Wisconsin’s banking industry has turned a corner. In the wake of a years-long economic recession, banks are now well into recovery, and that is good for Wisconsin consumers. As a key driver of economic growth, Wisconsin’s banking industry is uniquely positioned to keep the state moving forward and help businesses grow and families prosper.
Despite significant headwinds (such as the prolonged low interest rate environment and relentless regulatory pressure), Wisconsin banks increased their lending to businesses and consumers over the past year. In the third quarter of 2014, banks saw a robust 14 percent increase in commercial lending over the third quarter of 2013. That growth is just one of many examples of how Wisconsin’s banking industry supports the growth of businesses throughout the state. It also indicates that business confidence in the economy is returning, albeit gradually.
Wisconsin banks also reported consumer lending growth over the previous year, though at a slower pace than commercial lending as wages remain stagnant nationwide. According to the latest data from the Federal Deposit Insurance Corp., real estate loans, net loans and leases and total deposits all grew from the third quarter of 2013 to 2014. All of these reports point to a continued slow, but steady, economic recovery for Wisconsin’s businesses and consumers.
Another factor that will affect Wisconsin’s banking industry this year is heightened customer expectations, especially in the areas of technology and customer service. Banks are investing a significant amount of money into their technology products, but competing with the retail giants that have entered the financial services market, like Walmart and Apple, is a tall order. Bluebird, ApplePay and similar mobile banking and point-of-sale transaction products are more than “bells and whistles” to a growing number of consumers. In fact, 51 percent of U.S. consumers who own a smartphone report using mobile banking in the past year.
In addition to the significant cost of keeping up with technology demands, compliance costs continue to go up for banks nationwide. In the past few years, regulatory burden has grown exponentially, and it shows no signs of returning to a neutral level anytime soon. New mortgage regulations from the Consumer Financial Protection Bureau and the heightened Basel III capital requirements are just two examples of the ongoing struggle to stay in compliance that Wisconsin’s banks face.
Driven by this wide variety of factors, I expect bank consolidation will continue at the same pace in the upcoming year. We have seen an increase in merger and acquisition activity in the past few years, and that will continue. The full impact of that activity remains to be seen, but I expect that the shape of the state banking industry, and perhaps nationally as well, will change. We will see fewer small banks as some of those institutions join together to continue serving their local communities in order to stay profitable in a tough environment.
Even though industry consolidation will continue and compliance will remain a top concern, I am confident that the combined economic strength of Wisconsin’s diverse banking industry will continue to serve our state’s growing economy well.
Rose Oswald Poels is the president and chief executive officer of the Wisconsin Bankers Association.