Nebraska bankers assess industry environment

Northwestern Financial Review, Nov 1, 2001 by Dullum, Justin

Occurring only one month after the Sept. 11 terrorist attacks, the 2001 Nebraska Independent Community Bankers convention could not escape the cloud of uncertainty hanging over the entire country. The customary advice on how to operate an efficient bank was dispensed. Persisting concerns over bleak economic forecasts and the prospect of long-term military engagement inevitably took the stage.

Economist James Vining, president of a Memphis, Tenn., consulting firm, discussed the record-breaking behavior of the Federal Reserve Board. He also placed the performance of the Fed and the stock market during times of crisis into a historical context, showing that the market's current state is part cyclical and part reactionary.

"The largest-ever overnight Fed repo was $16 billion prior to September 11," Vining said. "The three days following the attacks, the Fed did $38 billion, $70 billion and $81 billion, respectively." Vining said the Federal Reserve dropped interest rates 500 basis points after the start of the Gulf War. Consumer confidence also dropped, as it is dropping now. The onset of tragedy and a slumping economy are coincidental, Vining said. He pointed to the preSept. 11 level of industrial utilization-76.2 percent-the lowest since 1983.

Vining stressed that the economy is acting just like one in a natural slowdown that is suddenly hit by a negative force. Expectations must therefore change and investments generating 4 percent to 5 percent over one- to five-year periods are looking to be the profitability benchmark, Vining said. "It's a drop from what became the norm for a while, but four and a half percent is going to be just fine by me."

Charles Lewis, president, UMB Consulting Services, told the bankers to use their greatest asset: their position in the community. "Community bankers are already in the best position to increase security because you know your customers," Lewis said, adding that tightening security begins with strategic planning. "You can say your plan is to always give the best customer service. That's not a strategic plan. What are you going to do?"

Regulators are going to be looking for banks to approach security as exhaustively as they did the Y2K computer scare, said Lewis, a compliance expert. The banking industry raised the bar on itself by dealing with Y2K so well. "Remember how you, and everybody else, had a folder about Y2K that listed everything you had done to insure against problems? Regulators are going to want to see a concentrated and organized effort like that in other areas."

The Soldiers and Sailors Civil Relief Act should not be problematic if bankers prepare for it, Lewis said. The act is delicately tied to public relations. "There isn't a banker in this room who wants to be perceived as not supporting soldiers in the field because they unwittingly failed to meet the act with full compliance," Lewis said. For the relief act, Lewis made a simple recommendation to avoid regulatory scrutiny: don't be passive.

Since benefits apply retroactively, beginning on the date a soldier is activated, Lewis suggested that if they know someone in their town to whom the act would apply, don't wait for them to come to the bank. Lewis said it is futile to question the act. He also advised against inquiring into a soldier's income situation. Just be prepared to offer all soldiers rates that comply with the act's 6 percent ceiling. "Don't start a fight. It's one you can't win and you'll look horrible doing it," Lewis said.

As for any new security and secrecy regulations that might appear, Lewis suggested bankers be on alert and use logic. "If someone is suddenly depositing unusual amounts of cash, just look into it. If tellers come to you with something suspicious, listen to them."

NICB Executive Vice President Kurt Yost called the 2000-2001 Nebraska legislative session productive, even though lawmakers didn't vote on several important tax bills. NICB leadership acknowledged that bills carrying over from last year's agenda are unlikely to command the same attention they received earlier. NICB plans to work with state and federal governments in enacting purposeful and prudent anti-terrorist provisions.

At the convention, held in Lincoln, Neb., October 4-5, NICB members voted in Kirk Enevoldsen, Potter State Bank, as a director and Kathleen Thuman, Farmers State Bank, Maywood, as vice president. Steve Michel, president, Henderson State Bank, Henderson, replaces Barry Marsh, The Tilden Bank, as NICB president.

By Justin Dullum