Printing money, one-eighty political/policy change, inclusion, bank culture and diversity discussed from a macro-economic perspective were the topics highlighted at NJ Bankers Annual Economic Forum. These topics were discussed by representatives from the OCC, a renowned economist, N.J. bank executives, Bank of America Consumer Banking executive and a Fox News political commentator.
Bank oversight is to a degree independent of Federal Government agencies however, significant Federal policies and activities, if enacted, will be impactful. Fair Lending and Community Reinvestment activities will be a focus point of both bank regulators and the Federal government. CRA rules are being significantly overhauled for the first time since the 1970’s. The overhaul is long overdue. Restructure of CRA rules, to bring them up to date with present day realities. Banks will experience greater oversight and berated using new criteria. The Biden Administration, at least in talking points, is concentrating on greater financial access and fairness for inner cities, rural areas, and Indian country.
Expectations of increased, tighter regulation coupled with tax increases are at the forefront. What levels these are enacted at is uncertain and will be determined by congressional negotiations and compromises. Big government is getting bigger. First world economies borrowed 20% of their annual GDP’s in 2020 to stimulate and backstop government lockdowns and restrictions. Lots of money has been and continues to be printed with few signs that this will slow. New rounds of PPP in Q1 2021 and an expected influx of stimulus related deposits. A new world is emerging around digital currencies; banks should keep their eyes on developments in that area. FinTech lenders will continue to be chartered. It’s deemed necessary that these non-deposit lenders be subject to regulatory oversight to keep them honest and transparent.
Bigger government is coinciding with significant shrink age in the private sector. Listings of public companies has shrunk by several thousand. Oligopolies are emerging, consolidating, and growing. The Gilded Age in late 19th century America is analogous to what is happening today. Handfuls of companies dominating entire industries. How to deal with this is hotly debated. There are forces in favor of consolidation, and forces opposed, seeking antitrust and breakup action.
Diversity, Inclusion, and Bank Company Culture surrounding these hotly debated societal topics are front and center. Chief Diversity Officer is a new C-suite position and title within many large banks and companies in general. Human resource departments have increased their employee interactions, questionnaires, and activities around the meaning of diversity and inclusion. Healthy and unhealthy bank culture is cited as the primary driver in talent retention and bank profitability. Talent does not leave a bank due to performance. Talent leaves due to poor culture. The tone from the top, as always, is the main element for success in company culture and morale.
Brick and mortar matters are forefront in 2021. Some banks will return to full in office work while others are taking a hybrid approach offering at-home workers flexibility and choice. The market for office space is in question not only in banking but across the entire economy. For sure, there will not be a 100% return to the pre-pandemic environment. Bank branches are adapting and renovating to change and fulfill new consumer behaviors and market realities. Overall, there is and will be a decline in the number of branches, with branches that remain open being renovated.
Opportunities exist as they always do for banks and indeed the leaders who are aware of these opportunities and execute correctly. The banking industry was and is a hero in today’s culture, earned through exemplary customer and societal performance in helping their communities when their communities needed them the most. Expedient investment in consumer and employee digital workflows excelled by a decade in less than a year. Many banks will reap ongoing rewards as a result. Consumers were in good shape going into the pandemic. Stimulus and backstops helped keep them afloat. Assuming the virus subsides, and government ends restrictions, the economy is poised for an explosive boom due to pent up demand and the reactivation of entire industries that have been sidelined. Opportunities to be mindful of are green energy and green segments of the economy coupled with possibly massive infrastructure spending. Enormous gains in technology, biochemical sciences, crypto currencies, and investments in China are areas to watch. It was suggested that China will overtake the U.S. and become the world’s largest economy. China was the only country not to experience a recession in 2020. There are however many structural issues and barriers that still exist that could alter this projection.
Finally, one of Fox News’ daily commentators on “The Five” provided overarching observations. The temperature needs to cool regarding the intensity of political division. A stable political environment is a prerequisite for successful financial business activity. Open discourse, which is currently lacking, needs to be restored. Democrats now are in full control and the Biden agenda will set the terms on how the banking industry operates. Slim Democrat margins in the House and Senate will muddy any projected outcome of that agenda. Economic damage and fallout, additional stimulus measures, state and local revenue problems are among many factors that will play outgoing forward. Community banks can anticipate an expansion in green industry activity. Racial justice and investment in minority communities is a logical development. Working class wages, tax increases and safety net priorities are part of this agenda. New spending will come from tax increases. Where and how the increases occur will depend upon congressional legislation.
Strategic Risk Associates is committed to ongoing education, webinars, and discussions that center on relevant topics that require shared information, discussion, and analysis. Marc Caccavale / firstname.lastname@example.org