Every month, Utah Business partners with Holland & Hart and Big-D Construction to host roundtable events featuring industry insiders. This month we invited the top banking and finance specialists to discuss regulatory burdens, the Utah economy, and the second longest economic expansion on record. Moderated by Juliette Tennert, chief economist and director of economic and public policy at the Kem C. Gardner Policy Institute at the University of Utah, here are a few highlights from the event.
The Federal Reserve wants to ease certain regulatory burdens. What’s going on right now?
Frank Pignanelli | Executive Director | National Association of Industrial Bankers and Utah Association of Financial Services
Because the Federal Deposit Insurance Corporation (FDIC) has granted insurance to so few banks, over two-thirds of all financial transactions in this country are outside the regulated sphere. So Washington, DC and others have picked up on that. You have some great people like Randy Quarles and Jelena McWilliams, the chairwoman of the FDIC, realize they have a responsibility to start expanding the scope of banking services, because, otherwise, the people are going outside the regulatory sphere.
The other element, too, that is important is that the rise of Fintechs. And so the Federal Reserve and the FDIC are saying, ‘okay, we need to catch up.’ And in order to catch up, in order to respond to 21st-century dynamics, they’ve got to start addressing the regulatory issues.
Howard Headlee | President & CEO | Utah Bankers AssociationJust re-looking at things that have been in place for years will have an equally significant impact in the economy with the way the capital is attracted to the financial services industry and the way it’s deployed. So I think that’s all very good news in the economy for business, for individuals. In the past, it’s just been moving outside of the regulatory space, and I think that’s not necessarily―you’re not protecting anybody when you are just pushing stuff out of the regulated space.What does this actually mean for Utah banks and for Utah consumers and businesses?
Roger Christensen | SVP of Marketing, Communications, and Business Development | Bank of Utah
Banks are doing a much better job of regulating themselves. There is a lot more information in the market today that wasn’t even 10 years ago. Access to information is enabling banks to be more self-regulating to understand the types of loans that they want. And they also identify the types of borrowers they want. It’s becoming easier for consumers to identify the type of product they want, and then identify the three or four banks that they really would like to go after.
Brock Blake | Founder & CEO | Lendio
Since the new federal government has taken a much more ease of approach on the regulatory environment for small business lending, it’s emboldened the state by state licensing, regulatory, and disclosures in the small business lending space. So we’re very proactively helping them, educating them around the different loan products that are out there.
Shawn Berrett | Supervisor of Industrial Banks | Utah Department of Financial Institutions
I think the states recognize that there is what’s called a patchwork quilt burden by state-by-state regimes, and I think they recognize that there is some competition for some of that regulatory space arising from things like the OCC’s Fintech proposal. And so the states have undertaken an initiative to try and harmonize those licensing requirements so that it can be a one-time submission for a license to a central depository that all the states get access to that site. And you can deal with a one-stop shopping approach to getting some of your licenses addressed across all the states through one point of entry. States recognize that there’s a little bit of a burden there, and they are trying to address it through some initiatives right now.
Howard Headlee | President & CEO | Utah Bankers Association
It impacts the products and services that you have access to. By making these regulations more efficient and more commonsensical, it benefits everybody in the economy that needs access to safe financial services. The other thing is these regulations have a significant impact on innovation in the market. So it may affect your specific loan, the terms of your loan, the access to a loan, but it also affects the way in which those are delivered over time and the way those products are developed over time. You want the markets to evolve safely but more freely. Some of these older regulations that haven’t been addressed in many years are really impacting how this industry evolves and serves the needs of the community and the economy.
How has the industry in Utah done over the past year? Have you seen an acceleration in growth?
Roger Christensen | SVP of Marketing, Communications, and Business Development | Bank of Utah
This population growth will continue to fuel opportunity for the banks in Utah. I take a look at all these banks in the room and they all have creative ways to do lending. I think it’s the reason our banks are doing well; not only because of the economy, because there has been good leadership and good discipline within the banking areas.
