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Showing papers in "ABA Banking Journal in 2008"


Journal Article

26 citations


Journal Article
TL;DR: The Net Promoter Score (NPS) as mentioned in this paper was developed by Fred Reichheld, founder of Bain's Loyalty Practice and the NPS Loyalty Forum, a community of practitioners.
Abstract: [ILLUSTRATION OMITTED] Customer engagement is one of those seemingly squishy marketing concepts grown out of the social internet phenomena and Web 2.0, which has surprising precision and heft once you spend some time with it. In webland, the client who is engaged interacts with your site often and buys what you have to sell there; he or she may be opinionated and free to offer personal views, blog on the industry you serve, or otherwise spend quality personal time thinking about your company. In this sense, engagement is measured by metrics like click-through rate, duration of visit, and percentage of repeat visits. In broader terms, the engaged customer is a pleased customer. (Although definitions differ on this, the engaged customer, according to Gallup, has an emotional attachment to the brand and generally incorporates it into his or her self concept.) He or she becomes a regular--and possibly an advocate. Net promoter score examined A loud and proud metric in this broader field of engagement analysis is the Net Promoter Score, which was developed by Fred Reichheld, founder of Bain's Loyalty Practice and the NPS Loyalty Forum, a community of practitioners. Reichheld, who spoke at the recent Forrester Financial Services Forum in New York, offered a simple explanation of the score. "What we found was that the Golden Rule applied to business," he said. "'Treat people the way you want to be treated' is not only an ethical way to operate, it can yield a payoff." Customers who perceive that value in the product was enhanced by fair treatment and good service buy more. When a bank combines NPS information on loyalty with information on customer profitability and other segment data, according to Reichheld, the bank can glean insight about what's working and what isn't, supporting necessary strategic shifts. The score also lets a bank leverage its customer service and retail delivery spend to boost profits. Important to banks Having engaged and loyal customers is important to banks, which face a tough economy and, according to Forrester Research, have received the lowest Customer Advocacy Rankings in the five years that the firm began looking at it. "The subprime mortgage crisis and a sagging stock market has consumers feeling less confident about their financial position," says Bill Doyle, vice-president and principal analyst at Forrester Research. Banks that continue with status quo operations and a product focus will remain on shaky ground. But, as bankers realize, even when the grass was greener and accounts had more green, many consumers were said to view retail banks as typically interchangeable and serving up of commodity fare. Leaders in the field--Wells Fargo and Wachovia come to mind--have gradually reworked operations to better enable awareness of the customer's perspective, in part, admittedly to make their cross-sales campaigns work. Yet, both have pushed to improve service issues via better channel integration, and generally, more consistent customer experiences across the channels. In short, these and other leaders have tried to "be all they can be" for consumers, but loyalty isn't easy to come by. And perhaps this is why there is more attention being paid to measuring non-financial feedback from customers: those who manage to get it right--the process and the loyalty--will have something. "Measuring factors like loyalty, customer engagement, and customer satisfaction is becoming a popular idea," says John McHugh, a New York-based managing partner, Financial Services CRM practice with Accenture. "You're beginning to see more dashboards being developed to, in effect, link customer service insights to other measures," he says. Banks, he explains have long known that happy customers are important to success, but only now is the industry in the first wave of formalizing how this intuitive truth translates into harder measures of success. …

12 citations


Journal Article
TL;DR: For example, according to the National Federation of Independent Business, only 6% of small businesses reported problems in obtaining the financing they desired Borrowers are also being more careful, and the overall demand for loans is declining, although this varies by market.
Abstract: One of the trickiest things about evaluating the TARP capital investment program has been sorting out the politics from the economics No better case in point exists than the issue of making loans with the proceeds of Treasury's TARP investments Playing to Main Street, members of Congress in hearings and elsewhere have chastised Treasury officials and the banking industry for not making loans, or enough loans, with TARP funds This was going on even when only a handful of institutions had received any TARP funds at all "Get with the lending" On one hand, Treasury has stressed the importance of the investments from the viewpoint of getting lending going, to help stimulate the economy "We have seen that capital purchases are clearly powerful in terms of impact per dollar of investment, which is a major advantage under the current circumstances," testified Treasury Secretary Henry Paulson in mid-November "More capital enables banks to take losses as they write down or sell troubled assets And stronger capitalization is also essential to increasing lending which, although difficult to achieve during times like this, is essential to economic recovery" Indeed, at an industry conference, Neel Kashkari, Interim Assistant Secretary of the Treasury for Financial Stability, refuted those who claimed that banks receiving TARP money wouldn't put it to use "A bank's return on capital will decrease if it simply hoards the capital," said Kashkari He said he expected shareholders, over time, to insist on the deployment of capital Lending amidst mixed signals And there is plenty of evidence that lending has been going on, on Main Street and elsewhere "Banks are lending," ABA President and CEO Edward L Yingling testified in mid-November "In fact, many banks have said they are seeing borrowers that used to rely on nonbank financing or Wall Street coming to their doors This would be expected with the severe problems in credit markets, including securitization Thus, many of the stories about the lack of credit are due to the weakness of nonbank tenders" Yingling added this caveat: "Naturally, banks are following prudent underwriting standards to avoid tosses in the future But even with more careful underwriting, only 6% of small businesses reported problems in obtaining the financing they desired Borrowers are also being more careful, and the overall demand for loans is declining, although this varies by market" (That 6% figure comes from an October National Federation of Independent Business survey) What has concerned ABA are reports from banks that examiners have said that their capital ratios should be increased above current regulatory requirements "While that may be appropriate in individual circumstances, a general move in that direction will negate the [TARP] CPP program," Yingling testified …

4 citations


Journal Article
TL;DR: The ABA Banking Journal on its 100th anniversary asked experts to weigh in on which innovations have changed the backbone of bank operations over time as discussed by the authors, including ERMA, MICR and ATM.
Abstract: Surrounded by PCs and personal electronic devices of all sorts, many of us are blase about automation Yet ABA Banking Journal, on our 100th anniversary, would like to look at a time when computers were exotic contraptions, at first as big as houses, and not yet the backbone of bank operations We asked for experts to weigh in on which innovations mattered most over time 1 ERMA The first core processor: Despite rising check volumes, even after World War II banks still handled each customer-facing function, from account opening to check processing, with pen, paper-based ledger systems, and elbow grease Robert Hunt, a senior analyst and research director for retail banking practice at TowerGroup, Needham, Mass, who in 1960 worked at a New Jersey bank, said that blind bank drafts were common and a teller would phone a back office bookkeeper to confirm account numbers Memo posting was also a manual, card-punch-based process At day's end, cards indicating account activity would be sent to clerks, who would check results against funds available "This was where the term 'memo post' came from," says Hunt Still, a quiet revolution was brewing Bank of America was working with Stanford and General Electric on what would be the first core processor: ERMA, or Electronic Recording Method of Accounting system, which was an automated approach to bookkeeping and proofing "Banks could not have kept pace without ERMA and later models like the IBM 1401," says Hunt "The back office for checks was created with ERMA" 2 MICR When a check is more than paper: By the mid-1950s, when the post-war US economy needed cash alternatives, ABA realized that manual handling and sorting of checks had to supplanted by streamlined means In 1956, Stanford Research Institute studied what is now known as Magnetic Ink Character Recognition--essentially, toners mixed with iron oxide allowing machines to pick up the data printed on the check [ILLUSTRATION OMITTED] SRI, Bank of America, and General Electric led efforts to build the technology ABA pushed for this first, critical wave of check modernization, in part, by assigning the development of font and printer trials to the Battelle Memorial Institute, which ultimately resulted in use of the E-13B font and the adoption of other important standards, according to Lyn Askin, in "MICR Toner-The Development of Checks Created the Demand for MICR Toner" [ILLUSTRATION OMITTED] By the 1960s, MICR's wide use shortened the clearing cycle considerably MICR-related systems routinely improved "MICR and use of the IBM 3890 reader/ sorters, and related technologies, let banks process checks in a timely way," says Andrew Dresner, director, Retail and Business Banking & Strategic IT Practices, Mercer Oliver Wyman, in New York [ILLUSTRATION OMITTED] 3 ATM A bank doesn't need a teller or four walls: The stalwart and now ubiquitous Automated Teller Machine was first installed by Chemical Bank in Rockville Center, NY, in 1969, according to the Columbia Electronic Encyclopedia There were other really early deployments--and the device took a while to catch on Yet, ATMs ultimately changed banking permanently by breaking the convention that transactions depended on tellers, branches, and banker hours, notes Emmett Higdon, senior analyst, eBusiness and Channel Strategy, Forrester, Cambridge, Mass "As ATMs gained traction, they let customers bank when it was convenient This happened at a time when the country saw broader spread of "bedroom communities," says Higdon, adding: "ATM deployment was the first big step in banks beginning to operate in a more accessible and consumer-friendly way" Stessa Cohen, research director, Gartner Stamford, Conn, points out that the dramatic rise ATM deployment in the 1970s also occurred when greater number female wage earners came into the work force …

