Two Conventions, World Olympics and an Upcoming Election: Excitement at all Levels

July 27, 2016

Recently in Hoosier Banker magazine, I wrote about leap year excitement this summer with the Republican National Convention, Democratic National Convention and Summer Olympics all taking place within a span of five weeks. The first of those events, the Republican National Convention (RNC), wrapped up last week in Cleveland. One year ago, no one would have guessed the outcome: Donald Trump, a celebrity businessman, is the Republican candidate for president, and Indiana Gov. Mike Pence is his running mate.

Early in the winnowing process, Donald Trump had been dismissed by political pundits as being incapable of receiving the Republican nomination. Though all agreed that Mr. Trump had name recognition, he was an outsider who had never held public office, challenging a field of 15+ experienced politicians. Yet it was his outsider’s perspective and tell-it-like-it-is commentary that appealed to much of the rank-and-file Republican base, and he is now the GOP candidate for president of the United States.

Watching the RNC last week was particularly exciting for Hoosiers, as we witnessed our own Gov. Pence share the spotlight as Trump’s running mate. Pence’s deep political experience, currently as governor and previously as U.S. representative for 14 years, offers counterbalance to Trump’s newcomer status. Additionally Pence’s personality ‒ gracious and thoughtful ‒ is a counterpoint to Trump’s blunter personal style. Yet another interest point for Hoosiers is that Mr. Pence had to withdraw his name from the running for a second term as governor, in order to accept Trump’s offer as running mate. As a result, yesterday the Indiana Republican State Committee selected Indiana Lt. Gov. Eric Holcomb as the new Republican candidate for governor. Congratulations, Mr. Holcomb!

This week, the Democratic National Convention (DNC) is underway. As of today, it is too soon to comment on final outcome or effect on polls, as the event does not conclude until tomorrow. What is certain, though, is that the 2016 DNC represents an historic milestone, with Hillary Clinton standing as the first female candidate for U.S. president named by a major party. Like Trump, Mrs. Clinton has named an experienced politician as her running mate: U.S. Sen. Tim Kaine of Virginia. While Trump’s running mate is a current governor with prior experience in the U.S. Congress, Mr. Kaine is a current U.S. senator who previously served Virginia as governor.

In a little over a week, with both conventions over, we can mercifully immerse ourselves in the spectacle of the Summer Olympics. This global event will, no doubt, have its own set of challenges, heroes and disappointments, but it will be a nice respite from national politics. It also will be a brief respite, because immediately following will come a barrage of political campaigning, on all levels, that will continue and intensify until Election Day on Nov. 8.

– S. Joe DeHaven


Yet More Political Changes in Indiana

July 20, 2016

Last week Indiana was the epicenter of U.S. politics, to a degree that I have never before witnessed. As referenced in the July 13 IBA Desktop blog, early in the week there was much excitement, while Indiana Gov. Mike Pence was being considered for nomination as candidate for vice president on the Republican ticket. That position was offered to him late in the week, and Pence’s acceptance gave Hoosier significance to the Republican ticket for U.S. president and vice president.

Other news last week was that Baron Hill, Democrat nominee for the U.S. Senate seat being vacated by Dan Coats, had dropped out of the race. Speculation swirled that Evan Bayh, former Indiana governor and U.S. senator, would take Hill’s place; confirmation of Bayh’s intent was announced later in the day on July 13. As if that news were not enough to shine a light on Indiana, on Tuesday last week Donald Trump held a fundraiser and delivered a speech in central Indiana. His Indiana visit was unexpectedly extended, when his departure plane experienced mechanical issues. As a result of the schedule change, political dignitaries, including former Speaker of the U.S. House of Representatives Newt Gingrich, flew in to meet Trump for VP running mate conversations, placing Indiana in the middle of every news cycle.

The events surrounding Gov. Pence’s move to the vice president candidacy set off a series of movements within Indiana politics. Pence had to drop out of the race for governor in order to enter the race for vice president this fall. Several individuals have expressed interest in replacing Gov. Pence on the Republican ballot for governor for the next four years, with three emerging as likely contenders: recently appointed Lt. Gov. Eric Holcomb, U.S. Rep. Susan Brooks and U.S. Rep. Todd Rokita. Other individuals could still seek the nomination, if not already on the ballot for another office.

The winner for Republican nominee for governor will be determined by a process that must be completed within 30 days of Pence’s removal from the ticket. The 22 members from across the state who make up the Indiana Republican State Committee are scheduled to meet on July 26 to make a selection. Whomever the committee chooses as the Republican nominee will change Indiana’s gubernatorial race significantly. To date, Democrat candidate John Gregg’s campaign has focused on Pence’s record. Since none of the contenders is tied to Pence’s record, Gregg will have to pivot his campaign in a new direction.

