Finance director identifies industry influences

Hancock, Whitney report smooth sailing with merger
May 23, 2012
Banking for NSU students made easy
May 23, 2012
Hancock, Whitney report smooth sailing with merger
May 23, 2012
Banking for NSU students made easy
May 23, 2012

Federal regulations and public perception are the biggest challenges facing commercial banking institutions.

As a member of the Louisiana Bankers Association board of directors and former legal counsel for that trade organization, Coastal Commerce Bank President and CEO Mark Folse blames over-reaction by Congress and misdirected reporting by the news media for the current state of banking.

A Houma native who with his father, L.J. Folse, opened his local bank in 1999, Folse said all banks are being harmed to the degree that could result in only the strongest surviving.

“I think the average customers, since the financial meltdown of 2008 have been misled by the media in the ways that the troubles on Wall Street and in the national economy have been portrayed,” Folse said.

The LBA director and local banker said commercial banks have caught the public backlash created by investment bankers and stock speculators behind the 2008 meltdown. He also noted that this month’s exposure of fraud within J.P. Morgan Chase, again placed all lending institutions under suspicion.

“What happened [with the 2008] financial emergency was that Congress and the White House overreacted,” Folse said. “They tried to regulate a problem on a wide scale and it impacts small banks across the country. Then the way the story was reported was that a bank is a bank is a bank. So, all banks got a black eye. Most people don’t understand the difference.”

Folse added that commercial and retail banks should do a better job publically explaining the nature of their operations and how they differ from institutions that have made national headlines.

Banks that most people associate with (commercial and retail) are primarily places where business loans and mortgages are made, and where people keep checking and savings accounts.

Investment banks are institutions where securities are traded for cash. Those securities are generally associated with hedge funds, mutual funds and pension funds. Investment banks do not take deposits.

“[Investment banks] lost all this money doing what we don’t do, and can’t even try to do,” Folse said. “But people hear ‘bankers’ and think, ‘here we go again.’”

A Rasmussen survey conducted last week revealed that public confidence in the banking industry’s stability is at an even 50 percent split. An Index of Bank Sentiment poll listed 63 percent of surveyed consumers as not trusting banks. Corporate greed is attributed as a cause associated with negative results in both polls.

Changes in banking policies and packages also cause shifts in consumer confidence. Capital One has been informing customers during the past month of pending changes in checking accounts that will require minimum daily balances or minimum monthly deposits to maintain free checking services.

In its 2011 investors presentation, Chase estimated that 15 percent of its customers would longer qualify for free checking due to new requirements and it expected to lose up to 60 percent of its customer base by the end of that fiscal year.

The damage from regulation, intended to protect consumers, could ultimately reduce choice in the market as smaller banks become unable to survive. Folse predicts a notable number of mergers in the foreseeable future.

“[However] the condition of the banking industry is actually at an improvement from what it was,” Folse said. “It is slower but the height of the credit problem is behind us.”

Damage to publically-held institutions might be easier to find than harm done to privately-owned banks, but Folse confirmed that any hardship experienced among larger commercial banks is felt in smaller ones as well. He also noted that as with other economic numbers, the banking business in southeast Louisiana has not necessarily followed national trends.

“In this area we have done remarkably well [in comparison to the rest of the nation],” he said. “All banks in the [Tri-parish] area continue to be profitable.” According to FDIC listings, 15 banks in the region posted steady deposits between 2008 and 2011, resulting in a collective increase of more than $765 million in three years.

“The idea that banks aren’t lending money is not accurate,” Folse said. “[Federal regulations] have just made it more difficult.” This banker noted that in this area local lenders have an advantage over national institutions, because they can take into consideration factors that otherwise might become lost in corporate paperwork.”

Folse said that the petroleum industry and offshore support companies helped stabilize the Tri-parish region while the rest of the nation suffered drastic economic conditions. In turn, banks have benefited.

“Even with the drilling moratorium we had stability from what was already going on in the area,” he said. “The people we lend money to are tied into the production, and the trickle-down effect supports our economy.”

Folse said that while immediate market to which his business belongs has held its own, he anticipates changes in the next decade that could include the merger of many small banks into larger organizations.

“Because of the federal regulations, some of the smaller shops won’t be able to stay in business,” he said.

According to the Deloitte financial consultants, the U.S. banking and securities industry in 2012 faces both direct and indirect challenges. Those challenges include managing fallout from the European debt crisis, finding ways to grow profits while containing costs, coping with political gridlock and the 2012 election cycle, and adapting to a new era of regulatory evolution.

“We have been as successful as any other small bank because of what we do that the big banks can’t or won’t do,” he said.

As a regional representative to the Louisiana Bankers Association, Folse explained that the trade body is largely a government relations group with a mission to help the banking industry remain viable.

“As a lobbying organization we try to make sure the folks making the laws understand that what they are doing has real life impact,” he said. He declined to specify if cities and towns with local representation might have any more influence than other communities.

The LBA also offers educational opportunities for bankers around the state. The board is comprised of 12 members chosen from determined regions to offer balanced geographic representation. “We make sure [local banks] have opportunity for input on a state and national basis,” Folse said.

Coastal Commerce Bank was founded based on public demand for a new local bank. L.J. Folse had previously operated Terrebonne Bank and Trust, which eventually sold out to a succession of banks, the remnants of which is currently owned by J.P. Morgan Chase.

Coastal Commerce Bank President and CEO Mark Folse says federal regulations have made business difficult for small banks and local commerce.