4 citations


Journal Article
TL;DR: The Slade's Ferry Trust Co. as mentioned in this paper was acquired by Independent Bank Corp., parent of Rockland Trust Co., in 2007, and the deal was announced October 2007 and went live March 2008.
Abstract: Mary Lynn Lenz and her board faced a bittersweet choice. Lenz had arrived at 48-year-old Slade's Ferry Trust Co. five years earlier, from a large-bank background, and she had enjoyed the challenge of building up the Somerset, Mass., lender. Slade's Ferry, publicly traded, had grown to $605 million-assets with decent profitability. But she and the directors, strong believers in strategic planning, had come to a tough three-pronged fork in the road. Steady-as-you-go wouldn't work. Projections indicated that the sheer number of competitors would make the costs of growing by even 5% "astronomical," says Lenz. Yet pulling back and maximizing profits on the book of business the bank already had wasn't too appealing, either. "It wasn't really a good marketing strategy," says Lenz. "Once you pull back, it's very difficult later on to push back in." That left the M&A route, with two prongs of its own: buying and selling. Only a handful of Massachusetts institutions would have made suitable targets, and none looked likely enough to bank on. For the sake of shareholder value, board and banker agreed, it was time to test the waters for sale, and the bank reached out to four prospective purchasers. In the end, Independent Bank Corp., parent of Rockland Trust Co., submitted the winning bid. The deal was announced October 2007 and went live March 2008. "The timing was perfect," says Lenz, "because it was done before the market got tough." Lenz notes that the NASDAQ peer group for Slade's Ferry Bancorp had declined approximately 20% in the course of the deal. Had the bank remained independent, says Lenz, the company by now would have been trading below its book value. Stuck in no man's land Many boards entertaining similar discussions as those at the Slade's Ferry board can't currently do such a deal--they missed the boat. (We'll talk about how to get ready for the next round later.) The desire is there, for certain. "The $400 million-to-$1 billion category is 'no man's land'," says Don Musso, FinPro, Inc., Liberty Corner, N.J. Below $400 million, he says, a bank can play the local relationship card quite happily, and above $1 billion, it can enjoy some economies of scale. In between, the company is neither one nor the other, and suffers the ailments of the extremes, according to Musso. However, thus far M&A volume for 2008 remains significantly off the pace for 2007. In the first quarter, only 42 bank and thrift deals were announced, versus 86 in the first quarter of 2007. "Timing is everything," says John M. Eggemeyer III, a noted bank investor and "rollup" artist. Eggemeyer's Rancho Santa Fe, Calif., merchant banking firm, Castle Creek Capital, made a name for acquiring groups of banks into merged operations that could be later sold at a handsome profit. (See "Patient Capitalist," ABA BJ, July 2006.) However, Eggemeyer has kept to the sidelines for about a year and a half. "We saw the economy softening," he says, adding that even then, the way things have turned out defied his crystal ball. The speed and depth of deterioration have made both buyers and sellers hold back. "Sellers haven't adjusted their thinking to the reality of the economic situation that we're in right now," says Eggemeyer. As a result, there is a "disconnect," he says, between what institutions are worth to buyers, and what their current managers, directors, and owners think they ought to be worth. In addition, Eggemeyer points out, many potential buyers hesitate to buy right now, given the potential for paying to own someone else's problems. Many bank managers are busy trying to deal with their own portfolios. "We are in the slowest merger market since 1990," says Walter G. Moeling, IV, co-chair of the financial institutions group at Powell Goldstein LLP, Atlanta, Ga. "The few deals that are being done are very specific. …

3 citations


Journal Article
TL;DR: In this paper, the authors identify the characteristics that separate winners and losers under the proposed Standardized Basel II in the U.S. and propose a new risk-weighting scheme for the first time.
Abstract: [ILLUSTRATION OMITTED] Bankers could be forgiven if they had a few misconceptions about the new Basel capital rules. Even calling them "new" seems odd considering they have been in development for almost a decade with various versions being proposed, then withdrawn or reworked. Many small and midsize banks also have been alarmed by the prospects of being at a competitive disadvantage to the largest banks that will use the full-scale Advanced approach of the new Basel rules. But as the long-running Basel saga nears its climax, these smaller banks may in fact have reason to cheer, as we explain in this article. First, a little background for those who haven't kept up with the Basel progression. The two flavors of Basel II The Basel II Accord represents the efforts of global bank regulators to update bank capital regulation and better capture true risk exposure. Basel II identifies three core principles or "pillars" of sound capital regulation. Pillar One establishes minimum capital requirements with more complex and risk-sensitive risk-weights than the current regime has, and also includes a new capital requirement for operational risk. Pillar Two enhances the role of supervisory oversight in setting capital standards. U.S. banks are well-accustomed to supervisory oversight in all areas of operation, but Basel II extends this relationship and requires a formal demonstration of risk management and capital adequacy. Pillar Three requires heightened disclosures that allow the market to better judge capital adequacy. Together, the three pillars of Basel II represent regulators' best attempt at judging and managing bank capital in a world of increasing complexity. Two distinct flavors of Basel II are available in the U.S. The Advanced version, with its complex formulae and burdensome risk architecture demands, has garnered press and industry attention, but the vast majority of compliant U.S. institutions will ultimately adopt the simpler Standardized approach. The Advanced approach is mandatory for the largest dozen or so banks, while the Standardized approach is voluntary-banks and thrifts have the option of continuing to use the current rules (Basel I). Based on our analysis, adopting the Standardized rules could make sense for many institutions. On June 26, the four federal bank regulatory agencies released a Notice of Proposed Rulemaking (NPR) that anticipates the application of Standardized Basel II in the U.S. The proposed Standardized rule is detailed in the NPR; regulators will issue a final rule early next year, after digesting public comment on this interim document. NPR rules are subject to change, but they convey clear regulatory intent and are typically enshrined in the final rule with only minor modification. We estimate that half of the 7,500 banks and thrifts in the U.S. will see regulatory capital savings of at least 4.5% by adopting the Standardized approach, and a quarter will save at least 8.6%. However, 22% will not see any capital benefit. The remainder of this article identifies the characteristics that separate winners and losers under this regulation. Lower risk weights for many assets Pillar One of the proposed Standardized rule establishes a slightly revised means of calculating the Tier 1 and Total risk-based capital ratios. Table One compares the current and proposed Standardized risk-weights for a variety of exposures. The preponderance of assets held by most U.S. institutions--first and second lien mortgages, consumer loans, and small-ticket commercial and industrial and commercial real estate loans--have lower risk-weights under Standardized Basel II. Delinquent assets, short-maturity commitments, and ABCP (asset-backed commercial paper) liquidity facilities are among the few asset classes that require more regulatory capital under Basel II. For example, the 20% risk-weight currently drawn by FHA and VA mortgage loans are not risk-weighted under Standardized. …

3 citations


Journal Article
TL;DR: In this article, the authors discuss the benefits of telepresence in the context of high-end video conferencing systems, including the ability to meet more with a certain type of highly valued customer or partner.
Abstract: [ILLUSTRATION OMITTED] When remote communication with image was purely out video conferencing, executives had to contend with herky jerky images, color issues, sound delays, and other annoying irregularities. No longer. If you don't mind a hefty investment and a dedicated conference line for bandwidth, you can benefit from a new generation of video conferencing known as telepresence--available over the last year and starting to get wider use. "It's not cheap, averaging $300,000 for a conference-ready room for the highest-end systems," says Claire Schooley, senior industry analyst, Forrester, who is based in their Foster City, Calif., office. "But if we are talking about conducting high stakes meetings where reading the subtleties of body language is a requirement, then these systems are ideal," says Schooley. Calling telepresence wares from Cisco, Hewlett-Packard, Teliris, and Polycom "the Cadillac[s] of Videoconferencing" in a research note she co-authored last year, Schooley says that the expensive approach to virtual meets can make sense for a certain market: namely multinational corporations, corporations with many third-party service providers, particularly those in remote geographic locations, and, those who want to meet more with a certain type of highly valued customer or partner. More recently, Schooley adds, tier-two telepresence units that don't include the build out of a conference-ready room--one with ideal lighting and color palettes--but merely install high definition, immersive, full-aspect-ratio systems into an existing conference room, have been introduced at a slightly lower price point. And the name? "The name describes the lifelike images and sound quality that these units deliver," Schooley says. Moreover, it's what the technology isn't--an intrusion on a person-to-person meeting experience--that's key to these system's appeal, says Howard Lichtman, president of the Human Productivity Lab, a consultancy specializing in visual collaboration, video conferencing, and telepresence systems. "Previous systems didn't support a true experience of meeting a person," says Lichtman. "This shows off fluid image presentation, natural flesh tones and colors, and has sound coming from the direction of the person doing the talking." The brain, he explains, can be fooled into ignoring distance if certain visual cues look correct enough. But if anything is too off and they are, in Lichtman's words, "talking to a doll-sized image and talking into a camera on a dessert cart," a less-than-productive meeting can, and often does, result. "Not to mention that these [older] systems have been difficult to set up and get a conference in session," Lichtman adds. For these and other performance reasons, he notes, standard video conferencing never became the workhorse that it should have, nor did executives seeking a return on investment argument on behalf of video conferencing and collaborative technologies present it in terms of travel replacement. But get the human factors right, says Lichtman, and you have a real shot at video conferencing finally going the distance. "These systems can help cement relationships without the wear and tear of travel," he says. Wachovia's experience Manuel Basurto agrees. The telepresence and video conferencing product manager at Wachovia describes his bank as a "Cisco shop," that opted to complete its IP telephony package with the vendor's TelePresence unit. "We went into pilot with three locations last January," he says. Using TelePresence for a wide range of internal meetings from HR conducting candidate interviews to executives engaged in IT project planning, the units have been heavily used since June, when the official rollout was completed. "The pilot focused on post-merger work with AG Edwards," Basurto says. "We cut back on travel related to getting them onboarded. …

