The New Banking Agenda: John E. McWeeney Jr., NJBankers

In another installment of our ongoing series of discussions with banking leaders, John E. McWeeney Jr., Co-President/Co-CEO NJBankers, offers insights on:

The top issues of concern to NJ banking institutions;
Thoughts on TARP and other proposed banking assistance programs;
How banks are succeeding at bolstering customer confidence.

McWeeney joined NJBankers as president and chief executive officer on April 16, 2007 after a nearly 28-year career with Bank of America and its predecessor in the New Jersey region, Fleet Bank. McWeeney had been Bank of America's market president for Southern New Jersey after holding various positions of increasing responsibility within the bank, including executive vice president and director of the Professional Services Group and executive vice president and regional director of Small Business Services for metropolitan New York.

TOM FIELD: Hi, this is Tom Field, Editorial Director with Information Security Media Group. The topic is Banking Today, and we are talking with John McWeeney, Jr. Co-President and Co-CEO of NJBankers. John, thanks so much for joining me today.

McWEENEY, JR: You're welcome, Tom. It's a pleasure to be with you.

FIELD: Just to start out and offer some context, maybe you could tell us a little bit about NJ Bakers, your role there and then the group's membership and its mission.

McWEENEY, JR: New Jersey Bankers Association is a trade association representing the banks in New Jersey. We recently merged the New Jersey Bankers Association with the New Jersey League of Community Bankers, and that merger was completed on January 1st of this year. Our membership base now totals 118 members.

It is a diverse membership base -- we have both large institutions as well as community banks. They represent the different geographic regions of the state, and we also have different charters. We have mutual institutions as well as publicly traded institutions.

We have been around for over 100 years, and our mission is to help serve the New Jersey banks by providing services in the area of advocacy, education, member solutions and networking opportunities.

FIELD: Boy, you really do have a cross-section of the banking industry there don't you?

McWEENEY, JR: Yeah we really do. Bringing the two groups together earlier this year was a terrific way of uniting the industry here in New Jersey, which we felt it was the right thing to do and the right time to do it.

FIELD: Now what do you find to be the issues that are currently of the greatest concern to the association members, and maybe some of those are more concerned to the larger institutions or some to the more community ones, but where do you find the biggest issues to be?

McWEENEY, JR: Well, certainly an issue that is of concern to everybody right now is the economy and how our banks, whether they be large or small, in terms of how their clients are being impacted. We are all looking forward to the economy improving and we certainly hope later this year as we head into 2010.

I think by and large the banking industry here in New Jersey has fared well during these difficult economic times. Our member banks still have the sound balance sheets and the asset quality, and their loan quality is still good, but no one is immune from it. And it is having an impact on loan demand, and it is having an impact on their earnings, so the longer the recession continues the more of a challenge it will be.

In addition to the economy, the banking industry in particular I think right now is very focused on the fact that we have a new administration in Washington and a newly elected Congress and both in Washington and in Trenton there is a lot of consideration being given to new regulations, new legislation regarding the financial services industry. So we are not opposed to trying to work with our elected officials and our regulators to try and improve the oversight in the industry, but we are concerned that the pendulum may swing too far back and we put rules in place that may actually hamper the ability of banks to do business and to serve their customers.

FIELD: Well you make a good point there John because as we know in a Democratic administration, you tend to see more regulation, and I think especially after the year that we all just withstood. What kind of changes do you anticipate from the new administration?

McWEENEY, JR: Well, I think it may take a little bit of time, but over the mid to longer term here, sometime during the course of this year we do anticipate some recommendations as to how to overhaul the regulatory system that financial services is currently being governed by.

Today we have the FDIC, we have the Office of the Control of the Currency, we have the Federal Reserve Banks, we have the Office of Thrift Supervision, and we also have state banking regulators. So you have multiple regulators, and depending on the charter of the institution a bank may have a different regulator, so there is clearly some consideration being given to how to perhaps consolidate all of that to streamline it to make for a more consistent regulation.

That would be one of the major things we see happening, and then obviously in this environment with the challenges that we all face with foreclosures there is certainly new legislation both at the state and federal level that has either been put in place or being contemplated to try and deal with the foreclosure issue and how best to do that.

FIELD: Now one of the sort of pieces of fallout from the economic crunch has been customer confidence, and we all see that in the industry customer confidence has fallen a little; some individual institutions do a good job of that. How do you find that your membership is dealing with this issue of customer confidence and growing it and strengthening it?

McWEENEY, JR: Well by and large our membership base has not been impacted by a lot of the issues that you read in the headlines of the newspapers or see on the news reports on television or cable. Our members were not actively involved in doing subprime loans and other types of risky loans, so their financial condition for the most part is still sound.

