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Technology, legislation shaking up financial services

Lines blurring — or disappearing — on bank competition

In the age of new technology, smaller banks may finally have an advantage, said McKinley “Mac” Deaver, 15-year executive director of the Mississippi Bankers Association.

“It’s happened slowly over time,” said Deaver. “Many lines have blurred or disappeared regarding competition. Banks that were doing certain types of business are now getting into other areas while other businesses are getting into traditional banking areas, all of which has made a tremendous impact on the financial services industry. The advent of technology thrown in the mix has hastened some of those changes.”

Some folks said technology would be the death of community banks, Deaver said.

“I previously thought it would be tough for typical Mississippi community banks,” he said. “As it turns out, interestingly enough, smaller institutions can quite often move more rapidly into areas that deal with technology than larger banks. Larger banks are so spread out and are usually intertwined with a system of combined institutions. By the time they work through the technical issues of that, it’s slower for them to move to put in new technology-based products. Small banks can move so quickly.”

The financial modernization bill that passed last year facilitated the removal of barriers between banks and insurance, Deaver said.

“When I came here, banks and S&Ls were two competing industries,” he said. “Now, we’re all in the same family. We pride ourselves on being regulated facilities, but find ourselves competing with non-regulated institutions, or institutions regulated much differently, such as credit unions. Now that has become a battle cry among the banking industry.”

Last year, mergers and acquisitions slowed down primarily because of the focus on Y2K, Deaver said.

“Banks did a wonderful job on that — internally, with regulators, and from a public relations standpoint — to make sure customers knew what was going on,” he said. “Now that issue is gone. Banks have upgraded and are in good shape technologically. I think we’ll see an increase in merger and acquisition activity this year.”

Technology and service are fueled on parallel tracks, Deaver said.

“At the same time, nationally, there’s been an increase in the number of new charters,” he said. “In the last two or three years, a half-dozen new charters have started in Mississippi and several more are in the works — something that occurred once every blue moon. That tells me there’s still a need for a hometown bank and personal service. Because of increased technology and ability, new banks that are coming on line are getting up to speed very quickly. Some of our recent statewide charters include Clarksdale, Senatobia, Meridian, Brookhaven, Corinth and two in Laurel.”

Many charter applications involve seasoned bankers who worked for hometown banks that were acquired by larger financial systems, Deaver said.

“It’s interesting to watch as more competition is added in those towns where banks are already established,” he said. “Sometimes, it puts us in an awkward position with competitive issues in the charter-approval process. After a charter is approved, we try to keep everyone under the same tent and work with them on common issues.”

Banks and other financial institutions, such as brokerage firms, are offering innovative money managing services, such as handling accounts receivable for small business owners, Deaver said.

“That’s how banks got into the insurance business,” he said. “Insurance is regulated by the state. Federal government regulates banking. That was a conflict. But we had a great experience working out a good set of statutes last year with the state’s insurance commissioner George Dale. Banks are not getting into the underwriting business, but are hiring agents to have financial products available for customers.”

Privacy issues have created a buzz in the banking business, Deaver said.

“There’s an industry effort to work with regulators on privacy policies,” he said. “It’s not just in banking, even though the banking industry is sometimes picked on. All of the information goes into a database and there’s a lot of information out there. Health care is another industry that carries a lot of personal information in its database. There’s a lot of debate about the proper use of that.”

Legislation to centralize a system for securing public fund deposits is top priority this legislative session for the state banking association, Deaver said.

“We’re working with the state treasurer, state auditor and local government officials to develop a centralized system for securing public fund deposits,” he said. “Banks may have a dozen public fund accounts and must pledge security valued at 105% of deposits to each entity. The state auditor’s office audits government entities and it’s not a very efficient system. When a bond that is pledged for a deposit matures, it’s an awkward situation. How do you sub collateral? How do you have transactions that deal with that security once it’s pledged? The idea came from several other states that have centralized systems in the state treasurer’s office.”

An innovative element in the legislation that would be a “win-win” for the state, a system adopted by Tennessee, is an alternative to pledging the required security value, Deaver said.

“Deposits are still secured at that percentage, but banks could go into a guaranty pool if enough banks participate,” he said. “Participating banks would be required to have higher capital and financial standards but it would free up money for banks to lend.”

Efforts to centralize the filing of security interests with the secretary of state’s office are also in the works, Deaver said.

“If the issues such as how to handle fees can be worked out, it would be very beneficial,” he said. “We are supporting state and local officials in working that out, but it’s only in the formative stages.”

Contact MBJ contributing writer Lynne Wilbanks Jeter at lwjeter@yahoo.com, mbj@msbusiness.com or (601) 364-1018.


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