Q&A talks to Cynthia C. Merkle, president and CEO of Danbury-based Union Savings Bank. Merkle is also the first female chair of the Connecticut Bankers Association.
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Q&A talks to Cynthia C. Merkle, president and CEO of Danbury-based Union Savings Bank. Merkle is also the first female chair of the Connecticut Bankers Association. Â
The Fed lowered interest rates several times in 2019. How might that impact bank behavior and profitability in 2020?
The decrease in rates is causing increased margin compression and as a result banks are seeing a reduction in net interest income with little opportunity to make up for the loss in revenue from other sources.
This can have a negative impact over the coming year(s) as banks will likely invest less in new products and services and possibly in new talent. It could also lead to more consolidation in the industry.
Connecticut continued to see bank mergers and acquisitions in 2019. What’s driving the trend and what do you predict for next year?
Over the past few years, banks have continued to add resources in risk management areas, including cybersecurity, vendor management and compliance. As banks continue to see margin compression as a result of this low-rate environment, they are looking towards efficiencies to make up for the declining trends in net interest income.
In some instances it comes down to scale, which can lead to pursuing a merger-or-acquisition strategy. A merger of equals does not necessarily mean you need double the resources to manage a bank effectively, so banks are realizing savings by joining with one another.
This also holds true for investments in technology. The bottom line is they can realize savings. Consolidation will likely continue unless conditions change.
The legalization of marijuana across this country has caused major challenges for the banking community both at the state and federal levels. The U.S. House recently passed the Secure and Fair Enforcement Act, which provides federally regulated banks a safe harbor to do business with the cannabis industry. If that legislation becomes law, what would it mean for the banking sector here?
Although the majority of states have legalized marijuana for adult recreational and/or medicinal use, the federal law continues to view possession, distribution or sale of marijuana as illegal.
This has been a quandary for many banks as lenders that choose to do business with companies that distribute marijuana have taken on increased risk because it could lead to money laundering concerns under federal law, which could lead to legal, regulatory and reputational risk for a bank.
The House passage of the Secure and Fair Enforcement Act and the anticipated approval by the Senate will provide the banking industry in states where distribution is legal avoidance of federal actions. Here in Connecticut you will probably see more banks opening their doors to the marijuana industry, however they must ensure they have the appropriate resources in place to manage the risk of this intense currency business sector.
About a year ago, Union Savings Bank established a mutual holding company. How common is that in Connecticut? And what does it allow a bank to do that it couldn’t before?
A number of mutual banks, including Union Savings Bank, have chosen to establish mutual holding companies as the structure can provide a bank with flexibility for the future. Although the process can be paper-intensive, if approved it provides a bank with options down the road.
They may never exercise them but they are there. For instance, the holding company could raise capital if it chose to, which could help in an acquisition. Or, they could strategically merge with another bank.
How are banks working to ensure they have a pipeline of workers in the future?
In general, when a young person hears the suggestion of ‘banking’ for a career they may think ‘brick and mortar’ and not understand how many career paths there are within a bank — whether it is in product design, data management, social media or cybersecurity to name just a few. As industry leaders we need to promote the wide spectrum of careers that are available to young people.
We do have a challenge in Connecticut as many of our young people are going off to college and not coming back, so banks are working with the Connecticut Bankers Association, the state banking commissioner’s office and local colleges to develop internship programs and get the word out about the diversity of jobs.
