Illinois bankers ride wave of technology, market changes

Community bankers in Illinois have heard the message, as have their colleagues throughout the nation. Change is happening quickly, and if you wish to remain an industry player, you must adapt to new technologies, new markets and new megabanks.

The Community Bankers Association of Illinois clearly heard the message and intertwined it with the group's 24th annual convention theme: "Make the Right Move Now" as more than 260 bankers from 155 banks attended the Sept. 24-27 event in St. Louis, Mo.

Said Jim Ashworth, newly elected 1998-99 CBAI president, "The CBAI anticipates change, the opportunity to prepare for and respond to change."

Ashworth, president of Carlinville National Bank in Carlinville, noted the changing market will impact the banking industry. For example, banks can't ignore the young, "Generation X" group-ages 19-35- with its 70 million computer-savvy people who comprise half of the Internet users and prefer automatic teller machines.

Bob Barsness, IBAA presidentelect from Prior Lake State Bank in Prior Lake, Minn., knows how the industry is changing and reminded community bankers the importance of unity within their small fraternity with 62 percent of its members coming from rural communities.

"Our collective wisdom is better than our individual wisdom," said Barsness. "We need each other. We need to work together."

During Barsness' speech, he discussed several industry changes by updating bankers on Washington issues including bankruptcy reform. Two days earlier on Sept. 23, the Senate passed bankruptcy reform legislation by 97-1, and Barsness said a compromise bill would pass this year.

In June, the House passed its version, which the IBAA prefers because of a measure that introduces a "means" test for people filing for bankruptcy court protection from creditors, Barsness said. The means test would require people earning at least the median U.S. income, about $51,000 for a family of four, to file for financial reorganization under Chapter 13, subject to a court-ordered payment plan, if they can pay back 20 percent of their debt within five years.

Barsness praised the Senate for dropping Alfonse D'Amato's bankruptcy reform amendment to ban ATM surcharges. However, the IBAA is disappointed that the bankruptcy bill would make Chapter 12-reorganization proceedings commonly used by small family-owned farms-permanent.

As for financial reform legislation, the IBAA along with everyone else in the financial services industry is accepting the fact that the GlassSteagall Act will be repealed, drastically changing the banking industry. "We don't like it, but it's reality," Barsness said.

Banking Expert's Electronic Views Noted author and bank industry expert Martin Mayer gave bankers a glimpse into the future, telling them to prepare for more industry changes, as he focused on competition and electronic fund payments during his Sept. 26 talk.

Mayer, best known for his 1975 book "The Bankers," and who last year wrote a sequel "The Bankers: The Next Generation," is now a guest scholar with the Brookings Institution in Washington, D.C.

Community bankers already have seen numerous changes the past few years as non-banking competition has stolen customers who want more than loans and checking accounts. These changes will continue, and community bankers must adapt, Mayer said. But it's not just non-banking competition that community bankers must watch.

Although the hostility the banking industry has toward credit unions is understandable, Mayer said the non-taxed institutions should not be viewed as major competition. Instead, the large nationwide banks are small banks' primary nemesis and will continue to be, Mayer said.

One battlefront pitting small banks against large banks remains ATMs. Mayer predicted a "bloodbath" as banks try to attract cost-conscious customers who don't wish to pay fees. However, when it comes to ATMs, larger banks already have the advantage, but community banks shouldn't concede defeat, he said.

"Smaller banks will have to band together," Mayer said.

Institutions must implement innovative ways to attract customers as well. Mayer cited a Marquette, Mich., bank that instead of charging ATM fees provides customers with a 10cent credit for using a machine.

Switching subjects, Mayer predicted that U.S. banks and the public must prepare for another future wave: electronic fund payments, a system that has been available for several years. Mayer criticized the country's current check-routing process that leaves unnecessary paper trails at high costs.

"It's nonsense, meaningless and expensive moving this paper all over the country," Mayer said.

For costly examples, Mayer said banks pay about 5 percent or $2.60 to process the average $50 non-cash transaction. Another statistic Mayer provided: the Federal Reserve Bank pays $50 million a year to transport canceled checks around the country.

An electronic payment system would eliminate many costs, said Mayer, adding that the U.S. could do better by following Europe's lead. "In Europe, nobody gets a check. It's unheard of," said Maver noting that public, the Netherlands and Belgium all payments are made via direct posit.

The public, though, should not expect the Federal Reserve Board to become an advocate of a streamlined check system, Mayer said. The Fed has remained an obstacle to electronic payments, preferring to maintain its large role in check clearing. Nevertheless, the direct deposit issue will be the subject of a major promotion in the fall, Mayer said.

Asia and its financial crisis was another topic on Mayer's mind. With all the bad loans Asian banks provided, it's not surprising its countries met with financial turmoil, Mayer said. American banks can learn from the Asian crisis.

"You can't operate with a banking system that doesn't know what's going on," Mayer said.

Countries such as South Korea and Thailand slowly are on the recovery trail, Mayer said. Japan, however, remains in a much sorrier state because that country's financial leaders are fearful of losing face should they admit any shortfalls.

CBAI elected officers for 1998-99. They are: President-James Ashworth, Carlinville National Bank; First Vice President-Roger Lehmann, The Harvard State Bank; Second Vice President-Mark Field, The Farmers State Bank of Liberty; and Treasurer-Larry Maschhoff, The Bank of Illinois in Normal.

By Monte Olmsted

(Watch for additional photo coverage of the CBAI convention in the Oct. 24 edition of Northwestern Financial Review.)