2 citations


Journal Article
TL;DR: The ABA's America's Community Bankers Council as discussed by the authors discussed the challenges of dealing with a range of age groups, including Gen X, Gen Y, Millennials, or whatever the latest demographic group is.
Abstract: [ILLUSTRATION OMITTED] By now, if you haven't been confronted by the views of some expert on stage or in print on the "special needs" of Gen X, Gen Y, Millennials, or whatever the latest demographic group is, your banking work hasn't been letting you get out much. But the thing that many of the experts don't acknowledge is that real bankers aren't dealing with any one generation. Instead, they frequently deal not only with a range of age groups, but a range of corporate-culture viewpoints, as well. Case in point: Pat Glotzbach's New Washington State Bank, in Indiana. "We have two sets of employees," says Glotzbach, one of eight members of the America's Community Bankers Council who met with ABA Banking Journal. "The first group is those who have been with the bank for 20 to 25 years, or even longer. Historically, these employees were hired to do specific jobs. Generally, they are very challenged when it comes to offering products and selling." Glotzbach appreciates the skills that these employees have, but recognizes that the world's been changing. "Over the last five years," he continues, "we've made a significant effort to hire sales people, attractive men and women who can meet the public well, who are at ease talking to the public not only at their desks but also in the lobby. And we've made a significant effort to hire people who have degrees, or who are working toward a degree." As a result, Glotzbach manages two workforces, each with different needs, expectations, and ways of operating. The older group do their jobs, don't ask many questions, and "kind of go on with life," the banker says. The newer employees hold out the promise of greater production of sales-but not without management. "You can't handle them the same way," says Glotzbach. "They want structure. They want to know what their job is. They want to know how they are going to be measured. They want to be measured, whereas the older employees, they really don't want to be measured." [ILLUSTRATION OMITTED] The newer hires "require more attention," says Glotzbach. "They like to be praised," he explains. "'Good job on that referral', 'Gosh, you did a great job on that such and such', that kind of thing. They also want your to sit with them and explain your company's benefits." In fact, Glotzbach says the need to interact more with newer employees has led the bank to hire a full-time human resources officer, who handles much of the one-on-one. Further, he has found that the newer employees not only come aboard with more education, but want more training than traditional employees did. So the bank has also hired a training expert. Glotzbach says that a new philosophy in hiring has also emerged from all this. Bringing people on board used to be a matter of matching candidates' skill sets and experience to present bank openings. "But today, for us to be successful as community bankers, says Glotzbach, "we can't just hire people for what they can do today. We've got to hire them for what they can do in the future." People you thought you understood The issues that Glotzbach faces with newer employees were seen by other bankers on the panel. But what complicates things is that some bankers face new challenges even with their more seasoned, more experienced pool of employees. Take the experience of George Marx, at Copiah Bank, N.A., Hazlehurst, Miss. The bank has opened three new offices in the last four years, which has required hiring many new employees. (Cont'd.) About 60% of the bank's workforce has been there for more than 25 years, and Marx said he felt considerable "culture shock" when hiring the loan officers and managers for the branches. The shock had to do with expected salaries-his expectations versus theirs. His top pick for one market, a high-growth area, "was already making 30% more than any officer in my bank, except me," he says. …

2 citations


Journal Article
TL;DR: The report concludes that each enterprise wil have to manage and govern the explosion of digital information in its own rapidly changing environment, and cites Web 2.0 as part of the solution, not the problem.
Abstract: A strophysicists say the Big Bang was the explosion of a tiny packet of energy that expanded to become our whole universe. Now a research team at International Data Corporation (IDC) tells us that our digital universe is already huge and is expanding at Big-Bang velocity. That velocity can't be stopped or even slowed; but it can be managed. That will be the vital task of not only IT folk, but of every part of every organization, IDC says. The study, The diverse and exploding digital universe, was sponsored by EMC, a global provider of information infrastructure systems and services. Some vital statistics: The digital universe is the total number of "bits" (1s or 0s) created, captured, and replicated throughout the world by all the servers, computer hard drives, data storage units, e-mails, and yes, radio frequency (RFID) tags--plus those greatest of all digital gluttons: images from digital cameras, cell phones, surveillance cameras, peer-to-peer video sharing, DVDs, medical imaging, and on and on. To all those bits, add what IDC calls digital "shadows," including web search histories, financial transaction journals, and mailing lists. Then add in back-office digitizing. IDC computed that in 2007 the global digital universe was composed of some 281 billion billion bytes (each with eight bits) of digital information. That's more than all the stars in the known universe. It's 10% more than IDC calculated for 2006. In 2011 the digital universe will be ten times the size it was in 2006. At this point, an already-overworked IT manager might rise and object that she's not responsible for managing all the bits stored in PC hard drives and digital cameras. True. Each enterprise is only responsible for managing its own digital environment. However, IDC found that, white individuals create some 70% of the digital universe, enterprises are responsible for the security, privacy, reliability, and compliance of 85%. What to make of these dazzling stats? Are they another "inconvenient truth"? A precious, limited resource like oil? Might the fallout from the digital big bang choke the internet just as Web 2.0 is moving everything onto it? The IDC report cites Web 2.0 as part of the solution, not the problem. So, could the big bang be a good thing, considering the alternative? Consider: until recently we've been living in an information society whose transactions were recorded in ink on paper and shipped hither and yon by trucks, trains, and airplanes. In the digital society, those transactions are created and managed as variations in the structures of atoms and sent around the world instantly at about the cost of a local phone call. The new way is surety more efficient. IDC doesn't discuss the possibility of clogging the internet, but it accepts the benign view that more digitizing is a good thing. The report concludes that each enterprise wil have to manage and govern the explosion of digital information in its own rapidly changing environment. On the question of social efficiency, IDC calculates the amount that various industries spend on digital information and compares those numbers to each industry's contribution to global economic output. In these terms, the financial services industry looks pretty good. It handles secure, sensitive transactions involving trillions of dollars a day--equal to the world's annual gross economic output. Financial services use 6% of the digital universe to produce 6% of the global economic product. The industry's share of the digital universe will fall to 3% in 2011, IDC predicts. The reason? Not much digital imaging going on (i.e. video imaging), IDC says. At the other end of the economic-productivity spectrum, broadcast, media and entertainment industries generate only 4% of the world's output but generate 50% of the digital universe. IDC predicts that those percentages will be even more lopsided in the next ten years, when most countries will be broadcasting digital TV and most movies will be digital. …

2 citations


Journal Article
TL;DR: In the challenging days of 2008, Chase & Co. as discussed by the authors agreed to accept a federal capital infusion, along with other top banks, to help get the industry recovery some momentum.
Abstract: In the challenging days of 2008, JPMorgan Chase & Co. has been on the federal government's short list of places to call when a situation needs rescuing. In March, Chase announced the Fed-assisted acquisition of Bear Stearns, and in September, working with FDIC, Chase announced the acquisition of much of what had been Washington Mutual. In October, the company agreed to accept a federal capital infusion, along with other top banks, to help get the industry recovery some momentum. Today JPMorgan Chase is a respected $2 trillion-plus organization at the other end of a government hotline. But Walter V. Shipley, who retired as chairman of the company in 1999 when it was still The Chase Manhattan Corp., remembers a day in the early 1990s when he suddenly realized that something was lacking at the top of what he modestly calls "what was then a pretty good size money center bank, at $140 billion, though tiny by today's standards." At the time he was CEO of Chemical Bank, which later merged with Chase. Board in need of risk tools "I came to the realization that my board didn't really understand the kinds of risks that we were taking, even things as simple as short or long funding of the loan portfolio," says Shipley. Chemical, which had recently joined with Manufacturers Hanover, had foreseen a period of rising rates. Management instituted a program of liability management to squeeze some extra profits before the hike hit the company's asset funding effort. "Short-funding" needs to be managed, and understood at the top, said Shipley. In addition, the bank had entered some unusual (for that day, for a bank) businesses, including foreign-exchange trading and fixed-income instrument trading. While "these are simple basic types of instruments relative to the very complex stuff that is being managed today," said Shipley, "back then they were exotic." So Shipley said he took the chairman of the bank's Audit Committee, another director, and himself up to Harvard Business School, "for a three-day seminar on understanding risk in a large, complex, financial services company." The selection of concepts and solutions offered was simple today, though profound at the time. "My gosh," said Shipley with mock astonishment "we got into things like hedging." Building a risk management framework Shipley had let a powerful demon out of its bottle. By telling the board, effectively, that it didn't appreciate the risks the bank was taking, he was telling directors they needed to remedy said deficiency. "So we created a risk management committee at the board level," Shipley recalled. He believes Chemical was the first major bank to do so. The board's approach, and the bank's, continued to evolve. Shipley said the board had a meeting with the president of the New York Federal Reserve Bank after its annual examination. There had been some criticisms. But then the Fed Bank president added, "One thing this board should feel very good about is that this company has an excellent risk-management process, among the best of the major banks." Shipley says current JPMorgan Chase leader Jamie Dimon is himself "an excellent risk manager." However, he said, "I like to think that the company that is JPMorgan today inherited a pretty sophisticated risk management culture." Risk management by saying "No" Today, risk management is practiced--or, at least, paid lip service to--among all players. And the science has expanded beyond financial risk management to include other categories, including reputation risk. …

