Banking Agenda: Beating the Drum for Safety & Soundness

We're amidst an historic economic juncture, and we've just experienced an historic Presidential election. So, what's on the community banking agenda, and how are institutions strengthening - and expanding - their relationships with customers?

In an exclusive interview, Chris Williston, President/CEO of the Independent Bankers Association of Texas, discusses:

The state of the economy for Texas banking institutions;
Ways member institutions are successfully reaching out to and reassuring customers;
Possible new regulations coming in the wake of the economic crisis and election.

TOM FIELD: Hi, this is Tom Field, Editorial Director with Information Security Media Group. The topic today is banking. We are talking with Christopher Williston, President and CEO of the Independent Bankers Association of Texas. Chris, thanks so much for joining me today.

CHRIS WILLISTON: Delighted to be with you Tom.

FIELD: Hey Chris, why don't you just set the tone here and tell us a little bit about your association and your member institutions.

WILLISTON: Sure. The Independent Bankers Association of Texas is the largest state banking association for independent community banks in the country. We represent roughly 2,000 banks and branches throughout Texas, and then we have an affiliate organization in Oklahoma as well that we do a lot of corresponding with and assist them and the community institutions in Okalahoma, but we are a Texas-based organization and a 35-year history, and it's strictly totally dedicated and concentrated on the best interest of community banks and their shareholders.

FIELD: So given everything that we've seen over the past two months, how would you say your institutions in general are impacted by the global economic issues that we are hearing about on the hour?

WILLISTON: Well, Texas is kind of unique. Tom, you probably recall back in the 80's we kind of went through our own economic crisis while the rest of the country was doing well and what we are seeing now is just totally opposite of that. The Texas economy remains rather robust. We are diversified much different than we were in the 1980's, and obviously we are sitting here in the Sun Belt where we get substantial job growth and creation and good industry that continues to move into our state, and so we are little bit different than the rest of the country right now. But that doesn't mean that there won't be some real ramifications for us moving forward. I mean, with everything that is going on in the global economy today, no financial institution is going to be insulated from what we are seeing.

The trickle down effect of the credit crunch, availability of--confusion of customers, all of the issues that you hear about in the rest of the country, we are still experiencing, but we have not had massive foreclosures. Community banks in Texas haven't participated in sub-prime of any kind, and so generally we are doing so much better than the rest of the country, but clearly we are not insulated. We have seen the effects and customer uncertainties and obviously as a result of that I think community bankers are very--while we remain optimistic we also remain very cautious.

FIELD: Well let's talk about that topic of customer confidence. I would be curious one, how has it changed in the past year for your member institutions and two, what are they hearing from their customers and then what are they telling them?

WILLISTON: Well, what they are hearing from their customers is just what you might expect. You know I think there is so much confusion out there with the media, the term "banks" is used rather loosely,. You know there is no distinction made with what is going on Wall Street and what is happening on Main Street. And so as a result of that, when the media uses the term "banks" and "banks are in trouble" and "banks are going to go broke" and "how is your bank doing" and all of those kinds of things, that really has created some massive customer uneasiness and our people have really, what we've done is encouraged them that this is a wonderful time to really get closer to their customers.

Community bankers are generally closer to their customers, they know them, they lend to people that they know, and this is a wonderful opportunity as we see everything else going on to really distinguish themselves from what is happening in the other larger financial institutions. And so we have really encouraged them to really take the time with each customer, explain exactly what is happening, train their staff so that they can deal with those routine questions that are coming across the new accounts and the teller lines and use this as an opportunity to say, you know, this bank is doing fine and we just are not like the rest of the industry.

We've encouraged our CEO's to be aggressive in sending messages out by newspaper clippings and advertising and others to just talk directly to their customers about how well the bank is doing and what is going on in the local community and really trying to use this as an opportunity to create a safety, a flight to safety net if you will for their institution.

FIELD: Chris, of all these different methods you talked about, have you found any that have been particularly effective in reaching the customers and instilling greater confidence?

