Episode 20: From Regulations to Mergers: Key Issues Impacting Banks Today

On this episode of Fintech Unleashed, Virginia Heyburn is joined by Jim Roche, President of the Maine Bankers Association to discuss the most critical and timely topics impacting bankers today. They cover the evolving regulatory landscape, trends in bank mergers and acquisitions, and the future of banking technology.

Transcript

Virginia Heyburn (00:02.774) 

A big hello to everyone joining us today. Welcome back to another episode of FinTech Unleashed. My name is Virginia Habern and I'm the Director of Research, Insights and Advocacy at EngageFI. The banking industry is facing unique challenges right now on so many different fronts. Regulation, economic uncertainty, technology advancement, new competition, the list goes on and it's all happening at once. 

how banks respond to these challenges now will materially inform their market position in the near term and the long term. And today I'm excited to be joined by Jim Roach, president of the Maine Bankers Association. Jim is right in the thick of things with his bank members and he brings a unique perspective to our discussion. We're going to get into that. We'll dive into some of the most critical and timely topics impacting bankers today. There's so much to unpack, so let's jump right in. 

Virginia Heyburn (01:01.634) 

Jim, it was great to see you at the Maine Bankers Convention this month. Please tell our audience a little bit about yourself and your background, and then also tell us about the Maine Bankers Association and its member banks. 

Jim Roche (01:15.068) 

Sure. So I've been leading the Maine Bankers Association for three years since August of 21. I took over for a guy that some of your audience may know, Chris Pinkham. He ran the Maine Bankers Association for 45 years. And his brother, Lindsey, ran the Connecticut Bankers Association for a number of years in parallel. Chris left a very good foundation for me when I took over. We have in our membership 29 retail banks. We have four trust companies. 

The banks themselves have 423 offices all over the state. So they're embedded in virtually every community in the state. Banks employ over 9 ,000 Maine residents. Assets of Maine banks are $42 billion. I'd like to say that banks in Maine provide the fuel that powers the state's economic engine. And then in addition to the assets, the banks really step up, as I mentioned, they're embedded in virtually every community. 

They, bank employees on their own typically raise over $400 ,000 for community causes. The banks contribute the most recent numbers, $18 million to charities in their communities. And bank employees volunteered nearly 129 ,000 hours to area nonprofits and community projects. So as I said, a lot of presence in Maine throughout the state by banks and their employees. So it's a... 

It's a, know, they take that very seriously with regard to my own background. Virginia is a mission of in your three years, but I ran this state chamber, statewide chamber of commerce in New Hampshire for seven, nearly 17 years. Our name was the business and industry association of New Hampshire. Every state has either a statewide chamber of commerce, like main state chamber, or for example, the equivalent group in Massachusetts is associated industries of mass in New York. It's the business concept of New York state. So every state has a statewide chamber of commerce. 

I ran the one in New Hampshire for a long time. And if I may point out some of the differences between the two groups. So running a statewide chamber of commerce, you represent virtually every economic sector in the state. And so when you're advocating, which is why we all exist, advocate on behalf of our members at our respective state houses. In New Hampshire, we covered the waterfront of issues from labor regulations to energy costs, environmental compliance to taxes, issues that affect the cost of the. 

Jim Roche (03:40.046) 

health insurance to the efficiency of government services. And the reason for that is because of the broad -based nature of the work that we do. We, on the federal level in New Hampshire, and I think most, not all, but most state chambers really defer to the U .S. Chamber of Commerce and the National Association of Manufacturers. We wore both hats, state chambers, state manufacturing association, because they're well positioned and have the strength to work on Congress and various federal regulators. 

