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Financial Industry Perspectives
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In the 1990s, banks will face a variety of challenges. These include meeting new loan competition, managing market risks, maintaining a funding base, and developing successful strategies in banking consolidation. This speech takes a careful look at these challenges. It also examines how the trends in banking may affect financial stability and what steps may be necessary for banks to survive and prosper in a more complex marketplace. Among the steps discussed are creating an effective and efficient supervisory approach and reforming the banking system to provide a better way of protecting depositors. In addition, the speech looks at two other steps toward financial stability--eliminating market distortions that make the financial system more fragile and making sure the Federal Reserve and other agencies have the ability to respond to possible problems. These or similar steps will be necessary if banks and other financial institutions are to have a clear path to the future. Back to top FIP home
Dramatic changes are occurring in our financial system and the pace of change is increasing. These changes provide opportunities for community bankers, but they also create new challenges. To explore how community banks will respond to these challenges, we asked Tenth District community bankers for their views on how their banks will be affected over the next five years. Our survey focused on four broad areas--bank and nonbank competition, operational matters, ownership and human resource concerns, and banking regulation's impact. In the first area, survey respondents expect to face strong competition from bank and nonbank firms, with some nonbank firms being viewed as some of their strongest competitors. To answer this competition, District community bankers plan some operational changes, e.g., emphasizing service charges and fee income and expanding investment services. However, most will continue to rely on traditional loan and deposit products. In the area of ownership and human resources, many respondents do not see ownership and management changing at their banks in the next five years. They also do not anticipate difficulty in attracting and retaining qualified nonofficial staff. However, a majority do expect problems in attracting and retaining qualified directors. Regarding regulation, many bankers indicate they have made operational changes to accommodate the current regulatory environment. In addition, many note that regulatory compliance costs are growing and hurting profitability. They see increased regulation making it harder for them to compete against less regulated nonbank firms and ultimately hampering their ability to survive. Back to top FIP home
The survey of community banks revealed that many Tenth District community bankers are concerned about their banks' ability to compete and succeed in the future. In light of these concerns, the authors looked at recent performance trends to see how District community banks have done and to determine if any are showing performance weaknesses. They found that Tenth District community banks, as a group, continue to perform well. However, they found that banks with total assets less than $25 million are losing performance ground. At particular risk in this group of banks are smaller banks located in places with limited growth opportunities. These banks may be too small to be efficient financial service providers and their slow growth may make it increasingly difficult for them to absorb rising operating costs. As a result, the future for these smaller banks may not be particularly bright. Managers at these banks may have to take a proactive approach to meeting marketplace challenges if their banks are to remain viable competitors. Back to top FIP home |