WILLISTON: Yeah, actually we've seen some banks go as far as having a webinar about every--at least once a month since all this has happened, just to tell customers what's happening and how that might affect their own personal situations, and really to use that opportunity to talk about the bank specifically and how well the bank is doing. For the CEO's probably the most effective that we've seen time and time again, at least as reported to us by our members, is just a direct letter from the CEO to the community that is in the local paper or into the local community that talks specifically about the institution, why they are different, why they are not experiencing the same problems as some of the others and why customers should feel good about continuing to bank at their institution.

FIELD: Very good. Chris, given the economic conditions that much of the country is facing right now, do you find your institutions are any more susceptible to vulnerabilities such as phishing, social engineering and some of what I would call opportunistic crimes?

WILLISTON: Yeah, I tell you that is the real Achilles heel out there. I think the unfortunate part about what is going on in the economy in general is that you are just a lot more susceptible to these types of situations. We have, just in the last three weeks as a matter of fact, we have dealt with three very big rings here in Texas, a phishing ring that has really plagued a number of our financial institutions up in the Dallas/Fort Worth Metroplex. Very sophisticated, involving robo-calling and all kinds of things encouraging customers to disclose account numbers and Social Security numbers and really stealing the identity of the bank if you will, to give those customers that type of comfort to actually give them some of that information.

And then the other thing that really is hitting a lot of our banks hard right now is just debit card fraud. I think you have got a lot of merchants out there that certainly don't take the same care of protecting customer information. There are breaches in their data and as a result of that we are seeing proprietary card information being given or sold to someone, one of these crime rings, and a lot of losses associated with debit card fraud right now that we are trying to address.

We are going to have to go back and address this with some state legislation to try to keep everyone in that chain accountable for any breaches that they might have. Right now it just falls on the financial institution, which seems somewhat unjust.

FIELD: Yeah I would say that the breach isn't yours, but when it comes back to it comes back to the bank.

WILLISTON: Absolutely. Absolutely, and that really is -- I think that everybody needs to take some responsibility to protect the customers' information, and I think legislators are going to demand that with all of the new privacy legislation and everything. I think there is going to continue to be an emphasis on protecting customer information.

FIELD: Now Chris, one thing that I hear talking with banks around the country is despite the economic conditions, there is really a lot of investment in new and enhanced services. So I wanted to ask, with the institutions you speak with, what are some of the immediate business objectives of these institutions?

WILLISTON: Well I think the immediate business objective is right now they are trying to figure out exactly what they need to do with the changing financial services marketplace. I mean just trying to figure out where their niche is going to be. Right now, most of the CEOs that we talk to have really had to keep their strategic plans very short-term. They are dealing with whether or not they are going to let the Treasury invest in their banks. They are trying to figure out whether or not they are going to bear the costs of enhanced deposit insurance for their customers and all of the things that are happening as part of the so called "bail out" that have caused them to really sit back and think about what is the feature of our institution, where do we want to be and what are our competitors going to do because there are so many competitive implications for participating in one or more of these programs. So, you know from a business strategy standpoint I think right now it is rather short-term.

Long-term I think that most everyone is looking at this as a wonderful opportunity. I think what this has done, probably more so than what we've ever had in our history, Tom, which I think bodes well for the industry that I am in. It gives the community banks an opportunity to really segregate themselves from the rest of the industry. That we are different; that we know our customers; we are not facing massive closures of community banks and does it really make sense that we might be regulated the same way if I'm a $200 million dollar institution located with about three or four locations the same as Citibank or Citicorp or Chase or any of these folks.

So I think that the long-term they are seeing this as a wonderful opportunity to get closer to their customers and more specifically to use this as leverage to go back and plead their case that we need to make some pretty substantial changes that really demonstrate that this legislation and regulation in the environment that we are in is not a one-size fits all. It's got to be different.

FIELD: You make a good point. You mentioned the Treasury investment. We saw a bunch of major banking institutions receive billions from the government over the past couple of weeks; what are your member institutions talking about? What do they need and do they need this kind of investment to improve their liquidity or is this something that they want to steer away from?

