How To Sign Arkansas Banking Presentation

How to industry sign banking arkansas form computer

all right chapter three and the most exciting course you'll take at harvard university commercial all right how is the banking industry set up all right so what do banks do they supply credit okay they loan money to people and they provide payment services which is the transfer of money from party a to party b that's what a payment service is uh to businesses and to households that used to mean checks checking okay you'd go to a a retailer and you'd write a check and give it to the retailer to pay for what you were buying and the banks made sure that your money was moved from your checking account into the bank's account payment services okay now that's all done um online automatically uh with the debit cards and credit cards very few banks very few people use checks anymore okay so banking assets have become increasingly concentrated in the very largest firms and that's a good thing from the standpoint of efficiency but it is a bad thing from the standpoint of a bank knowing who you are banks have gotten bigger and bigger and less and less personal okay and also it's a bad thing for capitalism because there's less competition and less competition means more oligopoly and more oligopoly means that ferns can push you around competition keeps businesses honest okay and it keeps businesses uh productive all right and it's also a bad thing from a capitalism standpoint because you become too big to fail if your bank is too big if your bank fails it will decimate the entire economy and so getting too large is a real problem it's a problem all right just three banks citigroup jp morgan and bank of america hold 48 of total industry assets three banks have 50 percent of the total amount of money held in the banking industry and we know that the banking industry holds like 25 of all the worth all the value of americans so that is a whole lot in three companies there are a lot of small banks in the united states we see them here in cersei okay and the smallest banks make up 37 percent of the total number of banks banking companies okay 37 percent of banking companies okay but only one percent of total assets so there are a lot of small community banks around and they're important because they loan to people in the community they're more focused on economic development in your community than the big banks are okay all right so here's a look-see at the assets held by the banks so medium-sized banks about nine percent and uh the small banks of around one percent and the big banks um of 89 so that's of course the big banks here the money center banks that's that's a bigger group than than just three but the big money center banks completely dominate the industry in terms of the deposits they the assets all right so here's the number of banking companies out there okay so the medium-sized banks like the region's banks and simmons bank about 56 percent of the banking world in terms of the number of companies and then the largest banks about eight percent in terms of the companies that are out there and then the smaller banks which would be like a first security um about 37 okay so the smaller banks hold much have one percent of the assets and 37 of the banks out there that's that's a pretty disproportionate now first security is um a smaller bank in terms of the number of branches they have and it's just one company but it's it's a pretty large operation but it's only in arkansas that and that is by choice they could have gone the route of simmons bank which was and simmons bank used to be an arkansas bank and now they're a regional bank what do they do they're publicly traded and they started issuing stock and buying other banking companies in other states to grow and renee rutledge that who owns first security banks said no i don't want to do that i'm not interested in doing that i want to grow my bank in arkansas and just stay on himself and he lives in cersei and i see him every afternoon every time i've ever gone out of cersei country club he's out there playing golf at six o'clock in the afternoon but he's also in his office every morning at six o'clock in the morning even though he's a billionaire he's still at his office every morning at six and five all right he's got three sons that are um stepping in and moving up in the back they're gonna take back over all right so so what you can see on on the left is back in 91 the market share of mid and small banks compared to the large banks and then over here on the far right you can see how the bank the large the assets that large banks have continued to grow and the assets the small banks have lost a lot of market share to the big banks okay so that's what's happening in the industry all right so there's a lot of discrepancy and the way a bank how much how large a bank is affects how the bank is organized and what kind of services they offer okay so we're going to take a look at what a typical money center bank looks like and what a typical community bank looks like okay so we have the money center bank the national bank regional bank and community banks okay and so banks start here and they used to grow internally but now the regional banks by the community banks or the community banks merge so that they become regional banks and then the regional banks merge or the national banks buy them so that they can become national banks and then they become national banks and they are purchased by money center banks okay a lot of consolidation and when when these guys come in and buy the community banks okay then new community banks are formed to fill the void left because regions bank used to be it started off being first national bank and then community national bank and first national bank and community national bank merged and they became first commercial bank and then first commercial bank was purchased by regents bank which is now a regional bank and if