So we really deferred on their expertise and their efforts in Washington. And that's a big difference between a broad -based business group like the state chamber in New Hampshire and the more narrowly focused main bankers association. The case with bankers associations that were a trade group, right? So we focus on issues that affect banks. So we're not focused on broad -based issues as the statewide chamber is. And the other unique difference is that 

banks because they're so highly regulated at the federal level with the OCC and the FDIC and the Federal Reserve Bank and the CFPB. There is a lot of action at the federal level that just doesn't exist for businesses, other kinds of businesses, state by state. If you think about every state has the equivalent of the Environmental Protection Agency. So they have a state body that oversees regulatory environment in their states. This federal government has ceded labor regulations typically to state departments of labor. So 

Most businesses are regulated at the state level, but banks, while they are regulated at the state level, are also heavily regulated at the federal level. And all that to say, we at the Maine Bankers Association, both as staff and as members, pay a lot more attention to what's happening at the federal level than we ever did running the statewide chamber in New Hampshire. So those are a couple of differences between a broad -based advocacy group and a more narrow trade association like the Maine Bankers Association. 

Virginia Heyburn (05:36.474) 

and that there's more regulation, it seems, than ever before. So I'm sure you stay very busy. We're going to get to regulation. But I wanted to, before we get deeper into our discussion, first of all, congratulate you on a terrific conference. We were there together this month. It was just fantastic. Lots of great discussions with the banks there. I also observed the main bankers are a very close -knit group of people. You know, I just really saw 

tremendous depth of the conversations. What would you say was the major buzz of your conference this year? What was everybody talking about, concerned about? 

Jim Roche (06:15.146) 

Well, the big buzz of course was the Federal Reserve's 50 basis point cut in the Fed funds rate. And as you and I have communicated offline, I'm not gonna pretend to be a banker. I know more about banking today than I did three years ago, but I don't run a bank. But I do know that my members are in the process of sorting out, you know, when do they reduce the interest rate on deposit accounts if they haven't already? When do they reduce the interest rate on commercial loans? 

You loans don't move at the same rate. are longer term, some are shorter term. So those will all reprice at some point. Lower rates, the lower Fed Fund rate and potential future cuts may increase the demand for loans. it's a very complex mix that banks are in the middle of sorting out. That was the big buzz at the convention at Quebec City last weekend. By the way, your presentation was very well received. So thank you for that. 

Virginia Heyburn (07:10.724) 

Thank you, thank you, Jim. It's always a pleasure. Let's get to regulation because I know that also is a big topic. I had a number of conversations with banks around it. It's a bigger topic than maybe ever before. We seem to be having to navigate pretty big regulatory shifts simultaneously. And when I talk to bankers, I get the feedback, know, Virginia, there's either too much regulation in one area, maybe not enough area in other areas where it's needed. 

For your bankers in Maine, what aspects of regulation are most challenging right now, especially for community banks who historically have always found regulation to be unfairly onerous? 

Jim Roche (07:55.208) 

Yeah, I've never heard a banker say they're too lightly regulated in any one area. What I hear constantly is, well, what I know is banks are among the most highly regulated industries in the country, right up there with nuclear power production and healthcare. So you have these regulators at the federal level. I mentioned four of them, the FCC, I'm sorry, the FDIC, the OCC. 

CFPB and the, I'm missing one of them, but heavily regulated at the federal level and the state level. You've probably heard Virginia Rob Nichols, the CEO of the American Bankers Association use the term tsunami of regulation. And that's what it feels like. It feels like there's a new regulation coming out every day directed at banks. And, you know, I think that this plethora of regulations that exists and that seems to be coming unabated. 

helps explain why the number of banks in the country has really dropped dramatically over the last several decades. So for example, in 1986, there were 16 ,000 banks across the country. And in the year 2000, there were about 8 ,300. So almost cut in half. And today there are about 4 ,400 banks, give or take. In the Federal Reserve District 1, which is our district in New England, minus one county in Connecticut, there were 700 banks in the year 1986. There are 200 today, just under 200. 

