🔒Banks could see regulatory relief in 2017

Q&A talks with Michael Rauh, president and CEO of Chelsea Groton Bank and chairman of the Connecticut Bankers Association.

Q: What is your outlook for CT/U.S. banking in 2017?

A: The trends for banking in recent years have been a tightening of interest margins, increased expenses associated with regulatory compliance, weak demand for loans, a stagnant state economy, and industry consolidation.

The year 2017 could finally be the time that some of these trends begin to reverse. The trend most likely to change is the regulatory environment. With Republicans controlling both chambers on Capitol Hill in Washington as well as the White House, there is cautious optimism in the industry. There have been a number of proposals in recent years that both sides agreed on, but Congress's overall inability to get things done kept these from coming to fruition.

Some of the simple changes that have been stalled may finally be able to pass, and some of the more significant changes to Dodd-Frank and reining in the Consumer Financial Protection Bureau (CFPB) might also gain traction.

The other trend most likely to reverse is low interest rates. Candidate Donald Trump vowed during the campaign to get the American economy rolling again and if he's successful, there could be upward pressure on wages and many of the other metrics watched by the Federal Reserve to forecast inflation, causing them to raise rates. An improved economy would also stimulate loan demand, albeit tempered somewhat by any significant rise in interest rates. This is all of course predicated on Trump's ability to deliver on his campaign promises.

Q: What's the one event or development looming in or outside Connecticut that you worry could upset bankers' apple carts?

A: Clearly the biggest single wildcard for banks (and many businesses in Connecticut) is the state's fiscal condition.

The health of a bank is generally a reflection of the community it serves. Banks in a thriving economy tend to do well, and banks that are in economically depressed geographies generally reflect their surroundings. Connecticut's economy has stabilized and there are certainly pockets of strength so it is not surprising that the majority of banks in Connecticut are healthy.

However, growing our balance sheets and increasing earnings are a challenge for most banks here because of modest business formation, slow job growth, stagnant housing values, and flat population growth.

Without a growing economy, banks are forced to take business from each other in order to achieve individual growth goals and that puts pressure on margins and profitability. The state has gotten itself into a downward economic spiral where cost-cutting seems to be a step or two behind revenue reductions, making it seem like we're constantly trying to make up for a newly projected deficit.

The state needs to address both sides simultaneously to get out of this cycle. We need to have permanent and structural spending reductions at the same time as we grow jobs and businesses to improve the income situation.

Q: You've mentioned it already, but how do you think Trump's election will impact the banking industry over the next few years?

A: The two most likely areas of impact would be the mountain of banking regulation that's grown over the last 30 years and the economy in general.

Trump's experience in business and as a user of bank services has shown him firsthand how “over regulation” can add costs and time delays to even the simplest of processes and he has vowed to cut unnecessary regulations, which we of course would welcome. 

Michael Rauh, president and CEO of Chelsea Groton Bank and chairman of the Connecticut Bankers Association.