I think what our members are trying to do in this environment is to get that message out to their clients and the markets they serve that their banks are strong and they are sound and they have money to lend and they are going to be here for years to come.

One of the changes that took place in 2008 was the FDIC increased the amount of insurance for deposit accounts form $100,000 dollars up to $250,000 dollars per account. That was a significant increase and for couples, married couples; you could have different accounts in different names and go beyond the $250,000 dollar level. So we have been very intent on trying to get the message out to the public that if your money is in an FDIC-insured institution and you are in one of those accounts and you are within those guidelines, you have nothing to worry about, and nobody has ever lost a penny.

So I have seen even the New Jersey Bankers Association, and when we were still two separate trade groups, the League of Community Bankers, last year we combined and we did a radio campaign on the millennium network here in New Jersey, which covers I believe 11 different stations across the state, and we ran a series of radio spots just reinforcing the fact that our banks were safe and sound and that your money was safe and that our banks have money to lend.

We would have never contemplated recently of doing those kinds of safety and soundness advertising ads, but it was needed because there was a lack of confidence and there was a lot of misinformation. Both as an industry trade group and individual institutions, you are seeing a lot of marketing along those lines, and you pick up the newspaper or even listen to the radio all the ads are about how strong the institutions are and you can have confidence in dealing with us, as opposed to a couple of years ago when it was more about a particular product or service.

FIELD: Yeah, you are exactly right. John, what do you find to be sort of the most effective ways to communicate with customers now?

McWEENEY, JR: Well my customers are banks (laughter) so obviously we have a lot of different communication vehicles we use with our members.

As far as the banks themselves, you know I think there is a lot of communication that takes place just during the normal course of business as bankers are conducting business whether it is with the consumers or small business owners or market sized companies, local governments. They are really reaching out more and being much more proactive, staying in touch with their clients to, as we said earlier, to reassure them and make sure that they are comfortable and confident in the bank. We do see increased, I believe, advertising and marketing along those lines.

Certainly banks use their websites as a source of communicating with their clients. Many consumer nowadays, small business, are using online banking services, so when they go to a website to conduct their daily business they are being met with messages from their bank that the bank wants them to see and more traditional things like direct mailings and so forth.

I think it is really bankers just trying to be proactive and staying in touch with their clients through a number of different vehicles.

FIELD: John, I want to ask you about a couple of issues that have been in the news of late. What is the membership telling you in terms of their reactions to the TARP program and then to the proposal to have this bad bank that would eat up some of that bad debt?

McWEENEY, JR: Well with regards to the TARP program, our industry did lobby in support of passing TARP when it was being considered by Congress. And we reached out to our congressional delegation and expressed our support in the concept that the government buying up bad loans off of the balance sheets of banks. We thought was a good thing and it would free up the banks to not worry about those bad assets and do more direct lending.

What happened is the original concept of TARP changed after it was passed by Congress. I think partly because the Treasury Department discovered it was such a complicated process to determine the ownership of these assets that are on the different balance sheets and an efficient way to buy them and what price to set to buy them. So they moved away from that to another program called the Capital Purchase Program where the government injected capital directly into banks, the concept being invest in healthy institutions to keep them sound and also to give them funds to lend. So it was a bit of a change from the original concept.

As far as the CPP, or Capital Purchase Program, there was a real divergence of opinion amongst bankers as to whether or not they wanted to participate in that program. We are still waiting today for how a mutual institution could participate, and that represents almost half of our membership, so they have not had the opportunity yet to apply for those funds and the government is in the final stages of preparing the rules for how it would work for a mutual institution.

For publicly traded institutions, that all took place and the banks had to apply, I think, by this second or third week in November, and it was a mixed bag. I would say a number of banks did participate and they applied for funds and they received them, and an equal number of banks, maybe even more, did not request the funds. If I had to give you an estimated guess I would say it was probably 60% did not apply and maybe 40% did.

There was no right or wrong answer; I think it depended on the institution. So the banks that did apply for the funds felt that it was a good relatively inexpensive course of capital, that it would help shore up their balance sheet and position them to lend money and also handle potential problems that were coming because of the soft economy. Those that didn't apply felt that their balance sheets were strong enough as it was, and they were concerned about having the government as a partner in their institution and what additional control that may bring in terms of compensation or dividend payouts.

So it has been an interesting issue in that there are very different opinions among banks. Now as the program continues and Congress has approved the additional $350 billion of the original $700 billion of funding we are waiting to see what the rules are for mutual institutions. We anticipate that the requirements that the government will place on this second half of the money will be more stringent in terms of limitations on compensation and dividends and we will see how many banks apply.

