View from CBA June 6, 2014

Student Loan Hearings in the U.S. Senate Simultaneous hearings in the U.S. Senate Banking and Budget Committees took place on June 4, 2014 covering the issue of student loan debt. This is the first time in the past three years this issue has been given proper attention, and I was glad to see these hearings were not totally political theater. However, greater scrutiny must be given to the issue of college cost. Since 1980, the average published tuition and fees has risen 1,100 percent, or more than four times the rate of inflation.
Over 93 percent of these loans are issued by the federal government, while just under 7 percent are issued by private lenders. Unlike private student loans, federal loans are handed out without any assessment of ability to repay or any other serious underwriting evaluation. Federal loans are the main source of funding for our nation’s students, and it is astounding the federal programs do not involve a responsible assessment of a borrower’s ability to repay, arguably the most important consumer protection. I do not think Sen. Elizabeth Warren (D-MA) or Sen. Sherrod Brown (D-OH) would like banks to have zero underwriting standards, yet continue to allow the U.S. Government to operate in this manner? Maybe it is just because the government can print more money, and private lenders must turn a profit, or they go out of business.

European Central Bank Cuts Interest Rates to -0.1 percent

You read it correctly -- the European Central Bank cut their deposit rate to -0.1 percent to encourage banks to instead loan deposited Euros to consumers and businesses. European banks will have a number of strategic choices ahead of them: leave deposits alone and eat the cost, pass the cost of leaving deposits with the central bank onto consumers, or withdraw deposits. Interestingly, Denmark tried this once before with mixed results. It did not cause mass withdrawals from their central bank, nor did lending increase. Here in the States, we have a greater issue with consumer demand than we do with banks hoarding cash. Do not expect Fed Chair Janet Yellen to move in this direction.

Millennials Looking to go Branchless

A recently released Accenture study of 4,000 banking customers in North America revealed customers want their banks to be “nimble, proactive—and far more digital.” Nearly a third of those surveyed would consider a branchless digital bank, and 71 percent consider their banking relationship to be transactional rather than relationship driven. This should come as no surprise – the age range of consumers who most desire branchless banking is 18-34, with 39 percent of those consumers responding favorably.

Retailers Aim to Appeal Court Decision on Interchange

This week the National Association of Convenience Stores and the National Retail Federation have announced they intend to petition the Supreme Court to take up their case on debit interchange. They have until July 21, 2014 to officially file their petition. It would be December 2014 or January 2015 at the earliest we would learn if the Supreme Court decides to hear the case. CBA will continue to work with our industry partners on this and plans to play an active role as we have in the past.

Education Update

Ten faculty members from the middle session at the Graduate School of Retail Bank Management met in Louisville, KY over the past weekend to do a final review of the content for the new analytical curriculum. They also confirmed plans for the new intersession Capstone assignment, which will be an oral presentation on an improvement to their bank by each student to a faculty panel.

News and Notes

Niti Badarinath, Senior Vice President and Head of Mobile Banking and Money Movement at U.S. Bank, has been named Digital Banker of the Year by Bank Technology News.
Ronald Spann is leaving Citibank after serving eight years as CRA Director. He will also be departing CBA’s Community Reinvestment Committee. The CBA Family thanks Ronald for his years of service and dedication to CBA and the industry.