you want to get a loan at regents bank that decision is made in birmingham okay if you want to get a loan a reasonably sized loan at simmons bank it's made by rhys jones here in uh cersei okay but at some point that's going to be taken away from him and the people wherever their headquarters is going to be right now it's in little rock they're going to make the decision and um so so the banks realize when they become regional they they no longer serve the community as well as they used to and people in the community get together and they form their own community bank which then grows which is then purchased again by the regional banks and that's what happens over and over it's a cycle and i know of people that have started banks and in arkansas the law says that if you start a bank if we give you a bank charge you can't sell your bank stock for five years i can't tell you how many times on the first day of the sixth year the bank assault and that was the plan all along to start the bank to build a bank so that you can then sell the bank and maybe even do it again that's how back of the ozarks started all right so the money center banks are the larger banks and they have some important advantages over the community banks right all right first they are diversified they're diversified across economies they're diversified geographically like i said the other day when we were talking about the federal reserve you've got 12 districts and each area each district has a very different looking economy and banks are dependent on economic activity in their area if the economy in their area is strong banks will be prosperous and successful but if the economy turns down the the bank's business is going to turn down so if you can if you can spread out geographically then you can lower dampen the volatility and your exposure to one geography you do is mortgage lending and the mortgage market in your area slows down you're in trouble so if you also sell insurance you might be able to increase your life insurance business at a time when your mortgage business is slow it stabilizes it's safer all right so you withstand the risk of that fluctuating economy in your area when you can diversify all right the bigger companies are able to raise more capital okay people feel more comfortable buying bonds in stock from larger stronger organizations okay it's kind of like nick saban you know once you go to the playoffs one time the college football playoffs one time kind of like dabo sweeney all of a sudden all the top prospects want to go to that school nick walks in and says we're gonna you know we're gonna go 11 and up and we're go to national championship and you're the best tight end in the country and we want you so you can go to my album or you can go to south carolina good luck with that okay you're gonna go three and eight every year all right or you can come to alabama and you can be wearing that national championship ring and by the way we're going to have the best quarterback in college football who's going to throw the football to you and by the way i used to coach in the nfl and i know a lot of nfl folks your chances of going to the league are going to skyrocket if you go with me so it's self-fulfilling it's so fulfilling i went to south carolina and our big rival clemson they're two hours up the road and i couldn't believe i and i've seen this and read this the number of students who are not athletes who want to go to clemson because clemson has won a national championship people are basing their college choice your college decision on the fact that a school has a good football team really i think that's nuts all right so you can raise a lot of cap self fulfillment all right you man you've got a lot of money to spend big numbers you can go out there and hire the best people is so fulfilling okay now those are people that want to live in those areas by the way i don't who's been in new york city okay who wants to live in new york city go ahead court you can raise your hand if you want i've been in new york city several times when i was in your seat actually in graduate school i had a dream my dream was to be an analyst at a wall street firm that's what i want to do i wasn't well connected i went to university of south carolina i didn't go to a top five school and i'd get i wasn't able to get a job on wall street i got a job at a regional firm in little rock and within the first three months they sent me up there for a week man that to about two days was enough for me when i visited those people in their crowded offices with files from the floor to the ceiling and they were getting in their offices at six o'clock in the morning and we're going home at midnight i've i said god thank you for keeping me out of this you know if you've ridden the subway the first time it's kind of cool and after that it's kind of creepy when you're body to body with people like you know and it's it i don't know it's a great place to visit all those all those bigger cities perhaps they offer so much there's so many things you can do it's incredible that how much they offer but it's that where you want to live every day and raise your family and it can be done and you don't have to live in the city you know that you go out an hour or two and it's gorgeous beautiful anybody been to philadelphia philadelphia outside of philadelphia it oh valley forge and all those areas it's green it's oh it's it's fantastic it's beautiful every bit of spring is probably prettier in arkansas so you don't have to live in the city but you're going to have to commute and it's really really expensive and i don't know man all right so their size enables them to spread the cost of doing business so what does that mean okay that means that the cost of compliance which is a huge cost the cost of your computer systems the cost of your employees they are smaller as a percentage of your revenues you can spread the cost of business over larger revenues and