I think it is a good thing that the government is injecting capital in the banking system because we need it to be strong, but I think individual institutions are making their own decisions as to what is right or wrong for their bank as to whether they want to participate. I would say again, it would seem now that the majority are not participating, but there still are many that have. And again, I don't think there is a right or wrong answer, and I think it depends on the individual institution.

We do hear a lot lately that Congress and other are upset that banks that took the TARP money are not lending it out and that is a difficult issue because first, it is hard to track exactly where the funds go. And the banks, I believe, certainly want to make loans because that is how they make money; it's the business they are in. But we are in a slow economy, and the demand for loans has dropped, and not all of the credit that was provided in the past came from the banking system, a lot of it came through Wall Street in the form of securitized products and that has dried up so naturally that source of credit is gone and it appears to the market that there is no credit. But banks want to be cautious, you know.

On the one hand, we have Congress and others saying lend the money out to stimulate the economy, and on the other hand you have the regulators coming in and examining the banks saying you have got to raise your capital and we are concerned about the quality of your loan portfolio, and the economy is soft and you better be careful who you lend money to.

I think what our banks are trying to do is what they have always done -- they are trying to make good sound lending decisions and stick to their guidelines, and it if they are qualified then they make the loan. But it certainly has been a complicated and somewhat controversial issue.

FIELD: Well you gave great insight into it. John, let me ask about another issue that has been in the news recently and it sort of hits home in New Jersey and it is the Heartland Payment Systems breach. You know this is a Princeton, New Jersey-based processing company, and it is a breach that didn't happen to a bank, but it something that very much affects the customers of banks. How do banks respond to such a breach like this and then in the association's opinion what needs to be done to prevent these types of things in the future?

McWEENEY, JR: Well in terms of how the banks are responding, certainly any time there is a breach like this where there could be a potential impact on the banks customers, they are very quick to notify their customers of what has happened. If the particular breach warrants the reissuing of any credit or debit cards that they bank feels may be at risk, they do that. And, we try to reassure customers that they are protected and that they don't have any exposure and that they are protected against those losses, that the bank will cover the loss.

So again, trying to reassure our customer confidence and trust. And in some cases when these things happen it is obviously at a cost to the bank because they have to do additional communications, they have to potentially print new cards, so it is a concern that the industry has but when it occurs we are very quick to get to our customers and reassure them.

How to protect it going forward - we don't have control over the operations of some of these organizations like a Heartland, and I think we try to work through the channels that be, whether it be through the different cardholder associations or MasterCard or Visa or whoever, to try and make sure that everybody is adhering to certain standards to protect data and information. But these things can still happen and when they do happen it doesn't necessarily mean that it always leads to fraud or identity theft, but that is certainly is a risk.

FIELD: No, you're right. John one last question for you and we have talked about this some. We are in tough economic times and certainly banks have got limited resources in terms of their budgets and their human resources. What advice do you offer to your members now in terms of using these limited resources and maximizing them so they can secure their systems and reassure their customers?

McWEENEY, JR: Well, one of the things that we try to do as a trade association is to connect our member banks with a lot of the different companies that provide different types of products and services and solutions so that we are educating them and making available to them the very best in solutions, whether it be for database systems or printing costs or HR solutions, human resource solutions, you name it. That is one of the benefits that we try to provide our members.

And, we have a very significant network of what we call Associate Members, that in our case over 225 different companies that belong to New Jersey Bankers as Associate Members that do provide services and do business with the banks and they go through us and we try to make sure that our membership base is educated and knowledgeable.

Just from a more general business perspective, we have very shrewd bankers and they have been in the business for a reasonable period of time, and they don't necessarily look to us for advice as to how to run their bank. But having been a former banker myself, I know that what most of them are focused on now is just protecting the integrity of the bank's balance sheet, making sure that if they are making loans, which they are, that they are making good sound underwriting decisions, that they are managing their assets and liabilities and that they have adequate liquidity to meet the needs of their day to day business and always looking for inexpensive sources of liquidity in the form of deposits or capital.

It is a very competitive business right now ,so I think it basically one of those times where you stick to the basics of banking and you use your capital wisely and you make wise lending decisions, and hopefully as we head into 2010 the economy will improve and there will be more opportunities for the industry.

I do think there will be some winners and losers in the industry. Some institutions may not be able to survive some of the issues they have, and there are other banks that will step in and take advantage of those opportunities and that is kind of the nature of business.

FIELD: John, you have been an excellent spokesperson. I appreciate your time and your insights today.

McWEENEY, JR: Thank you. You are very welcome.

FIELD: We've been talking with John McWeeney, Co-President and Co-CEO of NJBankers. For Information Security Media Group, I'm Tom Field. Thank you very much.

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