October 22, 2018
Prologue to ” The Case for Local Banks”
In my Fall 2018 newsletter, I made the case for needing local banks. My cousin Jimmy Roberts, composer, pianist and entertainer, pointed me to the banker’s scene in the 1946 Movie “Best Years of Our Lives”, starring Myrna Loy, Fredric March, and Dana Andrews.
The movie is about three WWII vets returning to their homes in a mid-sized American city and readjusting to civilian life. One of them, Al, was a loan officer at the local bank; he got his job back after the war. On his first day back, in comes an Iwo Jima veteran who wants $6,000 to start a farm and has never even heard of the word “collateral.” Al approves the loan anyway. Later, Al has to answer for his actions to Mr. Milton, the bank president, as the two of them are discussing the loan:
Bank President: We were discussing this loan to this man… What’s his name? Novak.
Al: Yes. Yes, I approved it.
Bank President: May I ask, Al, on what basis?
Al: On the basis of my own judgment. Novak looked to me like a good bet.
Bank President: But the man has no collateral, no security. Evidently, you saw something in him.
Al: Yes, Mr. Milton.
Bank President: What was it?
Al: Security. Collateral. In the army, I was with men stripped of everything in the way of property except what they carried around with them and inside them. I saw them being tested. Some of them stood up to it, some didn’t. But you could tell which ones you could count on. I tell you, this man Novak is OK. His “collateral” is in his hands, in his heart, in his guts, and in his right as a citizen.
Bank President: Nobody’s denying him his rights.
Al: We are. If we deny him his chance…
Bank President: Gentlemen, there’s no need to raise our voices. Of course, since you’ve approved the loan, the incident is closed. However, in the future,
Al: Yes, I understand, Mr. Milton. In the future I must exercise more caution.
Bank President: Al, you know how I feel about you and always have. Why, I’ve always considered you one of the family, so to speak. I picked you personally for this job, and I know you’ll make good. We do have a desire to extend a helping hand to returning veterans when possible. But we must all remember that this is not our money we’re doling out. It belongs to our depositors, and we can’t gamble with it.
Al: I’ll remember, Mr. Milton.
Bank President: We’ll meet at the Union Club at 7:30. And give my best to your charming wife.
Al: Thank you, Mr. Milton.
Hope you enjoyed this excerpt from the script! Mr. Milton practices what we used to call 3-6-3 banking. Take in deposits at 3%, Lend them out at 6%, and head to the club at 3 o’clock.
Joseph DiStefano asked, in an article in the Philadelphia Inquirer on August 12, 2018, “In digital America, does Philly need a hometown bank?” The article discusses the pluses and minuses of local banks in light of the announced merger of WSFS from Delaware and Beneficial Bank headquartered in Philadelphia.
Without a doubt, the answer is YES, we do need hometown banks. The reason is small businesses. I spent most of my career in local banking. The combined WSFS/Beneficial entity may sound large at $12 billion in assets, but this is a drop in the bucket compared, for example, to Bank of America’s assets of $2.2 trillion. These days, with the regulatory burden and technology costs, banks need at least a couple of billion in assets to cover those expenses.
I once heard Hugh McColl, former Chairman and CEO of Bank of America speak about a customer that somehow got through to his office with a complaint about something at her local branch. When she explained the situation to McColl, he told her to call the branch, and tell them about her McColl conversation, and explain what he said. She later called back and said that when she told the branch representatives about McColl, they didn’t know who he was. That is one reason we need local banks. When I was a bank president, I made sure I got myself around to each office and department so that employees knew me. If you are in senior management, you want to hear about problems and what is going on at a basic level. In person is a good way to do it.
Small business owners are hungry for personal relationships. It is easier to have them with smaller, local banks. Banks or most retail, non- internet businesses can do a better job if they have smaller, more manageable footprints- not thousands of locations and many activities spread across the country or the world.
I do agree with DiStefano that these days consumers don’t generally need local banks. Small businesses are different in that they need relationships, and that can’t be done remotely. Most small business owners are good at what they do, but need to rely on outside help for banking, legal, accounting, and other services. I have been on hundreds and hundreds of calls to small businesses in my banking career, and with my own firm which provides funding to entrepreneurs for expansion or acquisition. Looking at numbers and information is one part of evaluating businesses, but doing it the hands on, walking-around way, by visiting, meeting and looking, is at least a third of the due diligence procedure. Despite what the big guys may say, the level of local knowledge, service, and willingness to go out on a limb is not there with most of the major banking institutions.
Early in my career, national banks were headquartered in Philadelphia. Fidelity Bank comes to mind, as one of the most impressive. Where today most bankers are trained on the job, Fidelity had a training program. Fidelity had its own dining rooms and a talented chef. Now those perks are in Silicon Valley, at Facebook, Google, and Twitter who can afford them.
These days the closest we get to that type of bank is PNC in Pittsburgh. Similar to Comcast, it would be great to see a major national bank headquartered in Philly. This helps our economy by the business it brings to town. The Beneficial/WSFS merger will do some of that, but more importantly, it gives local businesses someone to talk with about their needs and whose fortunes also rise and fall on what is happening in the local economy.
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