“Leadership is a constant process of
-Jim Keyes, CEO, Blockbuster Corporation
There are a few sayings that used to really grate on my nerves, but today they seem amazingly relevant. My boss at the community bank where I worked for 23 years would drive me up the wall when I’d go into his office to explain (whine?) about all the difficulties I was having keeping our customers happy or meeting our financial goals. His simple answer, always delivered with a caring smile: “Well, Bill, if it was easy, anyone could do it!”
Another frustrating adage, this one heard at home from grandparents and parents who grew up in the Dust Bowl in the 1930s, was, “That which does not kill us makes us stronger” – kind of a cleaned-up “survive or die.”These are people who survived that Great Depression. My grandfather and his brother owned a tiny bank and ranching operation in the hardscrabble ranchlands of eastern New Mexico. McFarland Bros. Bank (yes, there really was such a bank – see http://www.harrold.org/familytree/webtree2/21.htm if you’re a glutton for ancestral trivia!) closed for the four-day Bank Holiday on March 5, 1933, but the bank survived into the early 1980s, when it was sold to another local family. My family was neither unique nor remarkable – there are countless more who survived in spite of even more-insurmountable obstacles. This is the generation that whipped Nazi Germany and Imperial Japan, probably the greatest threats ever to our survival as a nation.
So what are the likely outcomes of our current troubles, and what can we do about them?
Bank regulation is not unlike asset diversification in a loan portfolio; it is easier to deal with several small problem loans than one huge problem credit. That’s why we have laws concerning loans to one borrower and asset concentration.
There is also no doubt that those firms that are financial intermediaries in fact if not in name must be regulated accordingly. How many community organizations can get away with 25x leverage the way some Wall Street investment banks used to do?Depression-era laws repealed in a mindless surge toward deregulation will be re-examined. Financial intermediaries such as banks and credit unions really ARE special because (1) they are highly leveraged (generally keeping somewhere around 10% capital, meaning that 90% of the funding for a financial institution’s assets are NOT investor capital), (2) those funding deposits generally come right out of the communities we serve, and (3) the assets those deposits are invested in remain, for the most part, local. There has been some whining in the press recently about bailing out the banks and not bailing out “Detroit,” but the reality is that the whining would be better directed at which banks are being bailed out and why they needed bailing out.
Our legacy will not be determined by our intentions but by the results we produce. Here are some keys to making sure that good things start happening. These come from lessons learned at my grandfather’s knee, but they are as true today as they were in the 1930s (when I was NOT born yet, just for the record!).
Forward-thinking CEOs are evaluating their organizations, benchmarking performance and establishing a framework for growth, raising capital, and preparing for the opportunities that will come next. Great leaders have the ability to stay the course in the face of adversity AND inspire others to prepare for the opportunities that hard times will provide to those who can capitalize on them. Fed Chairman Ben Bernanke admitted at the recent ICBA conference that “…the longer term outlook for community [institutions] is positive in light of their unique competitive advantages.”
Is the worst behind us? Consumer spending increased in February for the second month in a row, even though income levels dropped and unemployment is up to 8.5%. Is this the beginning of the end, or just the end of the beginning? I don’t know, but what I do know is that the mid-size banks and credit unions that (a) stand by their customers, (b) remain alert and prepare for the opportunities this down market will present, and (c) retain flexibility in the midst of changing conditions will come out of this crisis stronger than ever before.
Most community lenders still embody the virtues that helped America survive the Great Depression: tenacity, entrepreneurship and innovation. Those Greatest Generation values are not gone, they are alive and well in America’s community banking organizations.
If your organization could use some assistance in developing a strategic plan that will produce the greatest, most measurable results, contact Cornerstone Advisors. Cornerstone has helped guide many institutions toward the creation of strategies that align with their corporate vision and values. We can do the same for you.