2 citations


Journal Article
TL;DR: The early transition to the web held the promise of simplifying distribution of services, cutting costs, and reaching out to a broader base of customers, but it was more the myth of the web than the reality as discussed by the authors.
Abstract: [ILLUSTRATION OMITTED] In cash management services, banks invested heavily in the web to better serve corporate and middle market customers. Although they spent a lot of money in the period between 2002 and 2005, notes Maggie Scarborough, research manager of corporate banking at Financial Insights, Framingham, Mass., most didn't receive commensurate revenues. And yet, the transitional upgrades kept them current in the middle years of this decade and set them up to take their cash management and treasury services beyond the transaction. In general terms, new services involve using web, business process management and other technologies to pull together data and analytic functions traditionally segregated between treasury and payment systems to provide corporate customers with consolidated, easily consumed information about working capital and daily cash positions. Put a bit differently, banks will be valued and build better relationships, based on their ability to help their clients improve business process or by offering other value-added services that simplify forecasting, purchasing, sales, and trading. What's driving an analytics-based approach is the commoditized transaction. While it used to be enough for banks to offer a transaction engine--supporting ACH transactions such as preauthorized debits or direct deposits--that business line has thin margins and doesn't have the same loyalty potential. "The early transition to the web held the promise of simplifying distribution of services, cutting costs, and reaching out to a broader base of customers--although it was more the myth of the web than the reality," says Scarborough. "In many ways, the delivery of simple information reporting and basic transactions through the web alone is a commodity that has occurred in just ten short years." Using Web 2.0, however, can bring a graphics edge that transforms basic financial reporting into actionable, useful--and sticky--capability. Providing information about payments--especially forecasting and risk data on projected scenarios--is something corporate customers want, whether they generate $30 million in revenues or $3 billion. In a recent survey as part of the Financial Insights' 2007 North American Commercial Payments Study, Scarborough notes that suppliers, for example, faced cases where 43% of receivables were outstanding for longer than 40 days. An inability to easily get a read on their cash position was making it tougher to offer discount incentives, run supplier-financing programs, and overall, tended to translate into a higher cost of capital. Buyers likewise, were hampered by a lack of "cash visibility" that affected their opportunity cost of capital. How might the transition play out? First, top 20 banks will continue to expand--via the web--on service opportunities posed by broader business trends such as international trade or more efficient back office processing among corporate customers. These services enable "corporates" to more effectively leverage cash on hand. Over time, all tiers of the market will get in on the act and consolidated information about cash flows will be accessible online. Supply chain re-engineering Some experts are referring to such services as "optimizing the financial supply chain." Broadly this means giving corporate customers better awareness of working capital and a grip on their accounting processes without the manual input, guesswork, and adjustments. First mentioned at the Sibos conference in Sydney and a much discussed at this fall's conference in Boston, the idea comes at a time when more in payments is automated, but much of the automation--large large international corporate sites in particular--is as fragmented as in any large bank operation. Think of it as the ability to evaluate accounts receivables, payables, and what's on hand as intuitively as you might scan a checkbook or an Excel report. …

Journal Article
TL;DR: A career of more than four decades in business, three of them in financial services and more than two of them with Wells Fargo & Company (and its predecessor Norwest Corporation), concludes this year as discussed by the authors.
Abstract: At the end of this year I conclude a career of more than four decades in business, three of them in financial services and more than two of them with Wells Fargo & Company (and its predecessor Norwest Corporation). The confluence of dramatic change in our industry during those four decades has been truly remarkable. It would have been impossible for a 24-year-old in 1967 to envision all this as he was about to launch his career just out of Stanford University. Here's what I saw in the late '60s. Banking was boring. It was the last place I could have seen myself building a career. (That's why I joined General Mills after graduation in 1967 and didn't enter banking until 1974 with Citibank). The government told banks what products they could sell, what prices they could charge, and where they could do business. No room for creativity, innovation, or nationwide competition. Banks made loans, facilitated payments, and stored cash, period. Unable to branch beyond their home state during the '50s and '60s, larger banks expanded internationally. Led by my eventual mentor at Citibank, Walt Wriston, and David Rockefeller at Chase, New York money-center banks followed their commercial customers overseas. They opened branches all over the world. To compete with money market funds and get around the government interest rate cap on deposits to fund these loans, Citi invented the Eurodollar and the negotiable certificate of deposit. Walt's vision was simple: use consumer deposits to fund the capital needs of corporate America. Banking was about to become one of the most exciting, fastest growing, most profitable industries in America. During the '70s more big changes occurred--non-bank competitors, money market funds, the innovative cash management account (pioneered at Merrill Lynch) and thanks to technology: automated back offices and the explosive growth of ATMs and phone banking. The economic debacle of the early '80s forced regulators and politicians to admit that banks couldn't compete with a 5% maximum interest deposit product in a 20% interest rate environment. In 1994, Congress allowed full interstate banking, leading, spurring the mega-mergers of 1998 including Norwest and Wells Fargo. I introduced President Clinton at the signing ceremony. The top ten banks in 1980 had 38% market share, today it's 64% (and moving higher). Then in 1999, with the passage of Gramm-Leach-Bliley, the government repealed the Glass-Steagall Act, essentially merging commercial banking, investment banking, and insurance to create the financial services industry--a change I personally worked on for almost two decades. So, by year 2000, after a quarter century of deregulation, financial services companies could sell any financial product, in any part of the U.S., at competitive, market-driven prices. In 2006, financial services generated 40% of U.S. business profits up from just 10% in 1980s. Because of deregulation and technology, banks and non-banks now compete for the same savings, investment dollars, and loans. So-called banks today generate less than one-third of loans and deposits. Total securitized credit such as mortgage and asset-backed securities are twice the size of total bank loans. Corporations go directly to the commercial paper market for credit. We have electronic efficiency today I could never have dreamed of in the late '60s. Today, we have almost 11 million consumers and over one million small businesses who are active online users with us. …

Journal Article
TL;DR: The sharp escalation in volume of attacks in 2007 indicates that in 2007 malware authors were adapting, refining, and massively propagating variations of existing techniques rather than innovating new strategies.
Abstract: Just when bankers are getting a feet for the benefits of Web 2.0 now comes Security 2.0, a radical new approach to foiling "malware," malicious software whose target is the nitty gritty transaction details of online banking. Much of the security software now used in banking is designed to protect users against identity theft and other frauds typically perpetrated via e-mail and generically known as phishing, like security in any arena, phishing quickly turned into an arms race between offense and defense. White e-malt messages promising financial or physical enrichment were once staples for enticing users to give out their passwords or credit card numbers, that approach is losing its potency. So the arms race escalated. Fraudsters devised cleverer come-on messages that e-mail users couldn't see through and sent them out in such profusion that fraud fighters couldn't keep up with them. The classic of this kind was Storm Worm, a spam e-mail attachment that broke out in January '07 with subject tines such as "230 dead as storm batters Europe" (in a week when there actually was a deadly storm in Europe). One executive of an anti-virus firm detected tens of thousands of variants of this message. At the beginning of 2007 anti-malware vendors detected about a quarter of a million incidents worldwide. At the end of the year the number of attacks had reached half a million, as reported in IT security threat summary by F-Secure, a pioneer in next-generation anti-ma[ware services. This doubling of detected incidents means that the bad guys launched as many attacks in one year as they had in the previous 20, F-Secure reports. The sharp escalation in volume indicates that in 2007 malware authors were adapting, refining, and massively propagating variations of existing techniques rather than innovating new strategies. Here are the main differences between phishing and emerging malware: * Phishing expeditions cast wide global nets. It's as easy to host multitudes of phishing sites as it is to host one. The new banking trojans attack one or a few banks that they know are rich targets. * Phishing gets the victim to cooperate in attacking her bank's server. Banking trojans rely on stealth to steal crucial software code at the browser. * Anti-phishing strategies first detect new viruses in action worldwide and then devise countermeasures. Strategies against banking trojans constantly probe every site for suspicious behavior and try to disable it before it strikes. F-Secure, the anti-malware vendor, has dubbed the new behavior-based strategy "Man in the browser." This is a common scenario: The "man" (i.e. trojan) uses some ploy to create a facsimile of crucial elements of a legitimate online banking system. One way to start this chain of events is to intervene in the sign-on procedure by first rejecting the username and password and then copying the user's second response onto the imposter system. Then the trojan lies in wait in some cozy corner of the browser, doing nothing but watching for useful coding strings, such as "Welcome to Citibank" that identify a rich target. Once inside the banking software, it can execute a fake transaction, such as "Transfer $987.00 to the Guesswho account." F-secure's behavioral counterstrategy is to monitor every action on a user's browser, looking for suspicious strings of code. …