Though I am sure your scorecard is pretty marked up by now, more action may be forthcoming, as others toss their hats into the ring for an open House seat, should Brooks or Rokita be the nominee selected by the Central Committee. Thus Indiana may remain in the political spotlight a little longer. Regardless, 2016 is proving to be an exceptionally exciting year for Indiana politics!

– S. Joe DeHaven


Political Changes in Indiana

July 13, 2016

It’s been an interesting week politically in Indiana, with national ramifications. On Monday the news came out that Baron Hill, Democratic candidate for the U.S. Senate seat being vacated by Dan Coats, would drop out, to be replaced by Evan Bayh. Bayh is a past Indiana governor for eight years, past U.S. senator for 12 years, and the son of Birch Bayh, longtime former U.S. senator.

The significance of this change in candidates for this coveted seat in the Senate cannot be overstated. Until this bombshell news hit, Republican candidate Todd Young, who has been serving admirably as a member of the U.S. House of Representatives for the past six years, was heavily favored to defeat Mr. Hill. Now that Mr. Bayh ‒ a darling of Indiana voters ‒ is in the race, political insiders everywhere have changed this race from likely Republican to toss up.

Fortunately both Todd Young and Evan Bayh have been receptive to and supportive of banking issues. Young currently serves on the powerful House Ways and Means Committee and has been particularly helpful on issues related to taxation. Bayh previously served on the Senate Committee on Banking, Housing, & Urban Affairs when he represented Indiana in the Senate. Though he did vote for the Dodd-Frank Act, he was very supportive of many other issues related to banking.

Monday’s news was big, and we may be hearing more big news shortly. There is speculation that Donald Trump, presumptive Republican candidate for president, will be announcing as soon as tomorrow his choice for vice presidential running mate. Indiana Gov. Mike Pence is a strong contender; if named, Pence would have to drop out of the race for another four years as governor. Whether you are a Republican or Democrat, Trump supporter or critic, it should make all Hoosiers proud to have one of our own on a ticket for vice president of the United States.

Of course Mr. Trump may name someone else as his running mate, or may wait until next week’s Republican National Convention to make an announcement. A decision to wait would essentially be a decision to name someone other than Gov. Pence, because Pence has a deadline of July 15 to withdraw his name from the gubernatorial race. One way or another, we’ll know where we stand by week’s end. And whatever the outcome of this and other big news items, your Indiana Bankers Association will continue to work with you and for you on behalf of the industry.

– S. Joe DeHaven


Loyalty Versus Satisfaction: Different as Cats and Dogs

July 6, 2016

For the past 10 years, I have had the privilege of participating in the Central States Conference of State Bankers Associations. Each summer, leaders from 18 state bank trade associations ‒ presidents and CEOs, chairmen and vice chairmen ‒ gather to deliberate about the issues facing their respective organizations. This cross-fertilization of senior staff and volunteer leadership across state lines has proven to be an effective way to enhance our collective knowledge and influence. Last week the 2016 version of this gathering took place in Lake Geneva, Wisconsin, under the capable leadership of Rose Oswald Poels, president and CEO of the Wisconsin Bankers Association.

Ms. Poels scheduled several notable speakers, but one in particular stood out for me. James Kane, a researcher and author, spoke on an issue that I had never before focused on. He and other experts have spent the past 30 years studying the differences between loyalty and satisfaction. I am paraphrasing, of course, but generally loyalty ‒ in customers, family and friends, employees, etc. ‒ has distinct characteristics that both cause it and result from it. Loyalty is what every business aspires to achieve in its customer base. Often, however, we confuse loyalty with satisfaction. Satisfied customers will stay with you, but only as long as you continue to satisfy them with service, products and innovation. Loyal customers will remain through practically anything and will even talk about their loyalty, thus becoming salesmen to some extent.

The clearest analogy from Mr. Kane was in comparing loyalty versus satisfaction to cats and dogs. Having owned both, I could relate. Clearly, dogs are loyal. When you get home from work, a dog will rush to the door to welcome you and shower you with unconditional love. Cats, on the other hand, are at best satisfied. They seem to know you are home, but they will not meet you at the door, unless they want something. Cats intuit that they have a relationship with you and will give you just enough attention to keep that relationship going.

