By E. Dennis Kelly Jr.
Over the years, I have read the Massachusetts Banker quarterly magazine and viewed the Chairman’s Column as just another part of the magazine. Your perspective changes dramatically when told that, as chairman, you are now responsible for the column. It sounded easy until I became aware that I needed to make it informative, inspiring and entertaining.
That challenge notwithstanding, I look forward to being your chairman of the Massachusetts Bankers Association and, in particular, the writing of this column. I realize that over the next year, there is probably nothing else that I will do that will reach as many people in our industry.
The cover story in this issue is about the challenge that is facing all of us: attracting core deposits. As I reflect on this, three thoughts come to mind … innovation, involvement and cultivation. Not surprisingly, my thoughts run to my 30 years in the banking industry. This is not the first time that deposit gathering has been extremely difficult.
In the 1970s and early ’80s, we were all subject to Reg Q, which restricted what rates of interest we could pay. When interest rates on Treasury securities surpassed what we could pay, this artificial cap caused disintermediation or an outflow of deposits. What did we do? We looked for and found creative ways to attract deposits. I remember banks offering a variety of incentives for opening accounts and making deposits, including china, flatware, cutlery, television sets and even wigs! It did attract customers and deposits. Innovation did work. I can tell you firsthand that offering 24-inch color televisions created its own challenges. Moving them from the basement to the customers’ cars and putting them in the backseat or trunk not only negatively impacted our bottom line, but also my back!
We were at a competitive disadvantage, but thought of innovative ways to compete. Today, our problem of attracting core deposits is not the result of an artificial cap, but rather of market conditions. First, we have become a society of consumers as opposed to one of savers. In fact, the average savings rate last year for Americans was a negative number. There is no reason to believe that this phenomenon will change in the near future. Second, we are faced with even more competition. As an industry, we have been losing market share consistently to our competitors. This includes bank-like credit unions and non-bank entities. As you will see in our cover story, innovation now takes many forms and is very important. (Another tease: focusing on our core competencies is the first and best strategy.)
My other point of emphasis is about involvement. The staff at the MBA does an outstanding job of carrying our message from the State House in Boston to the Capitol in Washington, but they need our participation. Just as Reg Q was an artificial impediment in our ability to compete in certain markets, the tax-free status of bank-like credit unions is even more difficult. This is where each of you can make a difference. Congressional leaders need to know that this should change. This can be accomplished through our grassroots effort. A similar thing happened back in the 1950s, when mutual banks, co-operative banks, and savings and loan associations lost their tax exempt status. Over the past half century, history shows that it did not hurt our industry. Join the effort. Ask the MBA how and get involved.
We also need to address the recurring issue of data breaches. Very often, after a data breach our customers wonder what we have done. That’s because often, we have no idea who is responsible until we read about it in the newspaper. This represents a huge reputation risk for each of us. As highlighted in the last issue of this magazine, the TJX data breach impacted 46 million credit and debit cards – some media reports indicate it could go as high as 200 million! It has to stop. Changes are needed. The board of directors of the MBA believes this is the time and we need to take a stand. The class action suit against TJX and our legislative efforts are not only about recovering our extraordinary expenses, but also about stopping future data breaches. This will not happen without your involvement. Please join the effort and offer your financial support to the MBA.
In addition, we have a separate aggressive legislative agenda over the next 12 months. You can read about it in the Legislative Review section of this magazine. The most important pieces of legislation include:
H. 3925: Restricting the use of so-called credit triggers by consumer reporting agencies;
H. 213: Establishing responsibility standards for correcting data breaches;
H. 962: Establishing standards for an industrial loan company to operate a branch bank;
H. 1475: Expanding the definition of, and penalties for, committing bank robberies or presenting fraudulent checks;
H. 1082: Relative to improving efficiencies for state chartered banks by clarifying the 18/65 fee law to say that state-chartered banks must offer a savings and a checking account with free basic checks and no minimum balance or activity fee;
S. 620: Restricting use of overdraft protection plans (Oppose);
H. 498: Instituting financial literacy curriculum in public schools K-12 (Support);
H. 1060: Streamlining the conversion of a credit union to a federal charter (Oppose);
H. 1053: Allowing state credit unions to conduct statewide branching (Oppose).
Here again, we need your participation. Contact the MBA to learn more about where we stand on the issues. Then drop a note, pick up the phone and discuss the issues that are important to you with your own lawmakers. When you reach out to elected officials, always remember that they consider your opinions to be very important and representative of a larger constituency of similar opinions, because you took the time to express your thoughts.
My final point of emphasis is about cultivation. In line with the cover story which focuses on retaining existing customers, we also need to cultivate new customers. Perhaps the best way – consider it a two-for-one strategy – is to reach out to the unbanked. Recently, the MBA established a task force to look at small-dollar consumer loans as an alternative to payday loans. In conjunction with financial literacy programs, we should be able show the importance of good credit and savings, and lessen the negative impact of predatory lending. We should not forget about our school systems. These are our customers of the future. Let us reach out to them, teach children in our communities some important core values and add to the positive role we play in our communities.
Together we can ensure a bright and successful future for our customers, communities and the banking industry. Whether you contribute through the MBA’s committees, task forces or grass roots efforts, it does not matter. Your help is needed.
E. Dennis Kelly Jr. is president and CEO of Taunton-based Bristol County Savings Bank. He can be reached at firstname.lastname@example.org