In this article, the author discusses the future of the banking industry. He sees the forces acting on the industry as a three-ring circus: In the center ring is geographic expansion and industry consolidation; in the second ring--the lion tamer's ring--is customer information and technology; and in the third ring is the balancing act--banks balancing their strengths with customer expectations. The importance and interactive nature of these influences are presented, and readers are told how the author's bank is responding.
This article discusses geographic expansion and industry consolidation in light of full interstate banking and branching. But geographic expansion and consolidation is only one ring of the three-ring show that, ultimately, will shape the industry. In the second ring--call it the lion tamer's ring--banks are taming customer information and technology in new ways. For years, bankers thought they were being innovative when they discovered a creative way around a regulation because regulations were the industry's primary challenge. But today, as regulations begin to fall away and competitors like Bill Gates show us what innovation really means, our choice is clear: Harness technology and information to redefine how to reach customers or join the ranks of the irrelevant.
The activity in the third ring is the balancing act. Banks are selecting which businesses they want to be a part of (and which ones they do not want to be part of) as they endeavor to achieve the exact balance of their strengths with the expectations of their customers. The reward for striking this balance is loyal customers who know their bank can meet their needs and satisfied shareholders who buy shares because of the diversified earnings stream.
The center ring of geographic expansion will be fun to watch. It will host unprecedented deals as geographic restrictions are lifted over the next few years. But the astute observer of the industry will keep his or her eye on the activity in the other two rings because customer information and technology and market selection will produce formidable players.
The Center Ring: Consolidation/Geographic Expansion
A great deal has been said and written since the passage of the Riegle-Neal Interstate Banking and Branching Act last summer. At Nations Bank, management believes banks, their customers, and their shareholders will be far better off with a U.S. banking system that is stronger, more efficient, and more convenient.
The principles of geographic balance are present at NationsBank. The strength of the banks on the East Coast helped fuel the recovery in Texas in the late 1980s. In turn, the Texas recovery made the company stronger amid the East Coast recession of the early 1990s, protecting earnings and positioning the bank to lead the market.
These advantages will multiply in 1997, when multistate bank holding companies are allowed to consolidate their bank subsidiaries, at least in those states that have not opted out. The additional advantages include:
1. More efficient use of capital. At the time NCNB sought to bid on Southeast Bank in Miami, the Florida bank simply lacked the capital to do the deal, although the consolidated company had more than enough. In boxing, they call this a technical knockout, and at the time, it was the cause of no small amount of frustration.(1)
2. Increased availability of equity. Consider that the full merger of operating banks is actually the source of strength doctrine. With consolidation, all a bank's equity will be available to back any loan.
3. Elimination of interbank lending.
4. Less paperwork.
5. Fewer boards and committees.
6. A vastly more convenient banking system for customers--which must be delivered.
A handful of institutions, including NationsBank, are moving to provide these advantages to the extent possible through …