In the last decade, the way we bank has changed a lot. The institutions we bank with have changed just as much. But one constant is the size and scope of this industry in our region and the major positive impact it has on our area economy.
According to Dr. Keivan Deravi, economist and Dean of the College of Public Policy and Justice at Auburn University Montgomery, the sector plays an integral role here. “The GDP associated with the financial sector [which includes wealth management firms and insurance] in the Montgomery metro area is about $2.6 billion,” said Deravi. “And this is not deposits and assets. This number only represents economic activity.” The industry brings with it approximately $430 million annually in wages and salaries, which translates to an economic impact of $4 to 5 billion. “It is no doubt a large industry, an important industry here,” he said.
Montgomery and the tri-county area have had no trouble attracting and keeping financial services companies. There are currently more than 25 banks and credit unions with branches in Montgomery. Deravi explained the area’s appeal.
“The River Region has economic stability due to the large presence of state government. It is always here; there will always be state employees, state expenditures, state buildings, etc.,” he said. The military presence of Maxwell Air Force Base only adds to the draw. “There are some very high-tech aspects with the base, and that means there are people with good jobs and, therefore, a steady stream of good income here,” Deravi said. Plus, the conver-gence of two major interstates brings the type of development that always sprouts up around the critical mass of population found along transportation thoroughfares. “Banks like stable,” Deravi said. “They want their risk to be measurable; they want their loans paid back.”
With 41 years in the financial services industry (32 at MAX), Greg McClellan, president and CEO of MAX, has seen a lot, and he agreed with Deravi about the region’s positives while praising local leadership. “The city and county governments of Montgomery and the River Region have developed a good business climate. They work hard to attract new businesses and events to the area,” he said.
Mike Hart, market president of Regions Bank in Montgomery, echoed McClellan. “Regions has been delivering banking services in this community for 150 years so, obviously, we feel like this is a great place,” he said. But how these institutions deliver their services is quite different from 2007. The recession changed the business model for banks, pushed them to reengineer their product offerings and their delivery modes. Many of the changes relate to a slew of new regulations put in place to prevent the abuses of the past that led to the economic downturn. “A lot of the regulatory requirements are reporting and are there to make sure the banks don’t get ‘too big to fail’,” Deravi said.
Jimmy Stubbs, CEO of River Region-based River Bank & Trust that was established in 2006, believes most of these regulations are too tough and are actually holding the industry back. “Our primary challenge is absorbing the cost of and conforming to the barrage of regulations brought on by the Dodd/Frank Regulatory Reform Act and the Consumer Financial Protection Bureau,” he said. “Regulatory compliance is quite complex and expensive. Dollars to comply take away dollars to invest back into the communities we serve.”
Deravi noted that banks are now very heavily regulated, possibly even over-regulated, but stressed an important point. “Dodd/Frank was a reaction to the collapse. The financial sector is the heart and soul of our economy, so it’s crucial that they don’t fail,” he said. “There is a balance between safety and profitability, and, in reaction to a crisis, the pendulum goes too far sometimes. But it usually corrects itself as the crisis goes away.”And regulations are not the only issue. Other obstacles are facing the industry too, both in our region and across the country, as Stubbs explained. “We’ve got to maintain an economic climate in this country where businesses can grow and prosper,” he said. “This creates lending opportunities to businesses and individuals.”
Stubbs also pointed to the need for continual investment in protections against cyber threats. It’s an item that was far lower on financial institutions’ priority lists in the past. But in just the last few years, as technology has entered every facet of our lives, online and mobile banking have grown, and consumers have become more tech-savvy and tech-driven. It’s both a blessing and a curse for the industry.“
Technology is convenient for consumers, but it is really quite inconvenient for the banks,” Deravi said. “It imposes a heavy cost on financial institutions. One of the biggest divisions in any bank now is its IT department, as they figure out how to best and safely deliver and store data.” And it only gets trickier as technology constantly changes, and changes faster, and as the expectations of consumers increase. “Customers want on-demand services now,” Deravi said.
But Hart sees opportunity as well. “I have seen banking evolve from a service that was exclusively delivered face-to-face in brick and mortar branches to one that is now available around the clock and in the palms of our customers’ hands,” he said. “The digital revolution has certainly changed our industry, and with that change have come opportunities as Regions continues to develop partnerships with leading online lenders and platforms that enhance the speed and convenience in which we deliver the bank whenever and however our customers elect.” Technology is affecting far more than how we bank; it’s also influencing our choices on where we bank. “Mobile banking is transforming the nature of the sector,” Deravi said. “They used to give away toasters to get customers. Now, they’re using technology to create highly targeted advertising.”
And with the ability to bank exclusively online and to compare rates, services and other factors with just the click of a mouse or tap of a finger, today, banks don’t just contend with other institutions in their area, they’re up against other banks all over the country. “The competition is intense,” Deravi said.
Yet as Hart pointed out, his industry has faced and overcome changes and challenges before, and he, along with others in the sector, think the future looks promising. Deravi sees some light on the horizon too. “Now that balance sheets of banks are much stronger, I think the pendulum will find an equilibrium right in the middle,” he said. “I think we might get to that happy medium in terms of regulations.”
Most of the leaders of the financial services industry in the River Region are equally optimistic.
And Stubbs believes our new president could open the door to renewed progress. “If the Trump administration follows through with some of their promises, I feel like banks will have a better opportunity to serve our communities by providing more loans to existing and emerging businesses and individual consumers,” he said.