The way banks do business has changed dramatically over the past three decades. Regulatory changes have opened the market to competition beyond the traditional bank model and its geographic scope and product offerings. Banks have shifted to using electronic technology for transactions, and customers now make fewer transactions inside the branches. Also, bank consolidations have continued at a rapid pace, resulting in fewer community banks and the growth of banks "too big to fail."
Several major federal regulatory laws passed in recent years have breached the geographic restrictions on banking that have existed since the 1920s.
For example, the Interstate Banking and Branching Efficiency Act of 1994 opened the door to nearly unimpeded nationwide banking. It removed barriers to interstate consolidations of banks and holding companies, authorized interstate consolidations of affiliated or acquired banks, and permitted interstate de novo branching if individual states expressly authorized this.
Further, Congress' reform of the 1933 Glass-Steagall Act severely restricted banks from engaging in securities underwriting, prohibited mergers between banks and security firms, and prohibited banks from underwriting and selling insurance. This reform radically transformed the way financial services are delivered, as banks were no longer the "gate-keeper" for financial service. Naturally, increased competition brought about bank consolidations forced the change of how and where consumers could bank.
To traditional bankers, these changes and its impact on businesses and consumers are worrisome. Today, the current U.S. market is dominated by 59 large banks that control more than 70 percent of the $8.5 trillion of domestic bank assets. The total number of community banks - those with less than $1 billion in assets - peaked at about 15,000 in the 1980s. Only 7,436 banks and thrifts insuded by the Federal Deposit Insurance Corporation (FDIC) remain today due to mergers and failures. So, while big banks got larger, the number of community banks shrank dramatically.
Technology and its efficiencies also have shifted traditional banking to a more impersonal mode of electronic banking. For example, the number of "brick and mortar" branches has declined, as they are considered an inefficient and costlier method of delivering banking services. In fact, Bill Gates labeled banks as "dinosaurs" that will be replaced by low-cost, high-tech providers of similar financial services.
While many banks consolidated and closed branches, they extended their automated teller services, loan kiosks, online and mobile phone banking. It's true these advantages of banking convenience are great for the consumer, however, the loss of personal interaction and relationship with your banker can be even greater in times of distress.
Predicting the demise of the banking industry seems premature as we witness the collective public backlash against the industry with the Occupy Wall Street movement that feels Congress and the megabank institutions defrauded the American public through the bailouts. Likewise, many community bankers also feel the Wall Street fiasco of 2008 unfortunately tarnished the industry.
It is a troubling time for community bankers who advocate relationship banking, however, there is a catalyst of change emerging with dialogue among regulators, bankers and consumers to redefine community banking and what that implies about the dual banking system.
At a macro-level, changing the landscape of banking to return the emphasis on community and the customer relationship is a natural answer to the pleas of those who say the current banking environment has lost its way. Community bankers believe the call to arms should be to rethink the banking regulations and loss of oversight that ultimately led to the industry problems today.
Desired changes are not all on the shoulders of Congress, consumers can effect change through their actions as seen by the estimated 800,000 who switched banks on last month's grassroot Bank Transfer Day.
Banks are taking notice. Perhaps it is time to return to the personal relationships that used to be common between bankers and their customers.
Contact Teresa M. Nowak, senior vice president for Commerce Bank of Arizona, at email@example.com or (520) 325-5200. Commerce Bank is a Tucson-owned community bank specializing in serving small- to mid-size businesses in Arizona.