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For community banks, as for many financial institutions, business is intricately tied to the interest rate picture, and right now that picture is volatile. While the Federal Reserve Board has raised short-term rates steadily since mid-2004 -- from roughly 1% to slightly less than 5% -- long-term rates have held firm at about 5%. With both short- and long-term interest rates residing in the same neighborhood, the resulting "flat-yield curve creates a more challenging environment" for midsized banks, says Thomas Doheny, associate director of equity research at Sandler O'Neill & Partners, a New York investment banking firm.
Focus On: Community Banking |
Top business challenge: To expand market reach and cut costs, all while complying with government regulations
Solution: Open new bank branches, offer specialized services, improve customer service and ensure efficiency of IT
How IT can help: By supplying check imaging, thin clients and broadband technologies for branches, as well as software for network and data security
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To counter an uncertain growth scenario, community banks must control costs. And they need to expand business by attracting new customers, which they are doing in two ways: by expanding with new branches and by specializing (focusing on commercial lending rather than retail banking, for example). According to a Federal Deposit Insurance Corp. (FDIC) study, the number of bank branches increased by 15% between 1994 and 2003; another FDIC report reveals that 68% of midsized banks specialized in 1994; by 2003 the percentage jumped to 89%.
For IT, these endeavors mean that CIOs at midsized banks must balance the demands of growth -- linking new branches and supporting ubiquitous services throughout the network -- with other top priorities: finding ways to cut costs with new technologies and complying with government regulations. Legislation such as the Gramm-Leach-Bliley Act requires the financial services industry to protect customer data, and the Sarbanes-Oxley Act requires all public companies to support their financial statements with proof of their procedures. Such compliance is a significant IT expense.
Niche Service
NexBank SSB in Dallas provides commercial banking services such as portfolio management. To stand out, the bank has focused on providing high levels of service, according to Todd Williams, vice president of technology and security. For example, Williams says, in an effort to provide personalized service, NexBank sends its representatives out to customers rather than having customers come to the bank.
"IT is tasked with making all of the services at the branch available wherever the client may be and making that information [available in] real time," Williams says. Representatives have laptops, BlackBerrys and other devices that enable the connectivity they need to open accounts and provide service once those loans have been made.
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