Journal Article
TL;DR: For example, according to a survey conducted by the Milford, Mass.-based Enterprise Strategy Group (ESG) as discussed by the authors, the percentage of small businesses with less than 5,000 employees who had been involved in a legal proceeding necessitating e-record search and retrieval rose to 64% from 56% from 2005 to 2007, and the effect was more pronounced among enterprise enterprises with 20,000 or more employees.
Abstract: [ILLUSTRATION OMITTED] When you, as a manager, think about the possibility of getting sued, the content in your company s e-mail system might not come flooding--flight or fright style--to mind first or even second in a mounting list of concerns. Then again, perhaps it should, because you might need to turn over specific e-mails in court. First, a bit of back-story for the unfamiliar: The year 2006 has e-mail-related significance to compliance officers and legal experts. This is because, generally speaking, it was when changes to the Federal Rules of Civil Procedure (FRCP) codified how those electronic missives flurrying among our Outlook, Entourage, and similar in-boxes should be managed in what experts refer to as both "pre-" and "post-discovery" condition. (Meaning, how, as a matter of general daily practice a bank should be storing and managing e-mails "pre" suit, and, how they should retrieve e-mails and documents should a suit occur.) Since the new eDiscovery rules, activity has jumped up. Indeed, among small businesses with less than 5,000 employees, the percentage of respondents who said that their company had been involved in a legal proceeding necessitating e-record search and retrieval rose to 64% from 56% from 2005 to 2007, according to Milford, Mass.-based Enterprise Strategy Group (ESG), which looks at storage and information management topics. Among enterprise enterprises with 20,000 or more employees, the effect was more pronounced, up 20 percentage points to 67% from 47%. It could be that employees are simply more aware of the steady state of litigation. However, Brian Babineau, a senior analyst at ESG, believes survey results point to an increase in discovery, that is, searching for e-mails, attachments, and related transaction detail in response to a request by attorneys representing private parties or governmental entities taking part in a legal proceeding. Since 2006, then, many in banking who have legal, IT, and compliance responsibilities have been thinking about how to make the communication tool less one of expedience and more of an archive. After all, e-mail has come to undergird business, become a kind of fingerprint of its activity. Blame it on Martha In some sense, e-mail's presence in the court is merely a sign of changing business habits and practices. "Today, e-mail is a leading source of documentation about transactions and work flow, and it stands as a key source of transaction commentary and validation," says eDiscovery expert and attorney Craig Ball. [ILLUSTRATION OMITTED] In another sense, the radical rise in the importance of e-mail can be explained directly by "Marthagate," Enron, and other cases that established precedent in recent years, says ESG's Babineau. "When e-mail proved to be so useful in court, more attorneys began using it. Now, it's use has become a norm," he adds. The ESG analyst says in the months ahead, subprime-related legal matters will force most institutions that lend--regardless of size--to begin rethinking how they handle e-mail. Basically, the "it's just too hard to manage" excuse won't hold (as it hasn't for Wall Street for some time). Stephen Ludlow, senior program manager, eDiscovery solutions at enterprise content management vendor, OpenText, based in Waterloo, Ontario, Canada, agrees that subprime litigation will be a driver both for more suits and for more types of organizations to adopt e-mail-specific management systems as well as improving their overall records-management strategies. Not that banks, particularly large ones, haven't been, in some sense, ready to rumble, prepared for e-mail's new legal exposures. As part of the general cost of e-mail management and preparedness for eDiscovery, companies generally have to figure out such details as whether to outsource the eDiscovery process, in effect, paying outsiders to search the electronic files in the event of a suit, which is costly. …

Journal Article
TL;DR: Proctor as discussed by the authors pointed out that the lack of familiarity between the two sets of employees makes it hard to exchange meaningful information, which makes it difficult for them to understand each other's expertise.
Abstract: In April, at ABA's The Great Exchange Conference in Baltimore, Ken Proctor, director of risk management, Brintech, gave a well-attended presentation, Bank Trends in IT Implementation and Risk Management. With sly humor, the straight-talking Proctor offered his take on technology trends. He cited the popularity, among urban banks, of spending on the internet, and noted that, among all banks, spending on branch automation had become a priority. Retaining deposits, attracting new business customers, and boosting productivity with IT remained significant objectives among the community bankers polled in the research Proctor referenced. The consultant also zeroed in on some basic issues about how systems actually get purchased. One key theme: It's important to choose vendors based on how their wares will contribute to business objectives. It's a common-sense message that resonates at a time when C-suite officers are asking middle managers to be especially accountable. Here, we ask Proctor about alignment, risk management, and smart IT planning. You often hear that it's important "to gain alignment between the business and IT departments." Why is such coordination of objectives and efforts still such a challenge a full decade after the great tech bubble of the late '90s? PROCTOR It's interesting. From what I've seen, part of problem is that business and IT personnel don't fully trust the other. While the two sets of employees are more likely to share information than ever before, each group tends to be unfamiliar with the expertise of the other. That lack of familiarity makes it hard to exchange meaningful information. Besides, business executives tend to want to put an order in for a system--or application--and get it fast tracked. They want to keep the ROI analysis straightforward--what will work for my group and what will affect my costs in the short run. The IT guys tend to think about the broader corporate perspective and other issues, including how a given system will integrate with the existing infrastructure. On the other hand, IT guys might not always consider factors like usability or familiarity of an application or vendor. They'll wave their hand and say, "Why do they want that for?" Basically, there's room for both sides to contribute, even though working this way involves some tough negotiation. [ILLUSTRATION OMITTED] Sounds like you would advocate a more centralized approach, one where a committee would vet a request for a system. PROCTOR Not necessarily. Not centralized as in--"IT decides. Or, people who don't touch the system decide." Because, from what I've observed, many business unit personnel know what they need a system to do and for that reason must have input. (Sometimes, executives aren't sure why they are buying a system. Maybe they've responded to a sales pitch and get stuck on a fast moving train--a different problem.) But, again, I do think it's important to purchase a given IT system with a full set of considerations, including if it's really needed or cost justified given its expected use by employees or customers. You also need to consider how well a given application will affect security. In the presentation, you also spent time talking about operational risk more broadly, including IT-related risk management. When you work with customers, how do you get them started in their risk analysis? PROCTOR There are so many misconceptions about risk management that I consider getting my clients comfortable with the terminology my first task. In the banking business, people asked to think about a risk management program tend to think first of credit risk. Or, they think of purchasing insurance to hedge certain types of risk, or they think of hiring a security officer, or they think of adopting internal controls. And, quite frankly, risk mitigation in that sense is so far down into the weeds. Moreover, trying to work this way is attempting to solve a problem that hasn't been clearly defined with a "silver bullet approach" that's been randomly defined. …


Journal Article
TL;DR: In this article, Peter Sapienza, who works out of the Los Angeles office of Union Bank of California, explains that a new site look and feel will be a key part of the overall campaign to both punch up and modernize its corporate image.
Abstract: [ILLUSTRATION OMITTED] In the real world, bank marketers use copy and images in direct mail or ad campaigns to lure customers into their ranks. Or, they rely on telemarketing scripts. In the web realm--which is changing form and function with flustering rapidity as it matures--the banner ad and smartly worded click-to-pay have been the bait. Among the most sophisticated practitioners, keyword buying from Google and other search engine providers, particularly the purchase of regional keywords, is a newer tactic designed to bring the searcher to your website, where presumably, he or she will find ways to do business with your bank. (Existing customers also get promotional emails, phishing risks notwithstanding.) What could be simpler? Well, as it turns out, many things. "We've had 150 years of learning around print, 80 years around radio, and 60 years of getting to know what's effective on television," says Deno Fischer, senior executive at Accenture Marketing Sciences, based in New York. "When it comes to the digital channel, we've got about 12 years and only half of them are characterized by use of broadband. We're all learning by doing." And, as your channel marketing people can tell you, grasping even the basics of search engine marketing (SEM) takes some doing. Moreover, search engine optimization, that is, designing the bank site and filling it with content that will encourage search engines to index the material there and make the site discoverable is a non-stop act of adjustment. A quick search on the terms "SEO" and "SEM," for instance, will bring up any number of blogs, tutorials, and specialists in this decade-young field. Certainly, that alone is an indicator that search isn't simple. But what about other web developments--immersive content, FaceBook, and YouTube? Moving graphics, segment-oriented landing pages, or smartly worded ads placed adjacent to social networking sites are certainly options and being considered by several internet marketing leaders. Viral marketing on YouTube can also kick up awareness of your firm. Peter Sapienza, director of marketing strategy and analysis, for Sapient, a Cambridge. Mass.-based global interactive agency, is already an old hand with these maneuvers. Sapienza, who works out of the Los Angeles office, is in the midst of developing an updated web strategy, including leveraging social media, for Union Bank of California. While details of the project were scarce at the time of this writing, Sapienza pointed out that UBOC believed that tapping into the online community made sense for a bank known for its community building efforts in its geographic region. Site as a face of the brand Search basics and new web developments like YouTube may be intriguing distractions, but before you worry too much about either one, say experts, you need to think strategically. What do you want your website to accomplish? Who, in terms of age, demographic, and requirements, will be constituents of the site? Then take an assessment of your current website: Does it look 1999? Is it on a manageable platform that makes content easy to maintain? If the website is outsourced, is content driven off a template that allows some flexibility in design, or do you need a new provider altogether? Whatever else it does, the website should function as a well-designed face of the brand. Sapient, which is also working on a major rebranding strategy for a respected East Coast super regional, explains that a new site look and feel will be a key part of the overall campaign to both punch up and modernize its corporate image. Joey Wilson, director of marketing strategy, interactive media, says that as part of the overall effort, the bank will launch a financial advice blog. Cantor Fitzgerald, which went with on-demand web content management provider Clickability, San Francisco, knew it needed a look and navigation principal that showcased all of its business units and also showed traders, investors, and international investors information about investment banking and asset management. …

