The 2013 Interagency Minority Depository Institution and CDFI Bank Conference
The CEO Panel: Challenges and Opportunities
|President & CEO, Industrial Bank, Washington DC and Chairman,
National Bankers Association
|President, COO & Acting CEO, Continental National Bank of Miami, Miami, FL
|President and CEO, Open Bank, Los Angeles, CA
|Preston D. Pinkett, III
|President and CEO, City National Bank, Newark, NJ
|Alden J. McDonald
|Founding President & CEO, Liberty Bank & Trust Co, New Orleans, LA
|President and CEO, Mechanics & Farmers Bank, Durham, NC
|CEO, Southern Bancorp, Inc., Arkadelphia, AR
MDI and CDFI Bank CEOs discussed the challenges and opportunities they face serving different niche markets, including, among others: challenges to improve overall performance; opportunities for tapping into the power of partnerships and greater collaboration with others, and recommendations on how to help them maintain their special status and serve their communities.
Session discussions centered on the positive impact of MDI and CDFI banks, their challenges and the future. The panel presented perspectives from a cross section of successful chief executives with broad financial, business and governmental experience. Tenure in the CEO position at their banks ranged from 40 days to nearly 40 years. And, they represented a cross-section of minority and CDFI banks from across the country, ranging in asset size from $200 million to $1 billion, and serving their communities from 8 years to more than 100 years.
First, the CEOs surmised what might happen if they were no longer there to serve their neighborhoods. They posited a few scenarios. Without MDI and CDFI banks, their neighborhoods would be abandoned to high cost service providers, some said. Certain ethnic communities would be ignored by more traditional financial institutions, possibly due to perceived language and cultural barriers. Financial education would be lacking. Predatory lending could increase and customers might not be treated as fairly. Charter schools and churches would lose significant financial support, impacting young and old alike and loosening the social fabric of their communities. Customers would be less likely to achieve the “American Dream,” buy homes and start businesses.
If others were to step in to replace an MDI or CDFI bank, they suggested, much more discretionary income, for already financially challenged customers, would disappear in fees paid to higher cost lenders. For this reason, some noted that it is not uncommon for representatives of areas lacking mainstream banking services to invite their banks to open branches.
CEOs also responded to the proverbial question, “What keeps you up at night?" and explored critical issues now facing their banks. Residential lenders encouraged regulators to carefully craft and implement QM, QRM, Capital and other pending rules. They noted that, in their communities, they play a vital role in home financing, including rental housing. Minority and CDFI banks have considerable expertise serving low- and moderate-income families through the use of flexible programs and credit enhancements to lend in a safe and sound manner. They expressed concerns that proposed rules could have unintended consequences, limiting the use of these community development and affordable housing lending tools. And, they referred regulators to their public comment letters, recommending specific changes to the proposed rules.
CEOs of institutions with relatively long histories noted that, for all or almost all of their years, they were profitable, despite financial crises; and, they strive to keep it that way. However, the business is challenged in ways not seen before. Earnings are harder to generate, interest rate spreads are lower, and competition is fierce. They stressed that capital – the ability to raise it, generate returns and pay back – is a primary focus. Unregulated institutions and larger financial institutions provide stiff competition on price, most agreed, so it becomes harder to find good loan opportunities. The typical investor, nonetheless, expects reasonable returns within certain timeframes. And, the more patient, social investor often expects to see more community development lending.
The CEOs were forward-looking and believe their local economy will improve, albeit slowly. America is increasingly diverse, and they know how to serve diverse communities. But, not all minority banks or minority communities are alike. There are differences. A few explained that their particular business model involves specialized lending in areas not served by mid-size and larger banks (e.g., car washes, small mom and pop stores, hospitals, churches, etc.), so in this respect they can generate a reasonable return. For others, including some from areas hardest hit by the financial crisis, they noted that the business model is changing and MDIs need to be on the “design side, not the behind side.”
Leaders of the MDI industry, the CEOs said, need to educate regulators on the impact of rules and work with them on examination approaches that take into account their unique role. They cited regulatory red tape with applications, and critical examination report comments without recognizing improvements the bank has made. They expressed the need to influence the design of Federal programs that provide tax credits, financing guarantees and other tools, to become more useful for raising capital and leveraging lending. They looked forward to the conference roundtables to discuss ways to collaborate with each other as an industry, to achieve scale. And, they confirmed their determination to develop a market strategy for survival – to become the niche bank for tomorrow.