Your customers fit into these camps, too. You have loyal customers who love your products and services. Chances are that they know you or someone in your company, and likely there are personal connections with them. These loyal customers love you so much that they freely talk about your company, and why it is the best. By contrast, satisfied customers may be frequent purchasers of your products or services ‒ perhaps they even buy exclusively from you ‒ but they will only continue to buy from you as long as you keep them satisfied. There is no personal connection. They remain your customers until someone else offers better, cheaper or more convenient products or services.

How can an organization turn satisfied customers into loyal customers? The studies that Kane cited show that personal connection is the trigger. I am oversimplifying, but connections have to do in part with how our brains are wired. What can a company do to relate to and form connections with customers? Do marketing efforts focus entirely on product features, or do they invite personal connections? It’s a fine line, but it could make all of the difference regarding customer loyalty.

I appreciate Rose for bringing forth James Kane to share his unique and important insights into developing customer loyalty. Just as you work hard to make your customers loyal to your institution, the Indiana Bankers Association strives to give you, our valued members, reason to connect with us. Please let us know anytime what we can do to keep you satisfied and earn your loyalty.

– S. Joe DeHaven


Fallout From Brexit

June 29, 2016

Last week we witnessed history being made, as the United Kingdom voted in a referendum to leave the European Union. The origins of the EU date back to post-World War II, when six European nations, not including the U.K., formed the European Coal and Steel Community. In 1957 this coalition was reformed as the European Economic Community, a.k.a. Common Market ‒ still without the United Kingdom. It was not until 1973 that the U.K. joined the European Economic Community, which in 1993 would be refashioned as the European Union.

Made of up of 28 European nations, the EU is structurally similar to the United States, in that both organizations consist of individual entities (nations in the EU; states in the USA), each with separate identities and laws, but jointly subscribing to centralized governmental rule. One of the visible signs of the EU was the implementation on Jan. 1, 1999, of the euro. This standardized currency is subscribed to by 19 EU-member countries; the U.K. was one of eight EU members that chose not to adopt the euro.

Why did U.K. voters elect last week to leave the EU? Probably the biggest reason centers on immigration from war-ravaged North African and Middle Eastern countries. In 2015 alone, 630,000 foreign nationals migrated to the U.K. Many theorize that the stateside version of this immigration issue is much of the root cause of the popularity of Donald Trump in the United States.

What will be the results of the United Kingdom’s exit of the EU? The true answer is that no one knows for sure. There is no precedent upon which to base a reasoned response, thus what is left is only opinion, or at best an educated guess. Many speculate that this is the beginning of the end for the EU. As soon as the vote was in, other European leaders were indicating that perhaps referendum votes should be held in their countries, too. Meantime world leaders are trying to soothe frayed nerves by noting that the U.K.’s departure will take a couple of years to complete, providing time for economies to adjust.

However, financial devastation has already occurred, with stock markets throughout the world being down significantly the day after the vote, with no quick relief in sight. When will stocks rebound? Will this be similar to the recent economic crisis, which took years to recover from?

German Chancellor Angela Merkel called for a meeting with some of the other EU leaders on Monday to discuss how to fix problems with the EU. Should these leaders successfully identify and fix issues causing the unrest that led the U.K. to vote to leave, perhaps they can hold the remaining members together. Perhaps they could even persuade the U.K. to hold another referendum to rejoin, or at least to make the withdrawal as seamless as possible.

As for banks in the United States, the immediate effect was felt by the large international institutions, which suffered losses in their stock prices. Bankers, like stock market investors, favor certainty, not surprises. The big uncertainty now is whether the European economic problems resulting from Brexit will reach the United States. If so, how will the effects be manifested, and how long will they last? Much like the financial crisis in 2008, no one knows what the long-term effects, if any, will be.

Last week’s vote was an impactful event that may change how the world does business in coming years. Nevertheless, let us not lose sight of the fact that, prior to 1993, there technically was no EU, and even its predecessor organizations are relative blips on the historic timeline of Europe. Let us also remember that our banks remain strong and solvent, ready as always to lead us to financial stability.

– S. Joe DeHaven


CECL: Solution in Search of a Problem

June 22, 2016

Last week the Financial Accounting Standards Board (FASB) released its final version of the new loan loss accounting methodology, known as the Current Expected Credit Loss (CECL) model. CECL has been described by banking regulators as “the biggest change to bank accounting ever.” Both the Independent Community Bankers of America and American Bankers Association have been working with FASB on CECL, practically since it was introduced in 2012. The new rules are effective for Securities and Exchange Commission-registered firms in 2020 and for all others in 2021, but bankers will need to begin immediately to determine what additional data will be required for their institutions, and how they will forecast and quantify losses in the future.