WILLISTON: Well, you know there has been so much--well first of all they don't need it. I can tell you that right now. I think most of them generally on the surface would look at this and say that having the government come into a private institution is just not something that makes much sense for me and I don't want any part of it.

And the--you know as the industry has evolved over the years, capital is hard to come by. We are in tougher economic times and some of the traditional sources for capital, through the federal home loan bank or through the issuance of more debt, trust preferred securities, whatever, those types of things are drying up and so they are taking a second look at this and saying, this may be an opportunity for us to get capital in a time that even though we might not need it now, but it might serve us well later. Particularly as we look to expand, and the opportunities that might present itself as a result of the tougher economic times through acquisition or some other things. So I would guess out of our roughly 550 bank members I would say that probably 25% to 30% are really taking a serious look at it.

FIELD: And of course we had big news the other day; we had the election. We've got a Democratic President-Elect now and a Democratic Congress. What does this mean to the banking industry in general and to Texas institutions in particular?

WILLISTON: Well nobody really knows yet. You know, generally speaking, I'm just now going into my 32nd year into the industry and as I have seen Democratic and Republican administrations come and go and it's just been a mixed bag in terms of I think it creates opportunities regardless of which party might be in power depending upon what you are trying to accomplish.

Generally speaking, the community banks are unique; they are the "little guy." They are the friends of many of the constituents that actually elect these folks, and there is a generally high regard for whether you are a Republican or a Democrat from community financial institutions because they know they are unique and they know small towns and communities through this country would not exist with a community bank.

And so we fare pretty well regardless, because we are the little guy and I think people know that we are the economic engine for what goes on in local communities throughout the United States so I think we are going to be fine.

I think there is always going to be challenges, you know obviously with the government involved in more of these institutions there is going to be a tendency to try to over-regulate at a time when in some cases deregulation may be in order. There is going to be probably more temptation to tax and tax greater when if we are looking for economic stimulus is that really the right strategy. But those are things we deal with every day both on the state and federal level and that's why we exist. They wouldn't need me if we didn't have those kinds of issues.

FIELD: Good point. A Democratic administration has tended to lean toward regulation, and I think everyone has been talking about greater scrutiny for financial institutions, whether that is fair or unfair. What type of regulation do you think we will be talking about in 2009?

WILLISTON: Well, clearly they are going to do something on the mortgage markets. You know that just goes without saying, the sub-prime meltdown is something that they are going to go back and take a hard look at the way these government-sponsored enterprises operate, and that is only normal.

As I said, most of our community financial institutions, though, are doing whole loans, and so they really are originators and not really people that keep those mortgages and services them long-term. Clearly we will see something in that regard. You know the issue we talked about earlier, I think there is still a great deal of concern out there in terms of data breach, protecting customers information, identity theft, cyber crimes associated with financial institutions.

Those are all major concerns that I think we have seen the tendency for state and federal legislators to try to over-regulate. And then we are probably going to look at in this next session of Congress perhaps a whole new regulatory scheme for community financial institutions and for all institutions.

You know there is talk about one super regulator, there is talk about eliminating certain regulators or certain charter types, everything will be on the table, and so I think rather than us looking at piecemeal regulations we are looking at wholesale new regulatory schemes that we are really going to have to be on guard to make sure that we protect the dual banking system, state or national banks, let financial institutions have a choice in terms of how they want to be regulated, which really has served this country extremely well.

So it's going to be, rather than piecemeal regulation, I think we are looking at a wholesale change that we have to be very careful that we just don't throw the baby out with the bath water and create one monolithic system here that really hasn't served other countries well at all.

FIELD: It doesn't sound like you are going to retire any time soon before your 33rd year in banking.

WILLISTON: I think I'm okay, Tom. I think we've got enough on the table that they'll keep me busy for a little while longer.

FIELD: Chris, I really appreciate your time and your insight today.

WILLISTON: You bet. My pleasure. Good to be with you, and I hope we can do it again.

FIELD: I've been talking with Chris Williston, President and CEO of the Independent Bankers Association of Texas. For Information Security Media Group, I'm Tom Field. Thank you very much.

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