2018: The Highlights and the Lowlights

Taking a look back at the year that just ended can sometimes give us a glimpse at what’s to come. We’re not sure that’s a good thing this time around but as they say, “forewarned is forearmed”.

The first warnings came in January when we reported that, after several years of paying down debt, U.S. consumer credit card debt had reached an all-time high of $1.023 trillion. We also cautioned that consumers who consolidated debt into personal loans were showing signs of strain. This is something we will be watching closely in 2019.

February came and went with its own calamities. Jay Powell took the helm of the Federal Reserve and the stock markets have been on a rocky roller coaster ever since. Although he was appointed by President Trump, Mr. Powell has become one of the president’s favorite punching bags of late. Speaking of punching, Janet Yellen went out of office with a bang, taking several decisive actions against Wells Fargo in response to its fake-account abuses.

As spring began knocking at the door, a decades-old question surfaced with the thaw. March: “Why are small, community banks treated the same as Too Big to Fail Mega-Banks? While most agree that a one size fits all approach is unfair and overly taxing on smaller institutions, a solution remains elusive.

Spring also gave rebirth to another perennial—a new debate on the treatment of brokered deposits. The discussions began in earnest in April, and much has happened since. In fact, we’d expect to see new rules governing non-core deposits fairly early in 2019.

In May we were dealt a surprise when community banks and credit unions put their differences aside and jointly worked towards the passage of the Economic Growth, Regulatory Relief, and Consumer Protection Act. It worked; the act was signed it into law on May 24th.

The summer brought with it the realization that it’s a lot easier for an insurance company to make money than a bank as the $7 billion Nationwide Bank announced it would pull the plug on its retail banking operations (June).

As is often the case, July got even hotter as a debate on the Community Reinvestment Act (CRA) heated up. Congressman Gregory W. Meeks (D-NY), suggested the 40 year old rule was experiencing a midlife crisis; The new Comptroller of the Currency, Joseph Otting, reportedly told the House Banking Committee that he never “personally observed” discrimination in his 30+ years of banking.

We said: With all the new technology we have, there must be a better way to prevent red-lining and other forms of discrimination. CRA is not having a mid-life crisis. It’s old and outdated and needs a full overhaul.

August brought with it a ray of sunshine. After a ten year drought, we saw de novo bank activity finally picking up. This is what we consider to be the only welcome by-product of displaced bankers. After all, what could be better than to have seasoned professionals filling the needs of businesses and consumers that are in search of a new community bank?

Although, it seems as many credit unions are in search of acquiring community banks as there are de novo banks popping up, maybe even more (September). On average, the banks being acquired by credit unions have less than $150 million in assets, making them too small for many other banks to be interested in, but perfect for a credit union.

In October we reported at length on the benefits of seeking consumer loans and/or credit card loans from your community bank or credit union. While it may be easier to fill out an application via a faceless website, it works the other way around as well. It is easier to deny a faceless online customer. If you prefer to have someone who will work with you, it makes sense that they know who you are, what you look like, and what your needs are. Of course, this doesn’t guarantee a loan or credit card approval, but it makes it more difficult for them to say no and more willing to work with you.

In November we reported that 14.8 million U.S. households demonstrated a need for short-term credit that remained unmet by “mainstream” credit.  Over 22% of them said they turned to nonbank firms within the past year (such as payday lenders or check cashing companies) to meet their needs. This can be a very expensive alternative.

In December, the Federal Reserve raised interest rates for the eighth time in 2 years. The stock market didn’t like it. Neither did the President. But CD rates should climb in 2019. In fact, they’ve already begun.