Have you ever asked yourself, as you sit through an interminable bank board meeting, what in the world should I be doing as a director?
Unfortunately, far too many bank boards spend the bulk of their time reviewing problem loans, considering credits that couldn’t get resolved by the loan committee, and talking over regulatory and administrative issues that have very little to do with the future of the bank. If the larger issues ever come upu00e2u20ac”how to grow the bank, where and when to spread the branch network, what new products to offeru00e2u20ac”it’s inevitably near the end of the meeting when most everyone is chomping at the bit to get back to the office.
Here’s my suggestion: Go home and think about the long-range plans. On what should you base your long-term thinking? You can pay a consultant an arm and a leg to tell you what’s happening in the banking industry. Or, you can head to the FDIC’s website, fdic.gov. It’s filled with information you can use.
When you check out the website, take a look at the recently issued FDIC Future of Banking Study. It’s a series of four papers by agency staffers that examine the likely trends in the banking industry over the next decade: Banks’ Role in the Financial System; The Number of Bank Organizations; Community Banking; and Payment System.
Here are just a few nuggets:
– As recently as 1984, there were over 15,000 banks and thrifts in the United States. At year-end 2003 the number had fallen to 7,842. Does that mean we’re headed for a European model, with a handful of banks serving millions of customers? No. The FDIC envisions “an eventual balance developing between the number of new bank start-ups and charter losses due to mergers and acquisitionsu00e2u20ac”with little change in the number of banking organizations nationwide.”
– Think those credit-card specialty banks are risky, low-profitability businesses? “…the average ROA for the credit card banks was more than four times the banking industry average.”
– The number of bank charters fell by 29% in the past decade, internet banking is growing exponentially, and ATM machines are everywhere. Must be fewer branches, right? Wrong. “In the decade between 1994 and 2003, the number of bank branches increased by 15%.”
– Why not put your money into great new products, price them aggressively, and forego that expensive branch strategy? According to the Federal Reserve, “the single most important factor influencing a customer’s choice of banks is the location of the institution’s branches.”
– Do you think that branches are expensive and inefficient and that the smart banks stay lean and mean? “…banking organizations with larger branch networks generally have much higher noninterest revenue, and as a result, have better efficiency ratios. Improved efficiencies are reflected in higher overall profitability for multibranch banking organizations.”
The FDIC website contains both the full reports, which are worth at least a scan, and summaries of the four studies. The summaries are a quick read, and will provide fodder for a lively board meeting. And what director couldn’t use more of those?