Aloha! Blue skies in 2003

Northwestern Financial Review, Oct 15-Oct 31, 2003 by Dullum, Justin

Bankers attending the American Bankers Association's annual meeting are told to leverage the good times.

Thanks to the banking industry's record profitability, banks are in a position to reach into new markets and effectively fight ongoing battles. At the American Bankers Association's 2003 convention in Hawaii, Sept. 20-24, bankers peppered their conversations on globalization, fraud and continued profitability with this optimistic sentiment.

The biggest banks have dealt in global markets for years, but are regional and community banks ready to take the leap into international trade? A general session panel produced mixed answers. "I suspect many of your customers are becoming involved in international trade and are coming to your bank asking for trade finance and other provisions," said ABA President Don Ogilvie, who moderated the discussion. "More suppliers are seeking American business outlets. China, South America, Africa are all literally exponential in their growth."

Miriam Lopez, president of the $370 million TransAtlantic Bank, Miami, said her bank independently supports foreign trade for its business customers. She suggested bankers explore the possibilities these markets hold for their customers or otherwise forfeit a potentially lucrative revenue stream. "People who were once reluctant to bring money into the United States now are doing so. The business is out there just waiting to happen," Lopez said.

Jerry Grundhofer, president of US Bancorp, Minneapolis, agreed that banks should be open to facilitating foreign trade. US Bancorp provides correspondent services that help community banks finance international trade. "Even if you are a small bank, your customers need to have the option," he said. "Through correspondent relationships, you can do it. You'll make some dough and your customers will be served."

Community banks looking to help businesses reach foreign markets will have to lean heavily on correspondents, said James Poland, Overseas Private Investment Corp., Washington, D.C. "I don't foresee small-to-medium size banks being able to make these investments with their business customers on their own," Poland said.

But Lopez disagreed. "We're a medium-size bank and we've been able to do it," she said. "With computers and the Internet, you can find out what you need to know. You can take business anywhere."

While panel members found room to disagree, the presenters concluded market expansion for small business will become increasingly vital to success, and banks will want to get involved.

Eyeing technology

While technology has opened community banks to a world of possibilities, it's also given criminals access to a world of banks.

Frank W. Abagnale, whose life inspired the 2002 Steven Spielberg film Catch Me If You Can, told bankers how he committed fraud to the tune of $2.5 million. In the 1960s, between the ages of 16 and 21, Abagnale cashed fraudulent checks in every state and 26 foreign countries. He was eventually caught and served five years of a prison sentence before being released after striking a deal to help the FBI. Daniel Barta, Carreker Corp, Dallas, followed Abagnale's talk with a break-out session concerning the rise of fraud losses at community banks.

"Abagnale had to invent or create an identity," Barta said. "We've migrated to today, where criminals can easily steal the identity of another."

Barta said fraud prevention is complicated and no blanket solution exists. "There are too many different ways for a criminal to get to your bank," Barta said. "The big banks can't stop all of it and neither can the smaller banks. Since you can't cover every angle, you have to determine where your bank is most vulnerable." The biggest banks do, however, have the most sophisticated prevention systems and small banks, therefore, "represent the path of least resistance" for criminals, Barta added.

Fraud losses cannot be eliminated, but they can be managed, said Barta. A bank must determine an acceptable level of fraud loss, set that as a goal, and monitor success by continually gauging losses and comparing results against past measurements. Barta said banks should work together and share information they acquire trying various tactics.

Regulators call for vigilance

After two years of record profits, two of the industry's top regulators warned bankers not to become complacent.

"The banking industry is in the best shape I've ever seen," said Don Powell, chairman of the Federal Deposit Insurance Corp. Powell said bankers should use the opportunity provided by stability to secure the future. He punctuated many of his remarks with the phrase, "now is the time."

A bank's greatest enemy in good times is complacency, Powell said. He urged the bankers to pay attention to their employee ranks. "When was the last time you spent time with your employees? When was the last time you took a close look at who is doing the best work and who is not performing? During these good times, get rid of non-performers. We always wait until times are bad to do that but really we should do it when things are good." Powell also suggested banks use this time of stability to build relationships with regulators.