Journal Article
TL;DR: The ABA Banking Journal celebrated its 100th year of publication in 2017 as mentioned in this paper, marking the start of the first decade of the American Bankers Association (ABA) and the first 100 years of bank publishing.
Abstract: I extend my heartiest congratulations to the ABA Banking Journal on its 100th anniversary issue. I thought I would try to put 100 years of bank publishing in perspective. As ABA Banking Journal was getting off the ground in 1908: * The Bank of Italy, founded in 1904 by A.P. Giannini, opened its new headquarters building at Clay & Montgomery in San Francisco. The bank was soon to become Bank of America and be part of Giannini's Transamerica empire. * General Motors was founded, and Henry Ford introduced the Model T. * William Howard Taft was elected President, and Pu Yi became China's Last Emperor at three. What had not happened by 1908 were several major developments that were to have a profound impact on shaping the financial services industry: * The stock market crash of 1929 and the ensuing banking panic and Great Depression * Creation of the Federal Reserve System, the Federal Deposit Insurance System, and the Securities and Exchange Commission * Passage of the Glass-Steagall Act, separating commercial banking from investment banking, nor passage of other laws limiting competition * Passage of the Bank Holding Company Act, separating banking and commerce and limiting expansion by banking companies (largely to thwart Transamerica/Bank of America's expansion) It's impressive to think about an industry and its leading magazine not only surviving, but prospering, through all of this change. It's also daunting to try forecasting what might come next. Much of the regulatory regime imposed on financial institutions during the Great Depression crumbled in the wake of revolutionary technological developments and intense competition. Controls on deposit rates were eliminated in the early 1980s, branching restraints fell next, and the Glass-Steagall Act was repealed in 1999. The Bank Holding Company Act will be repealed, eventually. Size versus success versus style Strong, well-managed firms of all sizes will prosper in a market-oriented financial system. In the "old days," before the barriers to competition unraveled, profits and growth in banking were stable. The distinctions in performance among banks were minimal. Earnings today are more volatile. The gaps between the performance levels of strong and marginal banks are wide and growing. Average and sometimes even good performance is not adequate protection against takeover. Banks that prosper in the new environment will share some characteristics. Contrary to commonly accepted wisdom, size will not be one of them. While scale economies exist in some of the businesses (e.g., credit cards and mortgage banking), they do not exist generally in traditional banking activities. Where scale economies exist, they can be achieved by smaller banks through outsourcing. Moreover, technology is relatively inexpensive, and readily available to smaller firms. One of the most critical factors for success is a quality management team. Organizing the team properly will also be critical, particularly in larger companies. A highly centralized organization, in which a handful of individuals make decisions that have impact throughout the firm, is at odds with the need to diversify risk. The best model will be independent business units pursuing company-wide strategies, with centralized control systems. When the inevitable mistakes are made, they will likely be far more serious in a centralized company than in one composed of a number of autonomous business units. A strong, focused sales and customer service culture is also critical. But banks will only prosper if they are in touch with customers, remain trusted advisors, and add more value than competitors. Pro-cyclical threats must be changed I would be remiss if I did not discuss briefly two clouds on the horizon: fair-value accounting and capital regulation. …

Journal Article
TL;DR: For example, Copiah Bank CEO George Marx as mentioned in this paper found that he inherited a questionable compensation policy when he became CEO of his bank, and he decided that it was time for reality to settle back in.
Abstract: George Marx found that he'd inherited a questionable compensation policy when he became CEO of his bank. About 12 years ago, he says, the bank had a really good year. "So our board saw fit to give everybody a bonus," for that excellent performance, says Marx, who has been with Hazlehurst, Miss.'s Copiah Bank, N.A., for more than 30 years. But what started out as an unusual payment to mark great results, became something that celebrated getting to the end of another year. "It got to be where everybody expected it every year, regardless of performance," says Marx. The banker decided that it was time for reality to settle back in. And so, when he became CEO eight years ago, he put a stop to the institutionalized bonus payments. He wanted bonuses to go to the real producers, those who truly made a difference, who really went above and beyond. "I'm a firm believer in the 80%-20% rule," says Marx. "I think 20% of our folks account for 80% of our profits, and I just don't believe in giving the underperformers a bonus." So Marx took control. "I have a discretionary account that I call 'performance pay'," says Marx. "I take $20,000 to $30,000 a year, and divvy it out to either officers or key employees who have been recommended to me by their supervisors for doing an extraordinary job. Nobody knows how the final decisions are made except myself. And it's worked really well." [ILLUSTRATION OMITTED] This is what Marx does for the true stars, the people who go j above and beyond. He spoke A about this discretionary program during a roundtable about human resources issues in which eight members of the ABA America's Community Bankers Council met with ABA Banking Journal. (Part I, concerning the challenges of the multigenerational office, appeared in the May 2008 issue. The previous instalment can be viewed on www.ababj.com by clicking on "Digital Magazine" in the home-page toolbar. Once there, click on "Archives," in the new page's toolbar, to get to the May issue, if that issue does not appear.) Marx says the bank has long been a big believer in profit-sharing plans, and annually pays out 5% or 6% of after-tax earnings to all employees. One year the bank even sold a bond to pay for profit-sharing. Copiah Bank's board has also distributed shares in the company to a handful of bank officers hired in the last few years. "That was the only way that we could get them to come aboard," says Marx. "It was a way to give them an incentive pay program, through ownership." Mixed views on performance pay The idea of paying people in a way to improve performance by giving them a stake of some kind has been around for decades in banking. In some parts of the financial services business, right now, incentive pay has a black mark against it. Many, for example, blame commissioned mortgage brokers for the subprime mortgage crunch. Even before that, incentive pay for lenders has long been somewhat suspect. "Incentives can be great, but they are very dangerous," says Alabama banker Robert Jones. "You're going to get whatever you incent for, because there is what I call 'The Law of Unintended Consequences'." Also, he points out, "It can cause a culture shift because people lose sight of the team." In addition, such programs can pit producers against support staff. And employees can game such programs, too. "We've tried them all at one time or another," says Ohio banker Blair Hillyer. "I won't say any of them have worked very well. We've had some underhanded tricks. Tellers began competing against each other. Some would stockpile their friends, to all come in at the last minute." [ILLUSTRATION OMITTED] As a result, Hillyer says, "we've gone to bankwide goals. This year everybody got 6% of their salaries. A couple of times they've received as much as 15%. …

Journal Article
TL;DR: The need for more capital has been recognized as a major issue in the banking sector as mentioned in this paper, and there has been an increase in the need for capital in the last few years.
Abstract: [ILLUSTRATION OMITTED] When a community bank, or even a somewhat larger institution, requires added capital, it isn't unusual for the board chairman to ask directors how much they can manage to cough up to help the bank with expansion plans, or to help bolster its capital ratios. But before one can add something to the hat, there's got to be something in the pocket. And banking attorney Walter Moeling IV notes that in many boardrooms around the country, pockets aren't quite as deep or full as they once were. "The first place community banks usually start for more capital is passing the hat around the board table," says Moeling. Many local directors, from real estate brokers to builders to suppliers to plumbers, have direct or indirect ties to the real estate industry, says Moeling, and many therefore lack liquidity today. The larger the institution, the less the proverbial hat looks like an investment bank, in any event, with some exceptions. (See the box, "Missouri's First Banks forms 'bad bank' to aid asset cleanup effort," p. 28.) "There's a big need for capital in the banking sector today, not only in the big banks, but also in the small and mid-sized banks as well," says Rick Maples, co-head for investment banking and head of the Financial Institutions Group at the investment bank Stifel Nicolaus, St. Louis. "The largest number of community banks will be seeking new capital than I have ever seen at any one time, and that's over a 40-year career," says Moeling. Sources of capital hunger Driving the appetite for more capital are several factors. Clearly, troubled institutions want more capital. Many are laboring under regulatory orders to find it. "You can argue solvency forever," says Moeling, co-chair of the Financial Institutions Practice Group at Powell Goldstein LLP, Atlanta, "but you need liquidity to keep the bank's doors open. And to get liquidity, you need the capital." Some can still find it, though at a price, while others the market has already written off, and it may be all over but the scrambling. Regulatory urging outside of the formal orders also drives the hunger. This comes in two forms. The first is jawboning from Washington. In mid-May, Federal Reserve Chairman Ben Bernanke stated: "Recent events have ... demonstrated the importance of generous capital cushions for protecting against adverse conditions in financial and credit markets. I have been encouraged by the recently demonstrated ability of many financial institutions, large and small, to raise capital from diverse sources. Importantly, capital raising and balance sheet repair allow for the extension of new credit, which supports economic expansion. I strongly urge financial institutions to remain proactive in their capital-raising efforts. Doing so not only helps the broader economy, but positions firms to take advantage of new profit opportunities as conditions in the financial markets and the economy improve." Such rhetoric, reports from the field indicate, is being matched by closer attention to capital from bank examiners. Capital has always been important. However, even though it is broadly recognized that many community banks, and the industry as a entirety, remain strongly capitalized according to current capital standards, there is a push for still more cushioning. More and more, "the regulators are asking for what I call 'super-capitalization'," says Philip K. Smith, president of the Memphis-based law firm Gerrish McCreary Smith, P.C., with examiners pushing for ratios beyond the minimums set for well-capitalized banks. Consultant Jay Brew of M.Rae Resources, Inc., Bethlehem, Penn., says he's heard clients quote examiners as saying that they are less concerned these days about earnings than they are interested in seeing well-capitalized banks that are well-provisioned for potential loan losses. …


Journal Article
TL;DR: The authors of as discussed by the authors present a composite of the banking industry's strengths, challenges, and opportunities, including small business at the core, customer service, and regulation hindering banks' ability to be flexible and responsive in lending particularly.
Abstract: [ILLUSTRATION OMITTED] When the bankers gathered in a windowless meeting room early one summer morning to talk over the future of banking as they saw it, it's fair to say none of them, nor this writer, foresaw the financial market free-fall that was to occur beginning after Labor Day. They did, of course, recognize that the times were perilous. But the focus of their comments was on the fundamental business of banking and where it was heading--a challenging enough scenario at any time. And when the smoke clears from the conflagration in the money markets business will go on for the vast majority of banks and savings institutions--not exactly "as usual," perhaps, but not totally changed either. At the macro level, the financial infrastructure may have been turned on its head, but in banking markets around the country many of the long-range, underlying trends continue. It is to these trends that the five bankers spoke. The participants are identified to the right. They represent a good cross-section of the industry. Only the very largest bank segment was not represented. Taken together, the comments present a composite of the industry's strengths, challenges, and opportunities. Small business at the core Under the heading of strengths that banks individually and collectively possess, the first to be mentioned was the small business market, where, all agreed, banks should continue to do well. Said Richard Anthony (Synovus Corp.): "The small business middle market is where relationships really mean a lot, and banks have an opportunity to become trusted advisors to privately held, locally owned businesses. We see that as our top competitive advantage. But in order to play that role, you have to have a high level of responsiveness, and have granted a certain amount of empowerment at the local level." Adding to that, Stephen Gurgovits (FNB Corp.) said, "We offer--and will keep offering--a full array of retail products, but most of them are commoditized. What we really focus on as a core competency is small business lending--simply because it is not commoditized. Every deal is different, every business has different situations, different circumstances." Offering a somewhat different view, Guy Williams (Gulf Coast Bank & Trust) agreed that the small business segment is very important, but he feels "the bank charter doesn't give you an advantage on the lending side. It gives you an advantage on the funding side, because of deposit insurance, and on the payment system side. The price we pay for that is an incredible burden of regulation." Williams feels that regulation hinders banks' ability to be flexible and responsive--in lending particularly. Service trumps rate Another key differentiator identified by the group is superior customer service. For the community banks present this was a critical difference, enabling them to compete with a host of larger bank and non-bank competitors. (There was some good-natured ribbing of the larger banks at the table by the community banks, because of the fact that the former referred to themselves as "community banks.") Warren Luke (Hawaii National Bank) offered these analogies for how quality service trumps rate: "Why do people stay at a Ritz Carlton versus a Holiday Inn? Because they have certain expectations. And when you go to a top restaurant, you don't say, 'Wow, your prices are too high. If you don't lower them I'm going to eat across the street.' You have to differentiate yourself, in other words, and give what the people expect." A closely related point--good people--is both a strength and a challenge. The advantage is fairly obvious. Said Gurgovits: "A difference in our bank, versus competitors, is with the people that we employ, and their passion for customer service. I hire for attitude and train for skills. That's critical. …

