Paul Thompson of Country Club Bank discussed the ‘New Profitability Drivers in Banking’
report (see below chart). Jim Sangster of UMB Bank observes with interest.

The Biggest Change

As an introductory question, participants were asked to identify the most significant development they expected to see within the next five years in their respective industries.

Linda Hanson of Enterprise Bank & Trust introduced a theme that would get a good deal of attention throughout the two-hour session, namely the introduction of very large institutions that are not traditionally in the banking business getting bank charters. Roger Arwood of Gold Bank also foresaw “more non-bank competition” and expected to see traditional banking play a lesser role in the financial service industry.

As to changes in the municipal bond world, Jack Dillingham of Piper Jaffray anticipated that the biggest one would be a “transparency in pricing” given the fact that electronic information is now available almost instantly.

“The world is flat,” observed Bob Regnier of the Bank of Blue Valley. Electronic banking has made it that way. The use of “corporate payment systems,” Mark Jorgensen of US Bank observed, has made it a little flatter. Last year, Jim Sangster of UMB noted, was the first year in which electronic transfers exceeded checks, a trend that will only continue. Mike Maddox of INTRUST Bank envisioned another important use for electronics, specifically the “ability of banks to deliver information to customers along with receipts and payments.”

A world rendered flat by electronics will make “the impact of global economy” even more powerful and immediate, argued John Hense of Christenberry Collet, an independent investment banking firm located in Kansas City. Globalization will also “be key in private-equity markets,” Tom Blackburn of Kansas Venture Capital added.

Tom Swank of Topeka’s Security Benefit introduced another theme that would evoke much discussion, and that is the change in the regulatory environment, specifically the 2002 public company-oversight legislation known as Sarbanes-Oxley. So consequential is this legislation that a quick Google search reveals nearly 6 million entries. To get some sense of its impact, that’s eight times as many entries as Roe v. Wade.

Regulation is going to increase cost, said Dave Anderson of Gold Bank, tying the two themes together, and competition is going to drive down revenue. The net result: “Financial institutions will have trouble making money.”

Dave Anderson of Gold Bank discusses the massive asset management initiative associated with estate planning for the baby-boomer generation. Tom Swank of Security Benefit (left) and Roger Arwood on Gold Bank observe.

The State of the Industry

“Before we look outward to the future,” said Paul Thompson of Country Club Bank, “it might be worthwhile to look inward to where we are.”

Thompson distributed a series of charts that did just that. The first showed the sum total of U.S. assets in the years between 1980 and 2004. These assets more than doubled between 1980 and 1990 and more than doubled again by the year 2000. After two straight down years in 2001 and 2002, the figures climbed again the last two years and reached a new high in 2004.

In 1980, bank deposits made up nearly 25 percent of total assets. By 2004, however, bank deposits had fallen to a little more than 15 percent of total assets. Most of that relative decline had taken place by the mid-1990’s as the figure has held more or less steady over the last eight years.

The number of banks in America also has been in decline. In 1975, there were more than 14,000. By 2004, there were fewer than 10,000. The decline in thrifts over that period was even more precipitous, from more than 4,000 to roughly 1,000.

As financial institutions consolidated, fewer of those institutions came to hold a greater percentage of all assets. By 2004, one percent of the nation’s financial institutions—87 in all—controlled nearly 75 percent of its assets. The top three banks, in fact, combined for more assets than the next 66 largest combined.