Are you prepared for the “new normal” in the banking and lending environment? Our economy has seen the pendulum swing from where the majority of lending was in fact done on bank balance sheets to the recent past where more than seventy percent of all lending was done by non-bank financial companies…

With the collapse of the non-bank financial company’s ability to fund themselves; the re-intermediation of lending by traditional banks is occurring.

This will have a profound effect on your business. It will mean that banks will be able to choose which customers they want to do business with, and will not have the same competitive pressures from the non-banks…

The Regulatory Reform Legislation now on the Senate Floor will impact the financial industry more than any other legislation since the Great Depression.

In combination, these two events will change the landscape for all financial services dramatically… Individuals and companies needing financing will once again need to have a relationship with a bank.  Many of the largest banks will be placed under severe stress as they are required to choose the business they really want to be in. Increased capital needs and additional regulatory burdens will cause many banks to turn inward and evaluate the profitability of each line of business. There will certainly be a cost for all this turmoil. The largest banks have already increased the cost of doing business by reducing branches, staff, and service, and at the same time increasing fees on customer accounts. (Have you checked your bank statement lately?)

What does this all mean for the consumer or business client?

First -The customers that develop relationships with banks will have access to credit that might not be available to those who do not.

Second -Re-intermediation will return lending to bank balance sheets.

Third - The cost of credit will rise.  Without a relationship, it will be difficult to contain the rising cost of credit, or its scarcity.

Relationship banking has come roaring back into vogue… Those who believe that the status-quo is still at work will find themselves without a chair now that the music has stopped. The “Too Big to Serve” institutions will be too distracted by all this “change” to really care about their customers…

For all the community banks, this is the gift that keeps on giving…