“The Banker, The Pharmacist, the Opioid Dealer and the Out-of-Town CEO”
Dear Bank of Prairie Village Community ~
As you can no doubt tell from my musing, I love being a community banker.
A small bank is a microcosm of a big business. There is a retail side with regular retail hours for those making deposits, there is a professional side for those wanting loans, there is marketing, core-technology, cybersecurity, physical security issues~ (yes there are still bank robberies) along with the normal aspects of being a landlord to tenants in the Bank-owned building. (Snow removal, ice melting, upkeeping and Holiday Decoration decisions.)
In Kansas until roughly 1988, the banking laws restricted small towns to only three bank charters and two drive-ins. Bank Holding Companies were still considered unusual. Credit cards were just gaining traction, and people still went to their local bankers to buy appliances, etc. There were also firm laws that kept deal-crazed investment banks out of commercial banking.
Depending on the agricultural cycle, most small Kansas cities and their downtowns thrived. Walmart was not a big thing yet, there were small shop keepers who banked with the local banker and more importantly often knew the bank owner’s family~ and who went to the same high schools as everyone else in town.
For example, when I left Salina for college in 1977, there were 7 locally owned men’s stores who sold suits and 6 family-owned pharmacies. Every store owner had a basic understanding of accounting and could read a balance sheet and income statement. They went to their banker with questions and for advice, who did not charge by the hour.
In short, each community had an economic business ecosystem. For the most part, the community’s stored savings went into the banks, which in turn, were dispensed by the banks throughout the community to meet borrowers’ credit needs. Yes, I may be sounding like Jimmy Stewart as George Baily in the classic movie “It’s a Wonderful Life!”
Then came the era of deregulation, Walmart and huge credit card available balances.
Driving through small Missouri and Kansas communities today, the downtowns often look like Berlin, May 1945. You can see where there used to be a nice retail store, you can see three street corners where banks used to stand, and you will see most downtown business districts consisting of vape stores, tattoo parlors or antique malls.
The same can be said or could be said for urban downtowns as well, with the exception of places where millions of local, state, and federal tax dollars have been spent or waived from collection to make the area look like a Potemkin Village. Hell, they are building new shopping districts to look like quaint old thriving community downtowns~ just to play on sentimental heart strings~ and consumer wallets! (See any downtown pictured in a Hallmark Channel Television love story.)
After deregulation, when big stock market-listed banks bought little banks to prop up their stock prices, Bank Holding companies became ubiquitous, Walmart with cheap imports ran out local shop keepers, professionals decided it was ok to wear jeans to work, and credit card companies started urging people to spend money to get points on their cards~ including credit score-busting unaffordable vacations and cruises~ the communities’ economic business simply broke.
Today in my hometown, there are no men’s stores, and just 1 local pharmacy. I am pretty sure you can’t buy an in-store business suit in Salina, population 50,000. The devastation of the business ecosystem, like any ecosystem has caused issues further down the line. For example, store owners have been replaced by corporate managers, who may or may not know basic economics, balance sheets or income statements. Thus, the number of accounting-literate managers in basic retail business has dwindled.
Why is this important? Simply look at school boards, city commissions, county commissions, etc. When I was in high school, each Board member was a business owner who gave up their time to manage their community’s resources. The School District, the City Commission and the County Commission oversee vast multimillion-dollar budgets. The rule of thumb should be 80 to 90 percent of a Board’s / Commission’s time should be spent in reviewing, analyzing and scrutinizing budgets to ensure proper management and oversight.
Since the pool of local business owners in a community has dwindled, many elected to manage these budgets can’t read a balance sheet or income statement. Thus, they can’t perform their oversight job. Since they are not competent to do the 85 to 90 percent hard work of their job, they spend most of their time on the 10 to 15 percent ancillary issues associated with their job. Hence, a disproportionate amount of time is spent worrying about bathroom issues, who is eligible to play what sport, what “favored businesses with good lobbyists” should get tax waivers, what the local holidays should be, what school names should be changed to~ while somehow allowing cursive writing to be eliminated from the school curriculum~ so today’s school children can’t read their grandparents’ handwriting.
Massive amounts of money are spent in cause célèbre projects, while basic government services like sewer lines, trash collection, etc. are ignored. (Not sexy spending projects!)
I can go on the same analysis about the State and Federal Government Elected Officials, but by now you get the point.
How does this relate to the Banker, the Pharmacist and the Opioid Dealer you ask?
At one time, each community had three experienced bankers leading the local banks. Their personal net worths were tied to their banks and they ran a major business in the community with their banks. In short, the fortunes of the banks were tied lockstep with the community. The real local bankers had to understand all facets of lending, deposit taking, community sentiments and most importantly the credit character of the people to which they lent money and the long-term interests of the community.