So, and I think that's reflective of the challenge that banks have in meeting all of the regulatory obligations. And so, you know, one of the ways that you gain efficiencies and economies of scale is to come together and to combine. And so we're seeing that happen. We have two banks in Maine that are combining. There'll be one bank by the end of the year. So we're seeing that all over the country. And I think it's a reflection of the, you know, regulatory 

I don't want to say onslaught, but it's a heavy, heavy burden. banks all over the country, and particularly smaller banks, are challenged to keep up with all that. And I think that helps explain the consolidation in the industry. I would note that the US banking system is really, I think, the envy of the world. It remains the envy of the world. We still have a lot of banks in the country. But I think regulators need to take a step back and understand that 

Jim Roche (10:18.91) 

banks need to keep the lights on. They need to remain profitable. They need to serve their communities. And if more more resources are going to address new regulations that are coming out on a daily or weekly basis, those are resources that can't be put back into the community in terms of perhaps lower interest loans or services in the community, charitable services or what 

Virginia Heyburn (10:40.676) 

Certainly, yes. And you had mentioned it, Jim, scale really matters. So we're seeing that all across the country as institutions get bigger. What's also fascinating to me is that you mentioned this onslaught of regulation. Our industry, and Rob Nichols has said this, we're in a position where our industry is suing the regulators because of multiple regulatory. 

situations that just don't seem to make a whole lot of sense for the financial services industry or the customers that we serve. And now, of course, financial institutions asking the legislators to get involved to try and make this entire regulatory effort a lot more reasonable and digestible for financial institutions. But that brings me to a question, you in your role, you mentioned you're dealing with at the federal level, you're having to get a lot more engaged than you had been in the past. 

And that's essential. What are your thoughts on what the industry needs to do in order to get the attention of elected officials, educate them appropriately on the challenges that banks face? 

Jim Roche (11:48.392) 

Yeah, it is a challenge. know, that's why trade associations like the main bankers association at the state and, you know, the broad based business groups like the statewide chamber of commerce or the national groups, we exist to be advocates, right? We were all created to be advocates for our banks. Bank senior leaders don't have time to hang out in our respective state capitals or in Washington, D .C. That's what we get paid to do. So the sorry, I lost my train of thought. 

Yeah, I wanted to offer an example. You know, my experience in New Hampshire and here in Maine is that most legislators have no idea how challenging it is to run a business, keep the lights on, keep people employed. And as a result, when they propose legislation that on the surface sounds good, it has implications that they never considered. So, for example, for the last three years in Maine, we've been, there has been a data privacy bill. 

And it's really directed at the big data companies like, you know, Facebook, Google, Instagram, YouTube. You know, we're all familiar with, you you've got Alexa on at home and you're talking about needing a mattress. And then pretty soon you got ads popping up on, you know, Facebook or Google for mattresses. what's going on? This is kind of weird and creepy. So the, their ire is directed at privacy in those areas, but they paint with a broad brush and they capture banks in this legislation. 

as well. And banks are already heavily regulated, as we discussed, in this case under the Graham Leach Blythe Act on how they handle, treat, and protect customer data. Beyond that, banks, their customer relationship in that data and protecting that data is sacrosanct. But legislators, they paint the broad brush. In their defense, they're inundated with issues and people covering the broad base of 

of concerns. And so it's difficult to get their attention and say, we get what you're trying to do, but you need to carve it out because we're already so heavily regulated. And if you overlay on top of what's already required by the federal government in terms of how banks treat data, you're adding another expense, another regulatory scheme. Some of the early proposals created a private right of action, which made 

Jim Roche (14:11.624) 

banks even more susceptible to lawsuits from any, for lack of a better phrase, Tom, Dick or Harry. And it caused my banks, some of the banks that are using things like biometric identifier protections, like thumb prints, facial recognition, voice recognition, it caused them to pause and say, can we afford to continue providing these protections at the very time when customers are demanding them, given the cyber fraud out there. So. 

