Stowell: Our industry as a whole, while we’re competitive, we’re also very collaborative. We work together on these issues. All of us are sitting at non-profit organizations and these committees to help improve education. We’re always there helping the community and when you ask people out in the community what’s the number one industry that gives back and supports the community to make it better, I think our industry is number one.