Again, isn’t this a quaint memory of a bygone day? Although the community “representative” for the bank may wear jeans, and a sport coat instead of the business suit, the product (loans) he or she offers has not changed. A loan is a form of Credit. Credit is debt. Debt is Leverage. Leverage, if improperly granted or excessively provided, is pure poison. Through the ages excessive lending has wreaked havoc on more homes and families than the recent Opioid crisis.
Credit is like an opioid or any other pharmaceutical. If given in the right amount, it can be a wonder drug and help people achieve their dreams, run their daily business or maintain their daily lives. If too much is granted it will kill their business, their personal finances and cause havoc on their families or future plans. In this regard, a banker who lends money is like a pharmacist issuing prescription drugs. He or she must make decisions that if made correctly will help the patient, their family and inevitably the community. If made carelessly, they can kill the patient, ruin the family and destroy a community.
Like Walgreens and CVS, many big bank branches are run by employees who are degreed and presumably well trained. They are paid on a pay scale based on national averages. Some know their customers and others do not. They have a great many safety wheels, like CVS and Walgreens, to ensure they don’t over medicate their customers. In short, their job is just to follow the national or regional corporate manual as to how they should do their job. They are not trained as physicians to understand the patients, to look for side effects or to refuse issuing a prescription. They are not compensated to serve on local boards, or to be
involved in the community. Their salaries are not tied to the community, but rather the whims of out-of-city headquarter managers and CEOs whose primary focus is not the community but the Bank Holding Company’s stock exchange shareholders.
They may say they are local, in the same way Walgreens or CVS is local, i.e., they have employees in the community. I guess that makes them locally focused.
Many Big and Regional Bank Strategies have been based on the idea, buy a small rural or suburban bank, strip out all excess expenses, put in manual robot employees to take deposits, ship the deposits to whatever city the bank’s headquarters are in and let those executives decide where to allocate the credit. Naturally the Headquarter Community is the victor in such circumstances and the community losing its headquartered bank is the loser. Not different than when the knights of one feudal king lose the battle to another larger feudal king and then become serfs paying tribute to the new King.
The most corporate power, the most knowledgeable executives, the highest paid managers and the most contributions given by any Bank Holding Company will always be where the CEO lives and the Bank Holding Company is located. Again, like the Middle Ages, the King’s bedroom Castle will always be the best in the Kingdom and his best Knights will reside there.
This is not only true of banking but virtually all manufacturing, retail, or any other business. Perhaps this is why so many people are questioning capitalism.
Today, East and West Coast Headquartered private equity companies using mind numbing amounts of leverage are scooping up vast sectors of our economy. This includes retail, defense, construction, manufacturing, medical, hospitals, nursing homes, mobile homes parks, etc.
The Bank Regulators won’t let banks make many of these high leverage loans, so the banks loan to Private Equity companies to get around prudent bank lending regulations. Headquartered, in New York, the West Coast, or Dallas and Miami, the private equity borrowers do not put up personal guarantees. If their bets win and they are able to sell a highly leveraged subsidiary, they win big. If they lose, the lenders take the loss. If enough Big Banks take losses and get into trouble, the taxpayers step in to bail them out~ particularly if they have an army of well-paid lobbyists to assist in their request.
The big bank CEOs are not pharmacists lending money as if it is a dangerous opioid that must be carefully measured. Rather they lend as much as their banking analysts think they should lend, without crashing their stock. Neither the analysts nor the Big Bank CEOs have great track records when reviewed over the decades~ just check your wallet.
It has been said, sixty percent of all Wall Street professionals today do not remember the Market crash of 2008. They forget about the 2000s internet bubble, and good luck finding those who held a meaningful job during the 1987 market crash. Ignorance is bliss when walking a foolish path.
Call me naïve~ but wasn’t it better when the fortunes and focuses of the corner banks and their bankers were made by people who were inexorably tied to their communities? Sure, they took more methodical and longer-term approaches than those Big Bankers whose fortunes and focuses are tied to public stock analysts who measure success one quarter at a time, and really couldn’t care less about where and how the Bank Holding companies’ earnings are made and derived.
Like my aspirations for a Bi-partisan functionally working Congress with a long-term focus~ it may be a dream to wish the “experts” would admit the best approach to community banking would be to “go back to the future” and make banking community focused.
Yours on a constant community focus, and taking deposits and granting credit with the same long-term understanding and individual care of the neighborhood Pharmacist who lives among his or her patients.
In the interim, let’s enjoy this fine football season, the amazing foliage and the reinvigorating freshness of a crisp autumn morning breeze.
Dan Bolen ~ Chairman
Bank of Prairie Village
“The Bank of Prairie Village ~ Home of Blue Lion Banking” ~ cited March 2020, April 2021, April 2022, April 2023 and April 2024 by the by the Kansas City Business Journal as one of the “Safest Banks in Kansas City for Your Money.”
Small Batch Banking ~ Once Client at a Time.
