Coping with the Economy: The State of Banking in Michigan

The economic downturn struck early in the state of Michigan, where unemployment rates have been higher than most of the nation for years.

In this exclusive interview, Dennis Koons, CEO/President of the Michigan Bankers Association discusses:

The state of banking confidence in Michigan;
What member institutions are doing to foster greater confidence;
Banks' top business objectives heading into 2009.

About Dennis Koons: Dennis R. Koons has served as President & CEO of the Michigan Bankers Association since January 2002. The MBA represents the interests of and provides services to the banks of Michigan.

Koons is a graduate of Michigan State University and the Thomas M. Cooley Law School. His career includes political campaign management, a staff position in the Michigan Senate, Director of Governmental Affairs for the Michigan Association of Realtors, Vice President for the Greater Detroit Chamber of Commerce and Vice President, Government Relations for NBD Bank.

From 1995 to 2001, he served as the Chief Executive Officer of the 26,000-member Michigan Association of Realtors.

Koons also serves or served civic and professional organizations as an officer or director including the Michigan State Chamber, Habitat for Humanity of Michigan, People and Land, Michigan Society for Association Executives, Graduate School of Banking in Madison, Robert M. Perry Schools of Banking, Michigan Employers Unemployment Compensation Council, Greater Detroit Capital Corporation and the Michigan Council for Economic Education.

Since 1887, financial institutions throughout Michigan have looked to the Michigan Bankers Association as their primary resource for information, education, government representation, and supporting products and services. The MBA is dedicated to advancing a positive business environment for the entire banking industry and to fostering safe, profitable, and successful banks, which promote strong communities and economic activity in Michigan. Membership includes community banks, regional banks, holding companies, savings banks, trust banks and organizations that serve the banking industry.

TOM FIELD: Hi. This is Tom Field, Editorial Director with Information Security Media Group. We're talking today with Dennis Koons, CEO and President of the Michigan Bankers Association. Dennis, thanks so much for joining me today.

DENNIS KOONS: Well, Tom, thank you for having me. It's a pleasure to be able to talk to you.

FIELD: You and I have talked, and we've agreed these are historic times. So, tell us a bit about your regional institutions. How are they impacted by the recent global economic issues that we're all experiencing now?

KOONS: Well, Tom, first of all, on behalf of the banking industry of Michigan, perhaps of more import is what has been going on in this state for the past six years. As most of the country is aware, maybe not directly as we are, we have been experiencing job loss and economic decline for six straight years, while the rest of the economy and the nation was doing pretty darned well in that same period, up until recent months. So, I think, by far, the more profound impact on banks in Michigan has been job loss. Certainly, I think any of your listeners would understand that, aside from any credit crunch and global situation, when a person loses their job, it has very dire impacts, not only to them, but to many people around them, and ultimately that impacts businesses of all sizes and types, including the local banks. Now, when you then compound that with the events of the last few months, with the tightening in credit, on a global scale, this just is kind of an additional hit to the banks of Michigan.

FIELD: Given that, then, Dennis, how do you gauge the level of customer confidence in banking institutions, and how has it changed in the past year, with recent events on top of, as you say, the hit you already were taking?

KOONS: Well, Tom, we certainly understand that the public is nervous across the entire nation, and in Michigan. Attitudes have not been real positive here in Michigan, with continuing bad news year after year after year. It's not in a severe recession, but it's just one of a duration that certainly I have never experienced. Having said that, the public should have absolute confidence in the safety and soundness of the banking industry of Michigan. We are an economy that has been through ups and downs in the past, our industry is extremely well-managed, extremely well-regulated, and people should have confidence in their institutions.

Our banks are ready, willing and able to extend credit to credit-worthy borrowers in credit-worthy situations. Confidence is always an issue now, and as you know, and I think as most people know, unfortunately, bad news sells. So, when troubling headlines are given tremendous play, particularly in the national media, it does cause people to be nervous. We would recommend that if anybody has any concerns whatsoever, they should contact their local bank. Just pick up the phone and call them, and talk to them.

FIELD: Now, from what you have heard from your members, what are the types of questions that they are hearing from their customers, and what are you urging them to say to them in response?

KOONS: Well, certainly, what I hear, in talking to our member banks, the primary concern is "Is my money safe in the bank?" And, of course, the answer is a resounding "Yes." I think, as I said a moment ago, we would encourage every bank customer, if they have concerns, to pick up the phone and call the bank. Or, next time you're in there for a transaction, ask to talk to the management about how things are going, because the banks do remain safe and sound, and they are secure. Deposits are insured now up to a quarter million dollars per account, through the FDIC.

This is an insurance that is not optional. Every bank provides it. It is provided and paid for by the banks through the Federal Deposit Insurance Corporation. Perhaps the second area of concern we hear is "Is there credit available? Can I get a loan, whether it's for, a student loan for college, or a loan for a home purchase, or a loan for a business?" And again, the answer, of course, is "Absolutely, that credit is available." I would say this, that one of the issues that certainly contributed to the credit difficulties that we are in now, on a global scale was the relaxation, in many cases irresponsible relaxation, of prudent lending and credit standards, borrowing standards, in some cases.

These were not done by banks. But, unfortunately, the result is that expectations were sometimes created that credit could be extended in situations where, by any historic standard, should not have been extended. And, we now find people in situations where they cannot repay their loans. In many cases, loans perhaps should not have been made in the first place. So, while I would say that credit is available, which, as I said, that is the second major concern, absolutely credit is available, but it is available from banks on prudent terms in prudent credit situations.

