View from CBA August 15, 2014

Is $20 Billion the New $10 Billion?

The retail banking industry is very familiar with banks taking steps not to pass the $10 billion asset mark in order to avoid the associated massive regulatory and compliance costs. Consider Cathy Nash who sold Citizens Republic Bancorp when it reached $9.7 billion in assets to FirstMerit in 2012. Now there is another reason – the cut in interchange fees. The limiting of debit interchange fees to 24 cents per transaction from 44 cents cuts deeply into a bank's balance sheet. SNL Financial's recent report found debit card revenue at Bank of America fell by $430 million in the fourth quarter of 2011 alone as a result of the fee cut. As of now, debit cards are not providing revenue to the bottom-line of banks, an area where an increase in customers would translate to an increase in revenue. The chairman of Home Bancshares, with $6.8 billion assets, said crossing the $10 billion threshold would lead to interchange costs of $6 million a year, while Old National Bancorp's President and CEO Robert Jones has stated in order for the bank to be profitable above $10 billion, they would actually have to have assets of $13 billion or more. The bottom line is banks below $10 billion are disincentivized to grow and enhance services to their communities, while banks above $10 billion take a hit with no consumer benefit to show for it.

CFPB Private Student Loan Ombudsman weighs in on – wait for it – Campus Products

The CFPB's Office of Private Education Loan Ombudsman recently sent letters to financial institutions which have contractual relationships with colleges and universities -- unrelated to the student loan or financial aid portfolios -- calling on them to publicly disclose their proprietary agreements. The Ombudsman alleged parties to these agreements are "engaging in risky practices," yet offered not one shred of evidence supporting this inflammatory claim. Even more problematic, the Ombudsman is exerting influence beyond the office's congressionally mandated jurisdiction. These relationships between financial institutions and schools often provide students with great benefits by providing much needed financial literacy, safe and secure debit cards, low or no-fee checking accounts and access to convenient on-campus branches and ATMs. These relationships do not enter the private student loan space, the sole scope of the Ombudsman's jurisdiction as promulgated under the Dodd-Frank Act. To this point, the Ombudsman's recent blog post entitled, "Alerting colleges about secret banking contracts," does not relate to private education loans, but instead negatively references other products and services banks offer on campus. In fact, the only reference to private education loans in the blog is a brief description of how the Ombudsman's policy concerns are already addressed in the private education loan market. Finally, and most disappointingly, the CFPB letter states in no uncertain terms that a financial institution's failure to follow the CFPB's "request" will likely lead to examination. CBA and our members value the productive working relationship with the CFPB. However, regulation via implied threat is not a sound practice for a government agency. We urge the CFPB to take steps to correct these practices immediately. 

Brett King: "Forget the Branch of the Future"

Brett King has long been a watcher of the retail banking industry and makes an interesting comparisonbetween bank branch foot traffic and retail store foot traffic both which are decreasing at roughly the same rate. Today's customers demand an online experience, whether it is their bank or their local electronics store. "Branch activity largely is not declining because the branch is simply designed poorly, has too many tellers or teller stations, or does not have enough technology embedded – it is declining because customers just do not need to visit branches like they used to," says King. He rightly argues the branch of the future may not resemble an Apple store, but no branch at all because this is the direction of the consumer. Adapting to consumer demand will lead the industry to build the "bank of the future," not the branch consumers are increasingly avoiding.

Student Debt and Housing Bubble Not One in the Same

new report from Vanguard entitled, "No bubble to burst: U.S. student debt is not housing," finds what many consider a student debt bubble will not burst the way the housing bubble did a few years ago. "The mortgage crisis then was growing at about the same rate per year, but that is pretty much where the similarities end," Roger Aliaga-Diaz of Vanguard told U.S. News & World Report. The key distinction is the size of the debt in relation to GDP. Student debt represents just 7 percent of GDP, while mortgage debt at its peak was about two-thirds of GDP. The average student debt per consumer is much smaller than mortgage debt, as are the average monthly payments. Vanguard's report found, "although financing a bachelor's degree with student debt decreases the likelihood of a typical 30-year-old college graduate purchasing a home by –1.7 percent, obtaining that degree also increases the likelihood of purchasing a home by 10.8 percent, relative to not attending college at all...," meaning a college degree is still a valuable way to increase economic mobility.


Houston Cook, who has managed the Consumer & Small Business Deposits team since 2006 at Regions Financial, has been named Director of Strategic and Corporate Planning. In addition, Tom Brooks' role as head of the Cards & Payments Division will expand to include leadership of the Consumer & Small Business Deposits team.
After 40 years at Comerica Bank, Chief Credit Officer John Killian will retire effective next May. Peter Guilfoile, National Credit Administration Manager, will take over as Chief Credit Officer starting February 1, 2015.
SunTrust Banks has appointed Paul Garcia, a former Chairman and Chief Executive of Global Payments, to its board.