Financial Industry Perspectives contains articles by the Supervision and Risk Management Division reporting on a variety of banking issues and topics.

The Financial Industry Perspectives articles below can only be viewed using a PDF reader. To view an article using a PDF reader, click on the article title. If you do not have a PDF reader, you can download a reader from this site.

 

  

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2004 -- Full Publication

Note: Much of the content in the 2004 issue of Financial Industry Perspectives is based on a survey of community banks. The survey itself is not included in Financial Industry Perspectives, but a complete copy, along with statistical summaries of responses, is available in Summary Results--Survey of Community Banks in the Tenth Federal Reserve District.  For survey results of states whose sample was sufficient to publish separately click here.

From the Mountains to the Prairies: The Banking Environment in the Tenth Federal Reserve District
By David Klose

The Tenth Federal Reserve District consists of many types of markets within which District institutions operate. Since conditions in the District environment can vary from dynamic to slow-growing, these markets offer both challenge and opportunity that financial institutions must understand to be successful. But what is the level of change in the District environment and how might that change be materializing? This article considers the environment within the Tenth District and discernible trends within that environment. We highlight the major factors that influence bank behavior and condition, including demographic, economic and structural conditions and trends. The 2000 census information is used in conjunction with that of prior census surveys to describe where the District is today and from where it has evolved demographically. Economic data, including gross state product information, allows us to report the shifts in industrial focus for various markets and the District as a whole. The article also considers changes in the industry and describes how banking consolidation has evolved within the District. Finally, the article looks at potential future trends, to shed light on emerging environmental factors of which District banks may take into account in their planning process.

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The 2004 Survey of Community Banks in the Tenth District
By Forest Myers and Eric Robbins

 Periodically, the Federal Reserve Bank of Kansas City surveys Tenth District bankers for their views on a variety of matters. In February 2004, we solicited banker opinion on a number of topics pertaining to governance and staffing practices, vendor management practices, competitive environment and future prospects, interest rate risk management practices, internet banking services, and payments system issues. This article briefly sets out the survey methodology and describes the applicability of survey results to the entire population of District banks. It also reviews what bankers told us about their environment, competition, and future challenges. Broadly speaking, survey results can be generalized for all Tenth District banks. The representative community bank in the District has assets less than $150 million, is family-owned and locally controlled, and is headquartered outside a metropolitan area. The economic and competitive environment these banks face depends, in part, on growth prospects and diversification opportunities within their communities. Their most intense loan and deposit competitors are other community banks. Their greatest challenges involve basic aspects of successfully managing a bank: funding, income sources, and meeting competition. Despite identifying many problems, all but a few bankers expect their banks will remain in business and succeed.

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Technology Outsourcing: A Community Bank Perspective
By Eric Robbins and Joe Van Walleghem

This article provides an overview of the technology industry that has evolved to provide technology outsourcing services for community banks, and the risk management issues associated with outsourcing. The service provider industry is in a transition phase being brought about by changing economic fundamentals in banking and in information technology. These factors have contributed to significant consolidation among the technology companies that serve the banking industry, especially among technology firms offering core processing services. Accordingly, the array of firms serving the national and regional markets has changed significantly. The increasing reliance of banks on technology service providers to support core bank processes has led to heightened attention on the risks of new technologies. Awareness of the growing importance of these risks has led to development of a standardized framework for managing the risks related to technology outsourcing. Survey results that point to practices most widely followed by community banks are used to highlight current practices and regulatory guidance for managing technology risks.
 

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Corporate Governance: Where Do Tenth District Community Banks Stand?
By Forest Myers and Jane Padget

Troubles at publicly traded companies have led to the passage of recently enacted laws that add more rigor and formality to the corporate governance process. Most of these reform proposals and new laws focus on protecting investors in publicly traded firms. Relatively few Tenth District community banks, however, are publicly traded or are subject to new laws that would require them to change their corporate governance practices. Indeed, many are small in asset size, family-owned, closely held, and owner-managed. Given these characteristics, the governance process at community banks tends to be less formal and structured than requirements for publicly traded companies. What then has been the impact of corporate governance reform on community banks? Have community banks perceived benefits from the practices recommended by proponents of a more formal governance process? Although not required to do so, have community banks adopted any of the practices required of publicly traded companies? To answer these questions, the analysis in this article used information obtained from 26 governance questions included in the 2004 Tenth District Community Bank Survey. These questions dealt with matters that receive attention by good governance proponents, including board size, composition, committee structure, compensation, succession planning, director assessments, and other governance matters. Because ownership structure and size can influence the governance process, the analysis divided the survey data by family- and non-family-ownership, and within these ownership categories smaller and larger banks (assets less than $150 million, assets greater than $150 million). The conclusions drawn from the analysis are that Tenth District community banks have adopted many principles advocated by strong governance proponents. However, larger and more complex organizations are more likely to have adopted recommended governance principles. Further, non-family-owned organizations, regardless of size, proportionately engage in more of recommended practices than do family-owned organizations.

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