The data privacy bill in New Hampshire, I'm sorry, in Maine and no doubt elsewhere in New Hampshire and elsewhere, the idea behind it is clear. They want to get at these big data companies that are using and some would say potentially abusing information that we all have online, but that's not us. So carve us out, would you please? And it's, as I said, it's difficult to get their attention or articulate the nuances of what they're trying to accomplish. 

And it happens at the federal level as well. Although I would say our congressional delegation here in Maine is much more tuned into our concerns. We don't always agree, but it's a respectful, very good professional relationship. 

Virginia Heyburn (15:20.846) 

Well, regulatory precision is really so very important. It sometimes reminds me when we do get new regulation, in some cases there is an element of it that is necessary and helpful and meaningful, but then there's all this other burden around it. And it's like a contractor coming into your house to fix the floor and they wreck the wall in the process. it's kind of like that. Let me ask you, Jim, 

As you were speaking, I was reminded of what you were saying before about this search for scale to deal with compliance, to deal with regulation. And at your convention, I had a number of conversations with banks who were deeply concerned about the wave of credit unions buying banks. We're right now at a record. We've never had this many transactions of this kind. What is the impact so far in Maine? And how are Maine bankers thinking about this growing trend? 

Jim Roche (16:17.14) 

Well, I would say bankers are frustrated at what I would describe as an unlevel playing field. So credit unions were created to provide underserved populations with financial services. So typically that meant like employees at a mill or a factory or public employees in a specific location. But today, credit union membership is open virtually to anybody. know, the field of membership is 

grown to the point where virtually anybody can be part of a credit union. And they provide the services that banks provide. They provide consumer loans and commercial loans. One of the credit unions here in Maine, this is their field of membership. People who live, work or worship or attend school in four of the 16 counties in Maine, the population of those four counties is half the state's population. So this... 

credit unions has opened up its membership to virtually anybody in those four counties, or you can be related to somebody who's already a credit union member. So the field of membership has just expanded well beyond, I think, what was intended when credit unions were formed at the federal level. And the unfairness issue is that credit unions are not taxed at the federal level, banks are. Credit unions are not subjected to the community reinvestment. 

Banks are, that means banks are required and held to a high standard to provide financial services to low and moderate income communities. And the people that live there, credit unions are not held to that standard. Credit unions are not required to fill out the form 990 that every not virtually every other nonprofit is required to fill out. And it talks about your programs and your services and compensation of top officers. Credit unions are not required to do that. So, so banks are heavily regulated. We get that. We understand that. 

We just want a level playing field and it does not exist, we feel, when it comes to credit unions. And so what we're asking in response to this unlevel playing field is for Congress, just hold a hearing and let's look at the mission that was behind creating credit unions to see if they're still carrying out that mission to serve low to moderate income underserved communities throughout the country, because we question that. 

Jim Roche (18:39.57) 

and yet they've got these built -in advantages and they're competing in the same space. And the same would apply to most of the fintechs out there. They're just simply not regulated the same way that banks are. So banks are under this regulatory onslaught and they these competitors out there that are simply not regulated in the same aggressive manner. 

Virginia Heyburn (18:56.142) 

Yes, know, fintechs are really growing. We've got a number of fintech banks that are profitable now. Over half of accounts in the United States are now open with fintech banks. So I think you raise a really important point about ensuring that whichever entities are providing financial services that are there's there's some parity there. Now, given some of these competitive challenges, Jim, what do you think the banks in Maine need to do in order to grow? 

fight back some of their competitors and certainly retain their customer base as they move into the future. 