FIELD: Sure. Now, in Michigan, you've sort of been ahead of the curve in some of the economic conditions the rest of the country is experiencing. Given what you have seen, what types of greater risks do you see the institutions facing because of the conditions, in terms of phishing and social engineering, and those sorts of opportunistic crimes?

KOONS: Certainly, I know what you mean, when you say we have been "ahead of the curve," but we certainly haven't felt ahead of anything. As you say, the sad reality is our unemployment rate in Michigan has been running a good 50% higher than the rest of the nation for the last six years. And, with our unemployment rate running at about 9% statewide before the recent national downturn, this whole thing nationally certainly exacerbates a situation that is already very, very stressful. You know, all of those concerns you mention, particularly in stressful times as this, are always paramount in the banking industry's minds. We are constantly experiencing people trying to take advantage of folks through identity theft and whatever.

In those regards, we would strongly advise any customer that banks do not solicit your private information through mass mailings and through the Internet. If you get those sorts of inquiries, it is phony, assume it is phony. If you have any questions at all, initiate a call to your bank at the number you know to be your bank. Do not respond to these types of inquiries. Banks do not initiate these types of blanket calls, saying "We're trying to verify your information," or whatever. Assume they are always phony. Again, though, I guess, I would pull back to the primary concern being the underlying condition of the Michigan economy, and certainly, everyone is aware now that we are hearing discussions of further consolidations in the automotive industry. Unfortunately, that will necessarily mean additional job loss to the state of Michigan, and perhaps significant job loss. And so, quite aside from the other risks, credit risks, and whatever, when a family's income has been impacted through job loss, or reduced hours, that has a very dire impact.

FIELD: What do you find, Dennis, to be the two or three top, immediate, business objectives of your banking institutions right now?

KOONS: Job one is to reassure our customers we are there, we're sound, we're open for business, we're ready to extend credit in credit-worthy situations, to help customers, to help businesses, to help communities. That is absolutely job one, to reassure the public that we're still there, and we're still open for business. Unfortunately, some of the events in the last few weeks and months have kind of given a false impression that the entire banking industry is somehow under stress and in trouble. The fact of the matter is, the banking industry in Michigan, as nationwide, remains well capitalized, and open, and ready to serve customers. We sometimes lose in the perspective of the negative news that the industry, by historic standards, is extremely well capitalized. And we have had some bumps, there's no question. We have had some excesses, and certainly, there are very serious issues. But that is absolutely job one, is just to remind the public and remind customers that their local bank is open, safe and sound.

FIELD: Do you see a lot of expansion into newer, enhanced services, like mobile banking, among your member institutions?

KOONS: Um, I don't know that I can comment on that, but certainly our banks are always looking at new ways, innovative ways to serve their customers, whether it be, certainly, tremendous expansion in Internet-based banking, to add to customer convenience. I can't comment specifically on mobile banking.

FIELD: You mentioned the "job one" there. Going forward, from what you hear from some of your members, what are some of the best ways that they are reaching out to enhance and maintain this customer confidence?

KOONS: Well, I'm very pleased that our member banks recognize, and you know, starting with the demise of the IndyMac in California, you know, the repercussions of that kind of bank failure went throughout the nation, and Michigan was not exempt. We began, as an industry, communicating with the public, communicating with our customers, and with our employees. Our banks are using statement stuffers and placards and advertising and mailings, briefing their staffs frequently, to make sure that all customer questions about safety and soundness, about their credit, about their deposits, are answered promptly, thoroughly, and professionally. And I've been very, very proud of the industry. Our banks are reaching out in many, many ways, really stepping up their communications, both directly to their customers and to the public at large, through media and advertising, to let them know that the banks are doing just fine.

FIELD: Dennis, one last question for you. We saw a number of major banking institutions this week receive, or apply for, billions of dollars from the government. In Michigan, what do you find that your banking institutions need, if anything, to improve their liquidity? And, do you see a number of institutions going to the government for this money?

KOONS: You know, Tom, that TARP program, despite the haste with which it was assembled, is certainly a very positive step by the government. It is unfortunate that it was dubbed a "bailout," because in fact what is happening is the government is extending credit, if you will, purchasing an equity position in these banks. Put in plain English, they are making more cash available to banks that need it, so that those banks can, in turn, lend to customers and support their local economies and their local communities. I believe that there will be banks in Michigan, perhaps many banks, that will apply for the capital purchase program through the Emergency Economic Stabilization Act.

Some will choose to do so, and some will not choose to do so. And I think it's real important that we not draw any conclusions from whether Bank A or Bank B did or did not apply. That's going to be an individual decision with the institution. Like I said, I certainly expect that banks of all sizes in Michigan -- because this program is, of course, available to banks of all sizes in all corners of the nation -- that banks will be applying for the capital infusion. They will have to make an individual decision. If your bank is in a position where it is very well capitalized, and you don't have significant nonperforming loans, you may decide, "Well, I don't need the capital infusion." Or you may decide, even if you are in a very sound position, that "You know, additional capital is always a good thing, and it will simply make us stronger and able to make even more loans and better serve our customers and our community." So, even in the case of a strong bank, they might apply. So, certainly, in answer to your question, I expect many Michigan banks to apply for the program, I expect many Michigan banks to be accepted and get assistance, but I would caution the public in drawing any inference whatsoever as to whether a bank did or did not apply or receive assistance.

FIELD: Very good, Dennis. I appreciate your time and your insight today.

KOONS: Tom, thank you very much for the call.

FIELD: We've been talking with Dennis Koons, CEO and President of the Michigan Bankers Association. For Information Security Media Group, I'm Tom Field. Thank you very much.

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