What the Rescue Plans Means to Banks: Nancy Atkinson, Aite Group

On Tues., Feb. 10, Treasury Secretary Timothy Geithner unveiled the Obama Administration's new strategy for easing the credit crunch and strengthening the U.S. banking industry. In an exclusive interview, Nancy Atkinson, senior analyst at Aite Group LLC, discusses:

How the new plan differs from the Bush Administration's;
What the Obama plan means to the banking industry;
What we should expect to see for immediate changes - and how these changes may impact risk management and information security.

Nancy Atkinson is a senior analyst at Aite Group, LLC, specializing in wholesale banking issues including wholesale payments, trade finance and financial supply chain and working capital management. Her recent research has focused on electronic check processing and clearing, innovation in accounts payables and receivables, and transitions in the global wholesale payments market. She has also examined opportunities to leverage procurement cards in corporate payables and the impact of health savings accounts on banks.

Atkinson has spoken at a number of domestic and international venues, including NACHA's Payments, TEXPO (regional AFP), Phoenix-Hecht, Infoline's Graduate School of Electronic Payments, the National Association of State Treasurers and International Payment Systems. She has been widely quoted in the banking trade press.

Prior to joining Aite Group, LLC, Atkinson was a First Vice President of Institutional Marketing at Mellon Bank. During her more than 20-year tenure at Mellon, Atkinson developed new products and services, focused on cross-selling institutional services, and introduced new eCommerce supported services. She worked extensively in Global Cash Management (GCM) and with Mellon Lab and Online Services, and supported electronic payment products, including Wire Transfer, Automated Clearing House (ACH), Electronic Data Interchange (EDI), and the private-labeled business of GCM.

TOM FIELD: Hi, this is Tom Field, Editorial Director with Information Security Media Group. We are talking today about the Treasury's new Financial Industry Rescue Plan, and I am talking with Nancy Atkinson, Senior Analyst with the Aite Group. Nancy, thanks so much for taking time to share your insights with me today.

NANCY ATKINSON: You are very welcome, Tom. I look forward to it.

FIELD: We just heard from the Treasury Secretary, and I guess my baseline question to you is what is different now than what we heard from the Bush Administration?

ATKINSON: Well, I think the most significant difference is that there is more regulatory and accountability at least being touted in this undertaking, and there is a movement away from simply tax cuts coming through to really play the part.

Now obviously the original offerings of TARP were more than just tax cuts, and there was a bailout for banks to help them out, but I think that this particular announcement is a bit more targeted on how do we get banks to use that money -- that they get to really make lending a priority and to get credit back out into the markets, which is, I think, what we really do need.

FIELD: What does this all mean to the banking industry? There has been an awful lot of talk, some people like the word bailout and others object to it, but what is this going to mean to the industry?

ATKINSON: Well I think the industry is going to face much more scrutiny than they have over the last several years, and I think that is probably appropriate given the mess that we are in. I don't think the industry in and of itself caused this problem because the industry has been driven all along by needing to show quarter over quarter profits, and when you have those kinds of short-term goals that you have to meet, I think you tend to take more risky positions than perhaps you should.

I think we are headed back to more fundamentals. But I do think that banks are going to find that they are under much closer scrutiny and that they are going to be looked at closely and they are going to have to account for a lot of what they do. And in some cases, that is going to make them perhaps a little bit less efficient than they might have been, but then again I think they have put themselves in this position, so it needs to happen.

FIELD: What do you expect we will see next then in the industry as this plan starts to get rolled out and deployed, and people start taking advantage of the new opportunities?

ATKINSON: Well, I think we are all hopeful the execution will end up being what the Obama Administration hopes it will be. I do think that they are smart to warn that there will be mistakes and glitches, and I think we will see how much of the pork gets taken out of this initially as well. But I think that to the extent that banks are held accountable to get the money out to the credit markets and not just use it for acquisitions or repurchases of stock or any of those kinds of things, it is a movement in the right direction.