Essentially, CECL changes from the current incurred loss method of funding the loan loss reserve to requiring the recording at the time of loan origination of credit losses expected throughout the life of the loan or held to maturity securities. Most experts have determined that the result will be loan loss reserves at much higher levels than they have ever been.

A huge concern for both the ABA and ICBA is whether sophisticated software will have to be acquired, even by the smallest of banks, in order to make the required calculations. ICBA appears satisfied that this will not be required, while ABA remains unconvinced. Regardless, it appears that a significant amount of changes will be required of all institutions to document assumptions used during their calculations. Countless hours will be required to make this conversion.

My frustration with this new standard is that it is a solution in search of a problem. Some say that the banking industry did not have enough loan loss reserves to weather the storm of the recent financial crisis. That is true. In fact some banks did not even have enough capital to cover the losses they experienced, so what does it matter how much money is in the accounting-created reserve for loan losses? The accounting business established the concept of loan loss reserves, so that an accounting buffer was created to cover anticipated losses. I understand that. However, determining future losses will never be an exact science, so why go through this exercise of creating a new system that is unlikely to produce better results during a time of high stress than the current system did? Why should the banking business be subjected to wasting valuable hours and dollars on a system created to estimate future losses, when the real loan loss reserve is all of a bank’s capital?

Since the financial crisis, banks have had to deal with enough issues through regulations and capital adequacy determinations, and CECL seems like an unnecessary piling on by FASB. Regardless, it is going to happen, so bankers must learn how to provide this new CECL system in their institutions. Even if the compliance date seems far into the future, banks should begin preparing today.

Bankers are resilient and compliant professionals, so this industry will manage to figure out CECL. For some bankers, though, this may be the straw that breaks the camel’s back. Sadly, this unnecessary requirement will likely cause some to give up and sell their institutions, thus reducing financial intermediary options even further. Thus this solution in search of a problem may create a larger problem still.

– S. Joe DeHaven

 


Agents of Change

June 15, 2016

A couple of weeks ago, while racing fans around the globe celebrated the 100th running of the Indianapolis 500, I was heading to Florida for a week’s vacation with my two children, son-in-law and four grandchildren. It had been several years since any of us had been to Disney World and, except for me, none had been to Universal Studios. Predictably, a great time was had by all. Though exhausted when we returned home, we were all grateful to have enjoyed this precious time together. My 9-year-old granddaughter was particularly fired up about the trip, as she could remember nothing about the last time she had been to Florida at the age of 3.

Over the years, I have traveled extensively with my children, but not so much with the grandchildren. In retrospect, this trip marked a turning point in my relationship with my son and daughter. In past trips, it was assumed that I would be the adult leader, taking responsibility for everyone and making sure that everyone had a good time. This time, though, it was obvious that my daughter, son and son-in-law were now in charge. I must admit that I had never thought about this changing of the guard until I experienced it on this trip. I am proud of this next generation in my family.

As I prepare to retire next year, the same phenomenon is occurring at the IBA offices, as my successor Amber Van Til assumes more authority and leadership daily. It is the natural order of things, and I am fully supportive of this timely shift in leadership. She, too, represents the next generation.

On the national front, there was potential last week for a similar shift in leadership. Forty-year-old Taylor Griffin challenged incumbent Walter Jones Jr., age 73, in North Carolina’s 3rd Congressional District Republican primary race for the U.S. House of Representatives. Many of my state association colleagues and I supported Mr. Griffin in his effort to defeat Jones, through our affiliation with Friends of Traditional Banking. FOTB is a non-partisan grassroots effort which selects two pivotal races each election and asks its 15,000 followers nationwide to donate money to candidates who support banking. FOTB sought to unseat Mr. Jones in his bid for an 11th term, due to his history of backing the credit union industry and voting against banking positions. In fact Jones is the last remaining Republican in the House of Representatives who voted for the Dodd-Frank Act! By contrast, Griffin showed promise as a supporter of banking. In the end, however, voter turnout was low, and our candidate did not win. Thus there will be no changing of the guard in this instance, at least not at this time.

While the Friends of Traditional Banking has been around only since the 2012 election, this is the first time it became involved in a primary election. That, too, is a changing of the guard, so to speak. Overall, FOTB has been successful in its brief existence, and it will soon be selecting a couple of races worthy of support for the fall general elections. I urge you to look up Friends of Traditional Banking, and sign up to become involved.

Whether it is family dynamics, workplace leadership or elections for political office, change occurs. Often that change comes through the next generation, and most of the time it is for the better!

 – S. Joe DeHaven


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