Brad Sheppard | Executive Vice President | Zions Bank
We’re the third-fastest growing state in the nation. We know that the housing market is short. And yet we’re growing at this phenomenal rate population-wise. House prices in the state are exceeding the national average, and have exceeded it for several years now. So one of the challenges that we face is how do we get first home buyers into homes with a rising rate environment and a rising housing cost environment?
Matt Packard | CEO | Central Bank
That’s probably one of the areas that we watch pretty closely because it’s just the affordability index. I mean, you have a shortage in housing. At the same token, you have the ability, from an income standpoint, to be able to substantiate the prices of homes. The same thing the regulators do with the risk assessing, we need to do [in relation] to that type of lending and borrowing.
Brock Blake | Founder & CEO | Lendio
The reason the economy is doing so well here in Utah is the flow of capital, both on the debt and the equity side. On the debt side we look state by state at the business owners, are they getting access to capital, looking at are they qualified for loans relatively, what’s their approval rate, what’s their payoff rate, etc. Here in Utah, it’s over-index by far. But on the equity side, historically we had trouble in two areas; in the seed stage funding, like early stage start-ups, and we struggled around taking companies to IPO and beyond.
But over the last little while, we’ve seen [a stronger] accumulation of seed capital from Peak Ventures, Kickstart Ventures, and angels. But we’ve also had significantly over-indexing IPOs with Instructure, Pluralsight, Domo, Vivint Solar, and now Qualtrics. What that does is create wealth. It’s a life cycle. Wealth gets put back into the economy in the form of seed stage capital. So there’s capital flowing both from the debt side and on the equity side that is making a vibrant economy from that perspective.
Howard Headlee | President & CEO | Utah Bankers Association
We are one of the largest banking states in the country. You can’t sustain a top economy without incredibly well-run, property-risked banks. So Utah’s banks do very well when Utah’s economy does well. Utah’s economy does well because we are one of the largest banking states in the country. We have a ton of really smart bankers here who price right and evaluate risk correctly.
What I am most troubled, coming out of the financial crisis, was this finger-pointing exercise, that somehow the banks are over here and the consumers and the businesses are over here. The bottom line is the banks can’t outperform the economy they serve. So when our customers do well, we do well. When we do well, our customers do well. It’s not separate. It’s all-in-one.
Thanks to technology, you no longer have to drive into the city and sit down with a banker for a mortgage. How is that changing business?
Kelly Harris | President | Harris Financial
It’s really frustrating, especially with newer generations of clients that don’t want that personal interface. They want high tech, not high touch. And so high touch versus high tech becomes this conflict. You’re seeing what they call robo-advisors, where people don’t want to talk to an advisor, they just want to be able to get the information, process it themselves in the comforts of their den, and then make their decisions.
Matt Packard | CEO | Central Bank
When somebody has a problem, they don’t want the high tech, they want to be able to talk to somebody, talk quickly, and figure out the problem. So that’s an avenue by which somebody who has the ability to do high touch can help solidify relationships. It takes steps and hours to get problems solved; where they can talk to somebody, they know who that person is, and they can get the problem solved very quickly. So I think that’s a unique character trait that everyone needs to recognize in this high tech world.
Shelly Holt | Executive Vice President | First National Bank of Layton
We’re all in the situation where we have to stay advanced with technology but we still have a generation or two of people that really want to talk to someone. I personally think there is always going to be room for the high touch. I think even if we get more technology, we’re always going to have people that still want a person.
Ram Halteh | SVP of Business Banking | KeyBank
It used to be that only big banks had really good technology. But now with banks like ours, it’s cheaper to buy it than build it, and that gives access to community banks as well. And technology is changing so rapidly. Once you build it, two years later it’s almost obsolete. So you need to be nimble enough to continue to invest in it.
Brock Blake | Founder & CEO | Lendio
I don’t envy the banks in this position. Banks, from a technology perspective, are young. You can go out and buy things, but the things that banks are starting to adopt, they are still a couple years old and not cutting edge.