Journal Article
TL;DR: Rules imposed on financial institutions, creditors, credit and debit card issuers, and users of consumer credit reports include guidelines listing 26 patterns, practices, and specific forms of activity that should raise a "red flag" signaling a possible risk of identity theft.
Abstract: Last October, six federal agencies issued final rules imposing anti-identity-theft requirements on financial institutions, creditors, credit and debit card issuers, and users of consumer credit reports. The new "red flags" regulation enacts sections 114 and 315 of the Fair and Accurate Credit Transactions Act of 2003 (FACTA) and calls for every financial institution or creditor to develop and implement a written "identity theft prevention program." (See "Basics of the new rules," p. 54) The final rules became effective on Jan. 1, 2008, and full compliance is required by Nov. 1, 2008. [ILLUSTRATION OMITTED] The identity theft prevention program is at the heart of the new rules. Each financial institution or creditor must establish a program that sets policies and procedures to identify which key indicators of possible identity theft are relevant; detects them when they occur; and responds appropriately when they are detected. As the environment changes, either through internal changes in the organization or the development of new techniques on the part of identity thieves, the program must be updated. Though complying with these rules may be challenging to some affected organizations, like car dealers or retailers, the policies and procedures required won't be new to most banks and savings institutions. Obtaining and verifying identifying information about a person opening an account should be second nature to them, given such factors as the customer identification program requirements they must already fulfill in the Bank Secrecy Act/antimoney-laundering area. Authenticating customers, monitoring transactions, and verifying the validity of change of address requests for existing accounts should be business-as-usual. What's new in these rules is their specificity. The regulations include guidelines listing 26 patterns, practices, and specific forms of activity that should raise a "red flag" signaling a possible risk of identity theft. But the list is not intended to be comprehensive. Rather, in the words of the regulators, "when identifying red flags, financial institutions and creditors must consider the nature of their business and the type of identity theft to which they may be subject." Each organization might do well to consider this guidance in developing internal controls, structuring a program that is specific to the business lines it is in, and that complies with the regulations, while maintaining a high level of vigilance (to see changes in the environment) and flexibility (to evaluate and adjust procedures to respond to those changes). Identifying relevant red flags The indicators listed in the guidelines are classified into five categories: 1. Alerts, notifications or warnings from a consumer reporting agency. If a fraud or active duty alert is included with a consumer's credit report, or a credit reporting agency provides a notice of credit freeze in response to a request for a consumer report, this is the most obvious type of red flag. 2. Suspicious documents. Do the documents provided for identification appear to have been altered or forged? Is information on the identification inconsistent with information provided by the person presenting it, whether an existing client or a new customer? 3. Suspicious personal identifying information. When compared against external information sources, is personal identifying information inconsistent? Some examples include cases where the address does not match any address in the credit report, the Social Security Number has not been issued, or the Social Security Number is listed on the Social Security Administration's Death Master File. Another example would be failure to provide all the information required on an application, even when asked twice. If the phone number provided by an applicant is invalid, or is an answering service or a pager, this could raise suspicion. …


Journal Article
TL;DR: In a recent industry panel, Moszkowski, managing director at Merrill Lynch & Co. as discussed by the authors pointed out that TARP is a "big piece of blank canvas" and "a work in progress".
Abstract: [ILLUSTRATION OMITTED] TARP has gone from being a big piece of blank canvas to something very different. But it s still a work in progress." When Guy Moszkowski, managing director at Merrill Lynch & Co. Inc., uttered those words at a recent industry panel, it was with understatement. The analogy is an apt one. Everyone from members of Congress to bankers to government leaders, to private equity capitalists to bank analysts to the man and woman on the street has an idea of what the canvas should look like. Treasury has some ideas, too, but keeps reworking the picture. And there is very little apparent agreement on model, method, or medium. Everyone wants to get their hands on the paintbrush and everyone is also an "art critic." The name TARP itself is a misnomer--officially standing for "Troubled Asset Relief Program." But in the breakneck pace that dominates official responses to the economy's troubles, any bit of shorthand that helps one's head stop spinning gets adopted quickly. TARP's capital program made the fourth quarter all the more challenging for banks of all sizes. The largest banks had the capital put to them, no questions to be brooked, and have since been smacked by public opinion no matter how they use the proceeds. Representatives of the some of these institutions were haled before the Senate Banking Committee in early November to demonstrate that they weren't using TARP money to pay executive bonuses, and such. Many other publicly traded banks faced their own quandaries, as the Nov. 14 deadline for their participation in the capital program loomed. Go for it and risk being seen as actually needing capital? (And what if you don't get it?) Don't go for it and risk being seen as someone who supposedly couldn't qualify? Ultimately some well-capitalized banks cited their good numbers and took the money anyway. Some equally well-capitalized banks declined the offer. The exhibits nearby put some names and numbers to this. As of late November, some smaller public banks that had applied for TARP capital and been approved by their primary regulators, had not yet received funds. And private banks only received their term sheets in mid-November, with their deadline set for Dec. 8. With all that in play, on Nov. 23, the Citibank rescue announcement altered the TARP canvas once again. One of the original nine banks required to take capital, and thus supposedly not needing it, Citi ended up not only receiving an additional capital infusion, but entered into a troubled-asset takeout plan, as well. What will TARP mean? In the rush of things that today's bankers haven't seen in their lifetimes, the import of what the government is doing with TARP shouldn't go unexamined. The concept itself must be considered, as well as the impact on capital in the near-term, mid-term, and, potentially, the long-term. "The TARP Program has served to calm the financial markets and does have promise to promote renewed economic growth," ABA President Edward L. Yingling testified at a House Financial Services Committee hearing. "However, it is a source of great frustration and uncertainty to banks. Much of the frustration and uncertainty is because of the significant and numerous changes to the program and misperceptions that have resulted on the part of the press and the public." And nothing happens in a vacuum. "What we've learned over the last 50 years is that when government intervenes in free markets, there are ripples and unintended consequences," said veteran banking attorney and former regulator Thomas P. Vartanian, partner in the Washington, D.C. office of Fried, Frank, Harris, Shriver & Jacobson LLP, "and we have learned that it is hard to say where those ripples will go. We're in the eye of the storm right now, and we have to see what happens when we meet the wall of the storm." THE CONCEPT As Yingling traced in his testimony, sudden decisions have marked everything about TARP's short life. …


Journal Article
TL;DR: The Platt Retail Institute (PRI) conducted a study to evaluate the impact of digital communication on consumer attitudes and behavior as mentioned in this paper, and the results showed that the benefits of using a digital communication network can be substantial.
Abstract: [ILLUSTRATION OMITTED] The importance of the customer experience at a bank is well recognized, and has led many institutions to evaluate a variety of methods to enhance the branch environment. One approach involves the installation of digital (flat screen) signs or digital communication networks (DCNs). Think of these as having your own broadcasting network, where you can display product-and service-related content that helps to convey messages about finances, bank services, or other broad industry topics, as well as community events, weather reports, and "meet the manager" information. Such centrally managed networks can be expensive to deploy and maintain, however. Prior to making such an investment, most banks require an evaluation of the benefits. Here are seven key benefits: * Messages delivered are dynamic, with the capability to display attention-getting graphics and videos. * A DCN can leverage regional and branch-specific conditions, such as customer demographics, localized news, promotions, and educational content. * Digital communication networks can be centrally monitored, ensuring system-wide, brand-compliant messages. This represents a major advantage over static signage, which is plagued with questions of timely branch-level compliance and slow delivery of messages. * A DCN can enrich product/service presentations. Delivery of the right message to the right customer at the right time is key to relevancy. * A digital communication network enables measurement of message impact. * A DCN eliminates the time lag between a consumer's exposure to a message and his or her arrival at the place of purchase. * The DCN's agile nature enhances its ability to make timely changes to messages in response to changing products and services, rate-sensitive information, as well as promotional, consumer, and environment-related factors. The Platt Retail Institute working paper summarized here reports the results from a test of the impact on consumer attitudes and behavior resulting from exposure to a digital communication network. The test objective was to provide detailed analytics relating to consumer response to a DCN message, and to establish a model for measuring the tangible and intangible attributes of a bank DCN. As will be shown, the results determined that the returns are substantial. Project details The target bank (not TCF Bank, pictured above) is based in the Midwest, has more than 200 branches, more than $40 billion in assets, and 6,700 employees. The bank initiated its DCN pilot in 2000. Initially, 12 branches were enabled. By the end of 2005, the bank's DCN was deployed to 60 branches, extended to 117 locations at the end of 2006, and reached 140 installations by the end of 2007. Full deployment to all locations is anticipated by the end of 2008. To study the DCN impact on customer attitudes and behavior, PRI measured the following: impact and awareness, the customer bank experience, branch productivity, and, awareness of and impact on select product/service revenue/transactional activity. An overview of the test parameters includes the following: * Ten branches, five of which were enabled with a DCN, which were paired with five control branches that did not have digital signs. In the test branches, the flat panels were placed at the head of teller line. * Two separate waves of 750 exit interviews. * 38 digital cameras that captured 17,000 hours of video and the behavior of 85,000 customers. * Transactional and teller-use data compiled by the bank. * 90 day test period. Test and control branches were paired based upon location in the same market area and were consistent in both branch format and transaction volume. They were also distant enough from each other to prevent bleeding of customers from a test to a control branch, or vice versa. …

