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Current Events - 06/06/2000

What Have we Done For You Lately? — The staff at CBA understands full well that we exist for our membership who pay dues for results they can see. Period. To that end I have prepared the attached document (now that our 109th fiscal year is officially over) to highlight for you some of the accomplishments CBA has had over the past year. You will see that it has been a very productive 12 months and you can feel proud of your association. The staff was eager to let you know what we have achieved. Give the document a read and share it with your senior management. In particular, I think the way we have handled the ATM access fee issue brings home why it is important to belong to the CBA. We have fought this battle and the right to charge for services banks provide, on a number of fronts. In Sacramento, Greg and his team have joined with many bankers who have testified to keep unworkable legislative efforts from being enacted. We have worked tirelessly in the court of public opinion on this concept as well. And while the initial press was advocating that everyone sign up for the “free lunch” of no charges being levied for services, since the start of this year the editorials and even the mainstream press coverage have realized the folly of such a position. We publicly took the heat on this issue as we joined the battle, first at San Francisco’s Board of Supervisors hearings and later in the Proposition F ballot fight and the santa Monica City Council. Now we are all over this matter in federal court where we have methodically but quickly won victory after victory. The industry was given a preliminary injunction, it has been upheld on appeal, and our motion for summary judgment will be heard on June 8. We have the resources to fight this battle effectively in all of these arenas. And this is just one of the many issues where we have been both efficient (by doing things right) and effective (by doing the right things) for California banks. Your association truly works for you.

Convention Overview, Part 2 — Last week I reported on the thought-provoking keynote address of Dick Kovacevich at Wells Fargo, but he was not the only interesting convention speaker we had. Congressman Tom Campbell did the impossible when he spoke to the group. He deciphered Alan Greenspan right in front of our eyes!  He explained the wealth effect on household purchases caused by the stock market rise. Three to four cents of each dollar rise in the stock market goes toward additional purchasing. With consumption rising faster than income, savings rates decline and inflationary pressures rise, causing Greenspan concern. Congressman Campbell believes that Greenspan will continue to increase interest rates until debt investments become more attractive. The Congressman himself advocates a different approach, raising the margin requirements to curb speculation in the stock market. He also helped interpreted Greenspan speak for us. In a well-known address, Greenspan referred to the need to stop the “irrational exuberance” in the stock market. He also referred to “equity discount factors” which Campbell quickly translated for us as a rapid decline in the stock market!  The Congressman also expressed concern over the IMF and the World Bank. He noted that the IMF was created to induce investment in post World War II Europe where the risk of currency speculation was very real. This function is largely unnecessary today and so the IMF has gone to depressed areas (such as Thailand and Indonesia), promising to bail countries out if they introduce macro-economic reforms. While such reforms may not be bad, this is beyond the scope and purpose of the IMF in the Congressman’s view. Arguing that individual economies should produce the infrastructure to encourage private investment, he noted that a $6.8 billion extension of credit from the IMF to Russia largely flowed out of the country through Cypress in rapid fashion and resulted in a default within a few months. In a nutshell, Congressman Campbell advocated government based on four principals to the gathering: less regulation, more individual freedom, fiscal responsibility, and world policy responsibility. In a playful manner he closed his talk with a wry observation on the current state of government: if it’s alive tax it, if it moves regulate it, and if it dies subsidize it!

Ed Carpenter also gave attendees some morsels to consider in his breakout session concerning Internet financial services. aHe noted that the driving force of the new economy is the settlement function, a natural for electronic commerce. In addition, the cost of garnering 10 million customers through a branch network is approximately $900, $1 million through the Internet. Transaction costs are dramatically different for different delivery systems: $1.07 for a branch, $0.27 for an ATM, and less than $0.01 on the Internet. And where do people go when they want Financial Management sites on the web — well the number one bank answer is Wells Fargo...at 0.25% (ouch!). Currently the banking industry approaches Internet banks with either a wait and see attitude (characterized by a web page with minimal content and no interactivity) or a defensive strategy (looking at the Internet as an alternative delivery vehicle). Pure Internet banks themselves have high deposit rates but suffer from several weaknesses, making them only a small threat to traditional banks...over the short term. Generating non-interest income is still a challenge and the entire asset side is slow to develop. It is easier to create software for deposit products than it is for loans. And branches are still instrumental in effectively selling products. This leads to the marriage of traditional and Internet practices, sometimes called “bricks and clicks” or “clicks and mortar,” trying to capitalize on the strengths of both systems. This is all very heady stuff, worthy of careful thought and analysis by those who seek a pivotal role in the 21st century world of financial services.

Final Words of Wisdom — Our parting words this week come from the playful mind of Dick Kovacevich. He claims to finally understand what the word ‘politics’ means: ‘Poly’ means many, of course. And ‘Ticks’ are blood sucking parasites.... I get it, but I had never had it explained to me so cogently before.

Be well. I will write you again soon.