you can make a higher profit margin that's what that means sorry there you go there you go economies of scale that's what economies of scale are improving your margin by spreading your costs over more unit sales okay now your fixed costs are higher okay on an absolute basis but as a percentage of your revenue they're much smaller so if you have to make an investment in computer systems if you have to give people raises if you have to hire more people to do compliance it doesn't bother you but when you're a smaller firm okay and new regulations come into play it could put you out of business but it won't do that for a larger firm all right so these are the typical departments at a money center bank and let's look at some things that are kind of unique okay how about portfolio management wealth management this is not done at smaller banks okay how about making markets and stocks and bonds you've got to have a lot of capital to do that and you have to be able to attract top talent to do that smaller banks don't do that okay international banking you know i don't think simmons gets involved with international banking i don't think you can do international banking at first gear i don't think you can do it in regions you got to go to little rock and go to bank of america all right commercial credit that is loaning to businesses and i'm not talking about 50 000 i'm talking about a billion or 2 billion or 5 billion you go to first security with a great plan let's say you got a big business and you want to and you want to make an acquisition you say i need a billion dollars of financing not from them you got to go to a money center back for that all right they're involved in big commercial real estate owning it and operating it and lending to it okay how about credit debit cards the biggest issuers of credit cards and debit cards are money center backs okay the the computer system that you have to have to to manage this process is huge very expensive now there are firms out there that provide that service to the banks that's a good thing all right now let's look at the community banks very few layers of between top management and the staff okay they're not nearly as bureaucratic which means they can make decisions and change their strategies very quickly okay so i think i mentioned to you ford versus ferrari did we talk about that and that's what i'm talking about the guy goes in and he's waiting for mr ford and he sees a a folder changing hands four times before it makes it to miss before and he says i bet that folder changed hands more than four times i bet that folder changed hands probably 30 or 40 times before it finally made it to you you can't get anything done it takes so long to get something done at these big bureaucratic companies okay so the community banks are very affected by the local market all right so um the the two biggest employers now left in cersei are harding and the hospital and that used to not be the case man not too long ago we had some big employers uh insurgency a lot of manufacturing happened in cersei we had a kohler plan where where um uh fellowship bible is going in that was a huge color plant what does kohler make they make bathroom fixtures okay we had whirlpool whirlpool makes washers and dryers we had itt they make they make communications equipment oh man who else we've lost tons of big business and they've gone outside the country okay lower costs so the banks the local banks have been hurt also what's what's another area where the banks loan a lot of money into in arkansas agriculture agriculture okay all right regulatory changes if you don't have a lot of revenue and you have to hire somebody at 150 000 a year to do compliance okay or a staff to do compliance it's really going to hit your income statement hard okay so compliance tends to cost more as percentage revenues so the small firms complain every time there are rule changes what they say is these rule changes hurt us a whole lot more than they hurt the big boys and they're right and there is an association of community banks all right and they lobby washington they actually compete against the money center banks they say don't make us follow the same rules the money center banks have to follow so the rule of thumb is when a bank hits 10 billion dollars that's when there's a big jump in compliance costs so you grow as fast as you can to get to 10 billion you stop just short of 10 billion and onc you're ready to grow over 10 billion you've got to get to 11 12 13 billion really fast otherwise your profit margins get hit hard because of compliance how large you are determines what your compliance is going to be okay all right so you can see that the number of community banks really got hit hard okay really got hit hard a lot of consolidation and it had to do with compliance and the services that were offered and the ability to compete oops i'm sorry all right so this is what a typical community bank looks like okay so you got your commercial loan officers and they're going to be loaning money to small and mid-sized businesses they're not making billion-dollar loans and they're not making million dollar loans okay they're making fifty thousand dollar loans and a hundred thousand dollar loans then you got the consumer loan offices and who are they lending to mortgages people who want to buy houses cars boats education okay so you got your business lenders and your consumer lenders and i'll bet you at most community banks it's the same people okay you're you're a lender and you're gonna loan to a business and you're gonna loan to the guy who comes and says i wanna buy a car okay then you have the business functions that every business has to have your accounting and so forth and your marketing and your tellers who are the the main contact that people have with the bank okay and they also happen to be the lowest paid people at the bank all right marketing advertising all right okay so let's go over slide