When I began my career as a commercial banker several decades ago, it was a position of significant prestige meriting respect from both the customer and bank support staff. Internally, much of the respect resulted from our being revenue generators for the bank in contrast with the support staff, whether credit, operations, or IT, that were costs of doing business. Support staff viewed themselves as just that, namely, they were supporting the needs of the revenue generators while also ensuring actions aligned with bank policies. Oftentimes, support personnel were deferential to line bankers. To the extent that a bank operated with an internal caste system, commercial bankers were close to its top. How times have changed.
While the whittling away of line banker prestige and power has been underway for quite a while, the last recession resulted in a sharp internal power shift from the line to centralized credit and risk management groups. After all, in many cases line generated loan opportunities had blown up the bank and many management, Boards and regulators viewed a stronger centralized credit operation as a critical part of repairing the bank, even though independent credit groups often approved any errant loans. More recently, Dodd Frank and its attendant regulations dramatically increased the power of lawyers and bank compliance groups. An article in the February 6th New York Times “Dealb%k” discusses occurrences in London that parallel what is happening at some U.S. banks: “Bills from law firms are piling up at major banks as they need extra advice to fend off lawsuits. Hordes of advisors including consulting and accounting firms take over desks at their banking clients to find better ways to oversee employees. And public relations firms are being paid to stand by in case another scandal erupts that further tarnishes the industry’s reputation.”
One senior U.S. banker recently commented that his bank was “paranoid” concerning regulatory requirements, pushing internal compliance gurus into the forefront of business decision-making, not the ideal leadership model for banks wishing to grow. The banking and now compliance crisis have resulted in line bankers, once the rock stars at many banks, being barely tolerated. The sometimes cocky and independent spirit that emanates from an innovative environment has been replaced by a rules- based approach that often brings with it lower energy. For most bankers the personal risk from doing a bad deal is much greater than ever before. While caution is always appropriate, bankers used to be willing to “push” their internal people to deliver value to their customers. Regulatory correctness now takes precedence over reasonable customer responsiveness at too many banks.
I am not suggesting that banks hand over their asylum keys to the inmates. Over the years I have seem numerous banks in which too much line power led to credit abuse and in more than one case the destruction of the lender. However, the pendulum has swung way too far away from the line to nonbusiness groups that have little incentive to assist in revenue growth. I see the emasculation of very professional bankers all in the name of greater central control.
The bank environment today includes more rules, increased oversight, greater sensitivity to regulatory pressures, and an unprecedented level of transparency. Given the level of market sensitivity and the performance problems of the past, is it possible or even reasonable to consider giving more authority to line bankers? While the answer is “yes,” the bigger issue may be how to accomplish this.
* First, focus the job. Middle market and small business bankers are both being saddled with more compliance tasks, in some cases reducing customer activities. In many cases these tasks can either be centralized or given to a support person to free up banker time.
* Second, clarify the ground rules. Credit management needs to make sure that they are communicating the types of transactions that are acceptable as well as those that need to be avoided. Team leaders can play an important role in monitoring and guiding banker activity.
* Three, celebrate sales successes. Sometimes we hear from bankers that recall that by the time they complete a deal the hurdles have been so many and the timeframe has taken so long that it ends in exhaustion rather than a sense of accomplishment. This high hassle factor demotivates sales staff and communicates a negative message.
* Four, remember the customer. The line banker has always been the key internal customer champion. That emphasis has been lost as the banker’s ability to influence decisions and “bend” the bank to his will has been largely eliminated. But, banks seem to forget that there is a customer out there who has concerns and needs … and a memory. If your bank is hesitant to give more responsibility to the banker, then, determine who else can best anticipate and represent the customer’s needs. The answer probably leads nowhere else. Unfortunately, regulators have shown no indication that they care about the customer’s needs (other than customers in whom banks have limited interest) or for that matter how banks are supposed to generate revenues.
When I graduated from business school, if you went into banking the select job was as a commercial banker. A decade or so later graduates would head toward retail banking. Today, their best first step to success might be in compliance. That is not progress.