Journal Article
TL;DR: Although he was wearing a forced smile, the bank's CEO left the board meeting with a number of negative emotions running through his head: anger, disgust, and most of all, frustration.
Abstract: Although he was wearing a forced smile, the bank's CEO left the board meeting with a number of negative emotions running through his head: anger, disgust, and most of all, frustration. More than anything, he wondered how he could ever get through to the #*@x*! board on the really important issues.... [ILLUSTRATION OMITTED] Sound familiar? Despite all that has transpired regarding boards of directors and executive management teams since Enron and WorldCom and Sarbanes-Oxley came to pass, the primary preoccupation by executive management and board members continues to be with the relationships between the two parties, rather than the structural or procedural issues typically associated with board governance. In fact, in our ongoing strategy work with boards and managements, we often hear of increasing concerns about the troublesome relationships between them, and the corresponding costs to the organization, placing these challenges on par with traditional hot-button concerns such as regulatory burdens and competitive pressures. The reality is that most problems with boards and management are not about corporate governance "best practices." Rather, they are the challenges stemming from the personal interactions between them--micromanagement, ill-defined roles, dominant personalities, egos, group factions, weak communications, mismatch of skills and styles, and an absence of a sense of direction. Most alarming: Few executive managers or board members have any real clue how to effectively solve these relationship challenges. Sometimes they don't even recognize the depth of the problem or the importance and value in optimizing board-management relations. Or they lack the power or authority to address the situation. Four dynamic levels Relations between boards and management can be characterized by one of four different levels of interpersonal dynamics: minimizing, controlling, emerging, and optimizing. At some institutions, these levels evolve subtly over time; at others, the evolution is more purposeful and calculated. Minimizing--The party who possesses actual control over decision-making (traditionally the CEO in community institutions, but in other instances, the board) does only what is required or essential in working with the other. Interactions outside of regular board meetings, such as planning retreats, are for show and the appeasement of the other party; no real substantive change is usually forthcoming. The primary aim of the dominant party is to avoid interactions with the other wherever possible. We still hear CEOs say, "I don't get my board involved in strategy or planning." In one instance a president reported that his predecessor had intentionally kept his board of directors in the dark regarding the technical components in critical oversight areas such as risk management and financial controls. "They don't need to know this," was a common refrain. Minimizing by the CEO may encompass the entire board, a group faction, or an individual. "If I could just get these two guys off the board, my life would be so much easier," is a sentiment frequently heard in private conversations. Controlling--The aim here is to maintain control and direction setting, and not cede any real authority to the other party. This is often accomplished by not "making waves" or addressing any tough issues directly. In other interactions, the party in control may give lip service to the other, while eventually ignoring or overruling their inputs. The other party is there largely to ratify or implement the decisions-the proverbial "rubber stamp" relationship. We have seen repeatedly in controlling relationships where the board is left out at the periphery of direction setting (which should be a key responsibility of any board today). In such cases, the strategic plan is completed by the CEO and his/her management team, and a filtered version, purged of details or controversy, is then submitted to the board for "approval. …

Journal Article
TL;DR: In this article, Monte Larson, chief marketing officer, DocuTech Corp., Idaho Falls, Idaho admits that the industry has been six months away from adopting an e-mortgage process for the last eight years.
Abstract: In the cycle of lenders building mortgage lending operations, the industry has been six months away from adopting an e-mortgage process--for the last eight years, notes Monte Larson, chief marketing officer, DocuTech Corp., Idaho Falls, ID. [ILLUSTRATION OMITTED] E-mortgage, which roughly means adding automation and cutting back on paper-based processes, would add efficiency and allow for easier application verification and faster approvals. "The timeline is a little industry joke," Larson admits. "But it doesn't mean we aren't making progress, chipping away at inefficiencies." DocuTech is of several vendors, which, along with bankers and other mortgage lenders, belong to MISMO. The acronym stands for Mortgage Industry Standards Maintenance Organization, which has been testing individual technologies and, in effect, has been on the verge of bringing electronic home loans to the masses but for the interruptions of boom times and normal business distractions, and, more recently, the impact of the subprime shutdown. As of this writing, MISMO members were set to announce progress around items like a smart document, which would allow for easier data verification. With the market in its current more cautious condition, the business drivers may be aligned toward pushing electronic processing onto the fast track--if participants can agree on what the ideal process would look like, that is. "There is some confusion as to what e-mortgage means in process terms," says Larson. "Some view it as capturing paper as quickly as possible in each stage for the steps of verification, documenting the process, and post-closing record keeping," he explains. "Others imagine an entirely electronic process from the web-application that gathers data to the distribution of e-disclosure to other steps such as recording the application with the Mortgage Electronic Registration System (MERS), and filing with county registrars." Yet, proponents say, the vision of the "e" in e-mortgage is introducing efficiencies and an auditable information trail that will put some clarity and sanity into the process. Whether or not the e-mortgage initiative reaches its full potential, experts in the mortgage field agree that, in this time of post subprime revisionism, individual lenders will play catch up with automation. New rules, new tools Of course, as many analysts have noted, greed and misuse of analytics let many lenders game the system during the previous housing market surge, working around, for example, professional appraisals by using automatic valuation models. But such misuse of the technology that led, in part, to the subprime fiasco won't spell the end the marriage of convenience for IT and mortgage lending. Let's just say the union will mature into something more refined. One theme of the newer, wiser mortgage-related environment is that it will be designed to help banks deal with variability. Roger Godobba, senior principal with Wolters Kluwer Financial Services Minneapolis, notes that volumes dropped off in November to tick up again mid-February after some rate adjustments and ARM-related refis hit. Fluctuating application volumes and tougher credit standards can make it challenging for banks and other lenders to cope without technology and a variable workforce, he adds. Banks that took the initiative 18 months ago to rework their loan origination systems and the broader lending operation will be better prepared to handle the shift. Soon, others will need to follow suit. "The other issue, at least among bigger banks and lenders, is that back offices aren't as integrated as they could be," says Godobba. The quest for the paperless mortgage got its start around 2000. "There was a lot of investment in internet technologies over the last seven years. Now the industry will need to take a step back to ultimately go forward," says Ted Landis, a Phoenix-based senior executive who heads the North American credit practice and the mortgage BPO business for Accenture. …

Journal Article
TL;DR: The most effective measures, the survey noted, included the use of check imaging software, kite detection service on the teller line, external databases of nonfinancial information for customer authentication, and positive pay.
Abstract: First the good news. The estimated cost of attempted check fraud jumped 122% over the last three years to $12.2 billion, but actual check losses rose just 43% to $969 million, according to ABA's latest Deposit Account Fraud Survey Report. That suggests that banks' check fraud prevention systems were doing a good job thwarting the increased number of attempts. The most effective measures, the survey noted, included the use of check imaging software, kite detection service on the teller line, external databases of nonfinancial information for customer authentication, and positive pay. Also cited were employee training, new-account screening software, and signature verification for large-dollar items. Though not the largest fraud category, counterfeit checks are the fastest-growing cause of actual check fraud losses. These checks, stemming from such crimes as check and wire lottery seams, caused estimated losses of $271 million in 2006, up 160% from 2003, and representing 28% of total check fraud losses. The most common form of check fraud, however, remains return deposit items, accounting for 38% of fraud losses in 2006, down from 41% in 2003. Next came forged signatures and endorsements, representing 30% of losses. New account fraud accounted for 26% of check fraud losses overall, but 46% of losses for community banks. The number of check fraud cases actually declined from '03 to '06, from 616,469 cases to 561,306 cases, but the average loss per case increased from $1,098 to $1,727. The ABA survey was based on input from 176 banks. The 192-page report can be purchased for $400 for ABA member institutions or $800 for nonmembers (call 1-800-BANKERS). News from the ID theft front Another bit of good news is that the incidence of identity theft is down since 2003. Rachel Kim, risk and fraud analyst with Javelin Strategy and Research, reported at ABA's Banking Leaders Conference this fall that ID theft victims fell from 10.1 million in 2003 to 8.4 million by mid 2007, based on data from about 5,000 survey respondents. As the pie chart below shows, the sources of identity fraud are still predominantly physical. Kim presented data that showed that 45% of consumers surveyed want their financial institution to alert them to any unusual transaction that they specify; 35% want notification when a bill is due or has been paid, and also for any changes to personal information (password, phone, e-mail, physical address, etc.); 33% want notification when balances fall below a pre-set level and for confirmation of a deposit. Regarding personal information changes, Javelin found that only 29% of the largest banks and credit unions alert customers when this information changes, yet in 2006 66% of all account takeover fraud involved change of address. …