Jim Roche (19:32.554) 

Well, I think they're doing it. Banks in Maine have been around for century or two. We just celebrated our 131st convention. So banks in Maine have been around a very, very long time. And as I mentioned several times, they are embedded in their communities. not just in terms of providing financial services, but in terms of volunteer activity and charitable contributions and everything else. So that's really important to people that live in Maine. They want to know that their local financial institution, their bank. 

has got their back and is invested in their community. So that won't change. One of the unique challenges of Maine, banks in Maine, and frankly, Northern New England, is this kind of bifurcated customer base. sure that actually, again, I don't have a background in banking, but my sense after three years on this job is that there are two significant groups of customers. One are older customers that like that face -to -face interaction at the branch or at the headquarters bank, like to know who their teller is, like to know who their 

loan officer is and engage in that face -to -face kind of activity, know, deposit their paycheck or whatever. So that's a huge customer base here in Maine and across Northern New England. Maine, New Hampshire and Vermont are the oldest states in the country. So it's a challenge to make sure that you provide the services that swath of customer requires. Then you have people like my kids who are 24 and 33 respectively. 

I'm not sure they've ever stepped foot into a bank and they do everything they do online on their phone or on a laptop. In fact, just as a drive this point home, I have a friend whose daughter worked as a server at a golf club. And recently he goes into her room. She's in high school, goes into her room and she's got all this, these dollar bills and $5 bills on her dresser. And he said, what is this all? she said, well, I don't know what to do with it. She had no idea she could open up an account, know, a savings account at a bank and have the money protected and insured. So, I mean, so you have, 

You have banks in Maine and elsewhere across the country, in Northern New England, with a variety of, you know, customer segmentations, but those are two really important ones. And as we've discussed, you have the regulatory burden on banks, and you have the unfair competition with some of the other financial institutions. And then you have this, the need for the banks to be catering to different kinds of customers. so it's an expensive... 

Jim Roche (21:56.071) 

It's an expensive business. So I keep coming back to, know, level playing field would be wonderful for banks in Maine and elsewhere. Banks in Maine are well run. They're very smart people. As I've said repeatedly, they're embedded in their communities. They know their customer bases. They know their customers. And so they'll continue to compete. But all of this stuff together means that they're looking for economies of scale too. 

Virginia Heyburn (22:20.602) 

Sure, sure. And healthy community banks make healthy communities. Very important. So a final question, Jim, we're running here up against our time. I always like to end this podcast on a positive note, right? We do have challenges in the industry and we've talked about some of them, but where do you see the greatest opportunities for banks in Maine in the years to come? 

Jim Roche (22:25.662) 

Yeah. 

Jim Roche (22:47.486) 

Well, as I've said several times, banks are safe. They're highly regulated. Their deposits are insured. They're embedded in communities throughout the state. They're with their branches. They're providing residential mortgages and commercial loans. bankers provide leadership on numerous nonprofit boards of directors and charities. They make charitable contributions. They volunteer their time. Banks have been around for centuries, and banks will continue to. 

compete and provide financial services to people in Maine in virtually every corner of the state. So they're here today and they will be here 100 years from 

Virginia Heyburn (23:23.492) 

I love that. can't think of a better way to end it. I just want to remind all of our viewers that Jim had a powerful call to action for Congress to hold a hearing on leveling the playing field. I thought that was really fascinating, Jim, and your comments around banks looking for scale. And then finally, of course, just the regulatory onslaught and the need for regulatory precision. I thought it was fantastic. 

Jim Roche (23:51.646) 

Yeah, and just to clarify, it's not the main bankers alone that's calling for Congress to review the mission and services that credit unions and others have provided. It's the American Bankers Association. It's the Independent Community Bankers Association of America's virtual every state bankers association. So, you know, this is a real concern. If you're going to be in this space, how about you treat it the same? That's all we're asking. 

Virginia Heyburn (24:13.979) 

And their strength in numbers. Thank you, Jim. It's been really, really insightful. And to all of our audience, thanks so much for listening in to today's episode. We are already planning our next podcast. And to stay informed on when we're going to be dropping the next episode, follow EngageFI on LinkedIn. Thank you so much again. And I look forward to seeing on the next episode of FinTech Unleashed. Have a great rest of your day, everyone. See you soon. 

Jim Roche (24:15.774) 

Yeah. Virginia, thank you very much. 

Jim Roche (24:43.21) 

Bye bye. Thank you.