The banking industry today is operating in an environment that few could have anticipated, yet requires an increasingly complex mix of banking skills, leadership capabilities and interpersonal qualities in its leaders. Having spent time recently speaking with hundreds of bank CEOs, board members and senior executives, the requirements for success as a bank leader today have crystalized. Each letter below represents a vital element that bank CEOs and potential CEOs must understand or possess:
B is for balance sheet: Today’s bank leaders must understand the risks inherent in the current interest rate environment, whether due to potential funding mismatches or the risks from declining securities values in a rising rate environment.
A stands for asset quality: Bank leaders must remain vigilant regarding credit quality. There’s still no quicker way for a bank to falter than to suffer from a spate of bad loans. Regulators continue to focus on credit culture, policies and procedures as well.
N is for non-interest income: Everyone wants more, but how do we actually grow revenues? Increasing fees on customers always carries some potential fallout. And building lines of business such as wealth management, insurance or other products involves a significant up-front investment and a long-term return. There are few easy answers here.
K represents capital: As everyone knows, this is the most critical ingredient that banks need today to survive and drive growth, whether organic or transactional. A lack of ample capital not only constrains strategic plans, but too often invites a call from your regulator.
The L stands for leadership: While great leadership remains an obvious prerequisite for success, the demands on bank leaders today are more strenuous and complex than at any time since the Great Depression. Many bank boards struggle with the challenges of succession and developing that vital next generation. In addition, the mantle of leadership should extend much further into the organization than just the CEO’s office or C-Suite executives for an organization to truly succeed. While the CEO sets the tone, everyone should lead by example in their daily interactions with customers and colleagues.
E stands for emotional intelligence: This is the critical aspect of leadership in which you see your bank’s leaders communicating effectively, leading from the front rather than the rear, and following a “servant leader” mindset. The emotionally intelligent leader knows that the bank’s success is not about them, but rather the people on their team. When the team is successful, the leader succeeds as well.
A represents authenticity: One of our favorite leadership attributes, authenticity occurs in the leader who means what she says, and does what she says she will do. It’s the ability to create “follower-ship” through actions and a genuine approach to dealing with a bank’s varying constituents.
D is for digital savvy: Today’s community banks need an approach to the digital world that is timely, relevant and real. Whether you like it or not, the technologies that are revolutionizing banking today are not just impacting the industry’s back office, but have become a vital channel for growth. Banks must play offense here, not defense.
E represents the employee: Bank CEOs and directors regularly praise their employees for good work and great service. While these qualities are the foundation upon which our institutions are built, they are simply not enough anymore. If your bank is going to win against the competition, it must have the absolute strongest cadre of bankers possible—from the executive team to front line lenders and managers, to the employees behind the scenes. Next to capital, employees who can execute your plan are the only remaining differentiator in banking today.
R, of course, stands for regulatory: In the current climate, the ability of bank leaders to forge a constructive working relationship with their regulators is vital. Banks that take a combative tone with their examiners usually end up on the wrong side of their exam. While the regulatory climate may have overreached, it is what it is. High-performing bank leaders figure out how to operate successfully under this dynamic, and forge positive regulatory partnerships.
As Billy Beale, CEO of Richmond, Virginia-based Union First Market Bank stated recently at the Bank Director Acquire or be Acquired conference: “Banking is not complicated, but it has gotten awfully complex.” Today’s bank leader needs a plethora of banking skills, leadership competencies and personal attributes to be successful. Anything less than a full suite of these talents may not only impact your bank’s ability to win, but could ultimately put the institution itself at risk.
The greatest challenge to CEOs, chairmen and their boards will be how to generate acceptable returns to shareholders in the face of ever-growing compliance concerns and a continued sluggish economy with high unemployment and historically low interest rates. Without an administration change, 2013 promises to continue increasing and more stringent banking supervision and additional regulation, including consumer compliance initiatives and aggressive enforcement from the Consumer Financial Protection Bureau and new capital requirements from Basel III. This will not only impact decisions on day-to-day operations and planning but also shape thinking on mergers and acquisitions activity and the raising of capital. Specifically, if new capital rules are adopted, boards will need to explore the availability of capital, and whether capital can be raised at satisfactory pricing levels.
Talent. There is a shifting environment of constant change that is the new normal for how all businesses operate. Pressure is intensifying—from regulators to creative innovators who are bucking the traditional banking models trying to influence change. Bottom line, CEOs need to have the right talent in place to lead effectively—not only to confront the current challenges, but to create an organization with a connected culture to be the bank of the future.
The top challenge is that banks cannot earn their cost of capital in today’s environment. The combination of higher capital requirements, margin pressure due to extraordinarily low rates, slow economic growth and cost pressures associated with regulation translates into inadequate returns for shareholders. A CEO’s job is to outperform peers in this environment while making investors realize that these challenges will not last forever. In the event that a bank can’t operate more effectively than its peers, it is the CEO’s responsibility to his/her board to face that reality and proactively explore exit opportunities.
Notwithstanding the difficult business climate and the continuing economic challenges facing the banking industry today, the regulatory burden is the top strategic challenge facing bank management and boards today. While the reelection of Obama results in some certainty that the barrage of new regulations will continue, there continues to be considerable uncertainty. For example, what will the creation of the CFPB mean for community banks not directly regulated by the CFPB? What will happen with Basell III? Regulatory costs are also a significant factor when considering the optimal asset size to best leverage today’s cost of doing business. 
