Magazine article American Banker

Comment: Perils of the Family-Run Bank

Magazine article American Banker

Comment: Perils of the Family-Run Bank

Article excerpt

Whether or not it was once true that most bank presidents inherited the job, it isn't now.

Family banking isn't what it used to be. Larger organizations have bought many banks handed down from father to son or daughter. Other family banks have succumbed to "shirtsleeves to shirtsleeves in three generations" -- grandfather founds it, son or son-in-law builds it up, grandchildren run it into the ground.

But for every family bank that has followed this course, many remain -- and owe their strength and stature to family ownership.

Unfortunately for the families, many such banks prosper because the owners underpay themselves and pay no dividends, subsidizing the bank's role in the community. Obviously they feel status and/or the opportunity to serve neighbors in a personal way makes it worthwhile.

I have often heard stories of how the president of a family-owned bank went the extra mile -- for example, opening up on a Sunday morning to help a forgetful neighbor get travelers checks for a trip.

And I have almost never heard of a community complaining because its bank is family-owned -- though I have heard owners complain about the low pay they tolerate to keep their bank viable.

What other problem do family-owned banks have? One is training the kids to take over. In-house training alone can shut off fresh ideas. Back when major banks had large correspondent divisions, they were delighted to have the children of family-bank leaders in their training programs. …

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