I also think that the accountability to make it clearer in terms of executive compensation is a good move, although I have to admit to some skepticism as to how much they will be able to control that because there are so many factors involved in any executive compensation package, and the salary is only one small component of it. So I think there will be challenges in seeing where that money is really going and how it is being awarded, but I think it is a move in the right direction.

FIELD: Now Nancy, it feels like we have had two sort of major concurrent storylines going on this year. On one hand there is the TARP plan or Son of TARP plan, whatever they might call this now, and on the other there is the Heartland data breach. So I guess I kind of wonder if you bring the two of these together with the plan that we have seen today and what the Administration wants to do to bolster the banking industry, what becomes the impact on risk management and security within the banking institution. Where are they going to feel the strength, I guess, where are they going to get the love?

ATKINSON: Well, I think part of the issue is if the only way they are going to get the love is to be more transparent and accountable for what they have been doing. Certainly the government is coming in trying to help provide a floor for the banks and for the potential credit losses that they could see.

I think one of the challenges there is how do you do that with giving taxpayers the comfort that they are getting something in return for the money that the government is spending? I think that is going to be an ongoing challenge for the future here, and I think that the banks are going to be under some stress, and that one of the toughest parts of that is keeping good employees on board at banks and motivated and moving forward.

FIELD: Now we all went into this Administration with sort of an understanding there is going to be more regulation -- that the banking industry is going to get more attention from government. What would you say that the early signs are so far from the Obama Administration?

ATKINSON: Well, I think that the early signs are certainly that they are going to come in with more regulation. I don't think that we have seen the details on any of that so far. What I heard Secretary Geithner talk about today was more along the lines of continuing to work with the Federal Reserve and the other agencies to really move forward on this front. I think what we are sort of seeing is the Sarbanes-Oxley move of what we saw when some publicly-held companies became troubled, like Enron. And I think that is going to happen with the banks and we are going to see a lot of pressure and we are going to see banks needing to spend some of the money that they have on putting in new systems that will help them to do the reporting and to control activity better than what they have done in the past.

I think that smart banks have an opportunity though to leverage those investments and really get better data and information to better manager their ongoing operations.

FIELD: You know it is interesting that you mentioned Sarbanes-Oxley because for the last several months I've sort of looked at what is going on in the industry and wondered who was going to emerge as the Sarbanes and the Oxley in banking regulation. Do you see any candidates there that are likely to be nominated?

ATKINSON: Good question, and I am not sure that I am capable of making that recommendation. Chris Dodd perhaps might be involved with this. But I suspect to the extent the Obama Administration wants to continue to promote bipartisanship, perhaps they will turn to some of the three moderate Republicans that have gotten on board to support this. And my apologies, I remember Arlen Spector because he is one of my Senators, and I know there are two others, but right at the moment their names are not coming to me.

FIELD: It is fair to say auditions are open.

ATKINSON: Yes, I think they are. I think they definitely are.

FIELD: Nancy, coming back to what we were talking about, sort of the concurrent storylines. You have got regulatory reform and you've got a serious breach that is affecting the banking industry. What are some of the early storylines that you are paying attention to this year?

ATKINSON: Well I think, you know, part of what we are looking at is to what extent are banks retrenching in terms of their IT spending, what are the opportunities for them to still improve their processes because I think one of the challenges for banks is that they are clearly in a cost-cutting mode given the economic condition, but they also, I think, most of them recognize the need to be offering solutions for their customers and to be building on their revenues as well.

Deposit gathering is clearly a very important component right now ,and we are watching how banks are going about getting those deposits in order to support their assets and to be able to get back into the lending game. And I think that seeing how this private and public approach to the toxic assets will be interesting to see how that plays out and it is something that we will definitely be looking at.

FIELD: There will be much to talk about in the weeks ahead Nancy.

ATKINSON: Absolutely. And I guess it is the old Chinese saying that you live in interesting times, right Tom?

FIELD: That's exactly right. Nancy thanks so much for taking the time to share on your insight today.

ATKINSON: Happy to talk with you, Tom, and thanks.

FIELD: We have been talking with Nancy Atkinson of Aite Group. For Information Security Media Group, I'm Tom Field. Thank you very much.

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