Brad Sheppard | Executive Vice President | Zions Bank
For a lot of our clients, they carry the bank with them everywhere they go. The thing that we have to remember is we have to allow and we have to provide our clients with the opportunity to interact how they choose. When we say you have to interact with us on your phone, we’ve gone down the wrong path. This is a consumer choice issue. If they want to come into a branch and interact, then they should have that choice. We should provide that choice.
Brad Baldwin | President | First Utah Bank
Banking is what you do, it’s not where you go.
Mike Jensen | CFO | Brighton Bank
There’s always going to be a sector of those small business owners that have a need, whether they want it or not, for the high touch. They have a need to get to know their banker and have their banker get to know their business so the banker is willing to take that risk.
Are you seeing signals that we’re nearing the peak of our economic expansion?
Howard Headlee | President & CEO | Utah Bankers Association
Whether we see it or don’t see it, every bank in Utah will be prepared for it. It’s really looking back on the financial crisis, seeing the depth of it and how well we weathered it and how well we’ve responded in terms of innovating, building, and retaining capital. The businesses of Utah can be comfortable that these banks will be prepared and ready, they’ll weather it, and they’ll be there to serve them the next day when we’re through it. That’s why Utah recovered so quickly.
The labor issue is troubling. It’s interesting to me as I go and speak to the universities, this is the biggest industry in the state, and we are one of the biggest banking states in the country. The students going to college and paying a lot of money for college and going into a lot of debt don’t know it. When they hear about it and can learn that they can have a great job in Utah and be a critical part of the community, volunteering, serving on boards, being involved in nonprofits, their eyes light up. They love that. But we are uniquely positioned to provide tremendous careers for those that are smart enough to read your magazine and reach out to the amazing array and diversity of banks in the state to begin to pursue that career. It surprises me that you could go and spend that much money and get a degree and not know that banking in Utah was a tremendous career. So we’ve got to figure out how to close that gap.
What is the number one opportunity for your business in 2019?
Brad Sheppard | Executive Vice President | Zions Bank
Growth. We have great opportunities in this state, but the challenge with that is managing it and making sure that the risks are mitigated and that we’re doing the right things for the right reasons for our people.
Jim Noone | Chief Credit Officer | Finwise Bank
I think it’s just meeting the needs of our small business owner customers. They are running the business day-to-day. They are not worried about getting us updated in our financials and tax returns from three years ago and things like that. So it’s being able to meet what they’re looking for so that they can go run their business.
Mark Olson | CFO | Bank of American Fork
I think it’s balancing high touch with [the digitization] of our back offices.
Shelly Holt | Executive Vice President | First National Bank of Layton
In the next five years, we’re going to lose 10 percent of our employees, and that’s a concern. Succession planning. Boomers are retiring and so just getting good people that want to work in banking.
Kelly Harris | President | Harris Financial
The perspective is the market. Everybody, for the last couple of years, has said we’re going to have this correction. And it’s not a matter of if, it’s a matter of when. That is the biggest challenge right now in our industry. October, the market was down four percent. And then through the first seven days of November, we’re back recovering and the talk stops. But that’s going to be the biggest challenge within our industry, just managing fears, expectations of what the consumer views as the next correction that’s going to happen. It’s always going to happen. But there’s nothing that would suggest right now, at least to the things that I’m reading, that it’s imminent.
Scott Irwin | Attorney | Holland & Hart LLP
I think our opportunities are to get the story out about all the other things we can do for this industry, things like data privacy, cybersecurity, licensing different technologies, the full spectrum of services we provide.
Brad Baldwin | President | First Utah Bank
There’s a battle for deposits. Our cost of funds is going up because everybody needs that funding. It’s very competitive. So the opportunity is in our market. So I think the future is bright. I think we all need to look two, three, five years into the future and not be distracted by what’s happening in this week and this month.