Beer and Banking in Baltimore

I recently read a book about the history of the brewing industry in Baltimore. It's written by Rob Kasper, a former reporter at the Baltimore Sun, and is entitled " Baltimore Beer: A Satisfying History of Charm City Brewing". It chronicles the history from the 1800's, when the first generation of German's arrived to the the heyday of the 50's and 60's when local brewery's like Gunther's, American and, the king of the locals, National Bohemian, compete for the hearts and thirsts of the Baltimore natives. They supported the local sports franchises ands were active in their communities.

Unfortunately,as the 70's and 80's came, these local brews were bought up by the larger national players, all but eliminating this local industry. Interestingly, the last few years have brought about a resurgent of local craft breweries, like Heavy Seas, the Brewers Art, and Flying Dog Brewery, to name just a few. It's become a very dynamic and exciting time for the local beer lovers.

So what does this have to do with banking? The demise of the brewing industry almost mirrors that of the local banking industry. Such strong financial institutions like Union Trust Bank (one of the oldest banks in the US), Equitable Bank, Maryland National Bank and, most recently, Mercantile Bank and Provident Bank, were all gobbled up by the much larger regional and national players. Today, there are only a handful of banks actually headquartered in Baltimore City.

However, all is not lost. As with the brewing industry, there are a handful of local community banks that are filling a niche that the larger banks have abandoned. They are doing this by providing a more  personalized service and local decision making to support the unique needs of the local community. Let's hope that, like the local brewers. community banks can be a growth industry as well.

Some observations as I leave community banking

It's been almost two months since I last posted anything. Since then, I've left my previous employer and joined a financial services consulting firm and have just completed my first month. I'm going to focus this post on some final thoughts as I leave the community banking space. So here goes:

- The regulatory environment is making it almost impossible for community banks to survive. In a recent article in The Baltimore Sun, Anita Newcomb, a noted community bank consultant, notes that regulatory changes may make it impossible for banks of less than $500 million in assets to survive. In my opinion, this is too low. I think banks need to be of a sufficient size, at least $1 billion in assets, to have the scale to compete and comply with the requirements.
- The primary competitors for many community banks, credit unions, have an unfair advantage. It used to be that credit unions served very specific groups of constituents, like a single employer for example, providing savings and loan products exclusively to them and enjoying the status of non-profits. Now, many CU's have no such restrictions and yet continue to pay no taxes and a much less stringent regulatory environment.
- I believe one of the biggest challenges they face is one of identity. What does a community bank mean, anyway? For customers, their local branch is their community bank. Just like the local Home Depot. Sure, the name over the door has changed a number of times, but many of the people who've waited on you are still there. And now, with all the electronic delivery options, how many people really need a local branch at all? Open your account, get your direct deposit set up and you are good to go.

With all that said, I do think there is a need for community banks. They need to focus on the value they bring to the community. During the recent financial crisis, many small businesses found themselves scrambling for financing when the large banks abruptly pulled their credit lines. A local banker, with roots in the community, is more inclined to work with these customers because they understand the market and know their customer. It's where having local decision makers can really make a big difference. So let's not write the obituary for the community bank just yet.

Borders Closing and Banking: What's the connection?

As many people have heard by now, Borders, a 40 year old retailer of books and music, is closing it's remaining 399 after a last minute attempt to sell itself. It's demise is blamed, in part, on management's strategy to continue building Superstores as people started shopping for books and music online.

So what's this have to do with banking? Borders made the fatal mistake of sticking with it's strategy to expand through physical locations while ignoring the behavior of it's current (and future) customers. They ended up too late to the marketplace and were saddled with large retail locations and no customers.

Over the last couple of years, I've participated in a number of industry events, as either a speaker or panelist, on numerous topics including social media and mobile banking. I find it increasingly apparent that many of the community bankers I talk to are still in the "Borders" mode. While they see traffic declining at the branches, they are unsure if they should get involved in social media or provide a mobile banking solution. They are ignoring the societal trends and taking a "wait and see" attitude. Given the speed at which consumers adopt new technology (how many people even heard of Twitter in 2009?), bankers today won't survive with that attitude.

So here's a message to all my fellow community bankers: I encourage you to take some risks, try new things and stay relevant so you don't become the "Borders" of the banking industry. Your community and, most importantly, your customers, need you.