I recently completed my 27th year of teaching at the Graduate School of Banking at Louisiana State University. In its 67th year, the school hosted 573 lenders and bankers from 26 states and Mexico for the 2016 session. I have often talked of the “other side of the desk” referring to your lender’s perspective. However, in today’s world, I believe it may be more realistic to replace the desk with your favorite technological device as most lender-producer relationships will utilize the latest technologies.
In our session on interpreting economic change, Dr. Tom Payne, Dean of the Tennessee Tech College of Business, and I co-instructed the class. We utilized “clicker technology” which allowed each individual to respond independently as well as anonymously to questions. Dr. Payne and I asked a series of questions that generated interesting responses.
One of the questions asked was, “What is the biggest challenge for lenders today?” Approximately 77 percent responded that regulation, and specifically Dodd Frank (U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act) was the biggest challenge. A nearly 900 hundred page piece of legislation, this act has increased the cost of banking by as much as 10 to 15 percent in compliance and paperwork. This legislation also significantly increased the requirements and paperwork throughout the loan process. Other challenges cited were economic outlook, political dysfunction and competition.
Lenders were also asked to estimate how many of the 6,400 banks will remain in the year 2025. Nearly three-fourths of the group indicated less than ,000 banks would remain, and over 50 percent estimated between 3,000 and 4,000 would survive. In the agricultural sector, there are approximately 2,000 banks classified as agricultural banks.
Many of these are smaller, community banks experiencing issues with the cost of compliance. Others are family-owned, and similar to some family farms, the next generation has little to no interest in future ownership of the business. This will likely bring more mergers and consolidations to the banking industry. There is an old saying that the bank is the cornerstone and heart of a rural community. Well, only time will tell the true impact of regulation on rural America.
Finally, lenders were asked to identify their passions or motivating drivers. Yes, one-fifth of the class indicated that salaries and benefits were important. However, 40 percent indicated that making a difference in their customers’ lives was the passion of their work. Additionally, opportunity for advancement was listed by 20 percent of the lenders.
The next time you work with you lender, this set of questions may provide insight or help develop dialog. While many agricultural lenders work with the goal of improving businesses and solving issues for their customers, they also face tremendous pressure inside their own industry. In fact, both producers and lenders face considerable industry challenges. This may prove to strengthen the working relationship and improve the perception each holds of the other.