By Christopher W. Pinkham
Prior to the “Season of New Year’s Resolutions,” we have the “Planning (and Budgeting) Season.” Bankers everywhere have been trying to prepare their budgets for whatever the economy has planned for the next 12 months. What are some of those issues on the minds of bankers as we approach 2006?
First, we have the national economy. Interest rates are creeping north, and at the same time the refinancing boom has cooled (as everyone on the planet has refinanced at least twice)! Tax policy issues are debated at both the state and federal level while at the same time predictions are compounded by changing revenue and expense forecasts. In addition, the difference between a bank’s income and expense is narrowing and, at some institutions, leading to lower earnings. Clearly, for most, unpredictability is the forecast for 2006.
Second, we have the economy of Maine and Northern New England to consider. Some corners of our state continue with strong growth factors as the population migrates south and west. However, housing costs, a driver in this transition, may have returned to days of more reasonable annual gains. Recent reports indicate listings remain on the market longer and sell slightly lower than asking prices. In addition, inventory remains high and new construction, especially of condominiums, remains robust. Positioning a bank’s lending team to take advantage of these changes will be a challenge to even the most seasoned institutions.
Finally, we recognize there are health risks and financial risks, but stroke-of-the-pen risks? Who dreamed that one up? In my never-ending search for the new trends in banking, I stumbled upon an article written by FDIC examiners trying to identify emerging trends for issues in 2006. Attention bankers: your next examination risk may not be an acronym such as RESPA, BSA, CTR, HMDA, Sarbanes-Oxley or the PATRIOT Act. Instead, it may be stroke-of-the-pen risks!
By a simple stroke of the government’s pen, your bank, your business, or your finances may be impacted! Undoubtedly, the government pen will make many strokes that will affect banking in 2006. How to plan for/mitigate/temper/alleviate/abate/mod-erate those unknown and intangible risks may leave you scratching your head, as it does me. However, add it to the ever-growing list of challenges for 2006.
Christopher W. Pinkham is president of the Maine Association of Community Banks.