Regional President Speech

FROM: RELEASED FOR P.M. *s THE AMERICAN BANKERS ASSOCIATION THURSDAY, JUNE 1962 1, THE NEWS BUREAU George J. Kelly, Director 12 East 36 St., New York 16, N. Y BANKING SERVICES OF THE FUTURE Address of M. Monroe Kimbrel, Vice President, The American Bankers Association, before the Annual Convention of the District of Columbia Bankers Association, The Homestead, Hot Springs, Virginia, Thursday Morning, June 1962. 7, Mr. Kimbrel is chairman of the board, First National Bank, Thomson, Georgia. I always enjoy visiting with bankers of the District of Columbia. As a result of my service with the A.B.A. *s Federal Legislative Committee and, more recently, in this office, I have come to regard Washington as a second home. If present indications are borne out, it will be my good fortune to return there quite often in the coming months. This morning, I would like to spend a few minutes discussing banking services of the future. I realize that making forecasts and projections can be risky business. However, I think you will agree that if we don*t continue to try to look ahead and think ahead we will end up being left behind. Before considering what appears to be in store for banking, we would do well to note seme of the general factors that will affect the economy of the country in the years ahead. Certain trends appear to be developing that will influence banking and all other types of business. First, let*s consider the population outlook. The latest estimate indicates that by 1970 there will be about 21^-million Americans. That represents a 19 per cent increase in the 1960*s. Interestingly enough, it is about the same percentage increase that we had in the 50*s. Naturally, a larger population--barring drastic changes in other factors--means that we will be providing more service for more people. But if we simply look at population totals, we may miss some other important factors. For one thing, we should recognize the trend in population Digitized for FRASER (More) http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis BANKING SERVICES OF THE FUTURE 2 shifts. Many of the rural areas have undergone important economic changes as a result of people leaving farms. I don’t know how this will affect your area, but I have seen some of these changes down my way. For example, in i960, only 8.2 per cent of the total number of people employed in the state of Georgia were engaged in agriculture. In 19^0 the number of people in farming was 3^ per cent. Figures also show that we had a big increase in the number of professional and managerial people in the state. Without going into details at this time, I would like to point out that these shifts will call for significant adjustments in the type of services we offer. Another fact we can see from the population projections is the size of the various age groups. During the middle and latter part of this decade there will be a big increase in the number of household formations. The postwar baby boom is about to make itself felt in terms of a major expansion of our adult society. Increasing household formations invariably mean an increase in the demand for a broad range of goods and services, including banking services, Along with the increase in population there has also been a steady growth in the average disposable income of the people. More money will increase the demand for more bank services. The next general factor that I want to consider is the element of competition which is now increasing at a rapid rate. The economic competition between the Free World and international communism is still intense and will probably grow more intense in the future. What’s more, it is likely to be with us for a long time. The emergence of the Common Market as a strong economic unit will give U.S. goods a run for their money in European and world markets. Since the war, the United States has been filling domestic demand that had built up from the depression and through World War II. This demand for the (More) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis BANKING SERVICES OF THE FUTURE 3 most part has been filled. In addition to a reduced demand here at home, we are importing more goods from overseas. Under the free trade bill* competition in domestic markets would increase further. The third general point about the future that I would like to make is this: we are living in rapidly changing times. Only three industries that were in the top 10 in terms of total employees at the turn of the century are among the top 10 today. The electronic advances now being made are going to bring many more drastic changes in the make-up of our business world. We know from history that changes occur at an increasing rate and that each age, such as the Iron Age or the Atomic Age, is shorter than the one it succeeded. This means we in banking must be quicker to adapt ourselves to the times. If we take these general forecasts and use them as an overlay on the future of banking, we can see several things. During the 1950’s when the population of the country was increasing by 19 per cent, the number of people employed in the banking industry was increasing by 56 per cent. In 1950 there were 440,000 working in banking. In i960 the banking industry employed 685,000. Now there are over 700,000. In other words, the number of bank employees increased about 3 times as fast as the population in the 50’s. One reason for this has been the rising level of disposable income that we mentioned earlier. More people need more bank services. The trend toward more bank activity is likely to continue in the years ahead. For example, this year the American people will write about l4-billion checks. By 1970 the number of checks is expected to hit an annual rate of 22-billion. I think it is safe to assume that other banking activities will also show a marked increase. Now the question that we should ask ourselves is this: can we continue to keep adding employees at the rate we have in the past decade? (More) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis BANKING SERVICES OF THE FUTURE k Banking has been adding about 150,000 new employees each year. About 90 per cent of them come to us right out of high school. In light of the increasing profit squeeze, banks have no choice but to become more efficient. When the economy was growing by leaps and bounds during the postwar period, we didn’t have to worry too much about operating costs as long as earnings were rising. Now with costs becoming more pronounced, the personnel area is one that we should watch very closely. We should try to attract the best people we possibly can. Many of the more routine jobs will be eliminated as machines make automation of some operations more feasible. As routine jobs are reduced, starting employees are going to have to carry more responsibilities than did newcomers in the past. This will raise the whole level of performance standards throughout banking. Before continuing with the personnel in banking, I would like to touch briefly on automation. We are just starting to test the water as far as automation is concerned. The check-handling function is usually the first area where automation is applied. But there are other areas which can be automated if volume permits. For example, the trust divisions will be able to record stockholder information on magnetic tape and have the dividend checks prepared automatically. Some banks have started to put savings accounts under electronic data processing. Larger banks use computers to handle their own payroll, and some are now using the same computers to handle payroll services for their customers. This new national drive to increase efficiency of business, including banking, should be given a boost by the investment incentive provision in the tax bill now before the Senate Finance Committee. Although banking does not require the capital expenditures for equipment that are necessary in industry, we should still recognize the merits of the plan and support it. Digitized for FRASER (More) http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis BANKING SERVICES OF THE FUTURE 5 We should also realize that the depreciation schedules now being revised by the Treasury will help business to maintain more efficient operations. On the subject of automation, there is one other point that I would like to make. We must get every possible benefit out of the machines we use. One area that can be greatly improved as a by-product of automation is the cost-accounting function. On checking accounts, the computer can tell you more precisely what the average balance is for a given period. It can also produce a clearer picture of the activity in the account. The recent change in Regulation Q was embarrassing to many banks because they had to admit that they didn’t know what it cost them to handle savings. I hope new equipment and new techniques in this field will let us know exactly what It costs us to perform each one of the services that we offer to the public. Other businessmen must figure cost down to the penny on thousands of items. I think we in banking have been behind in this area because we have been too willing to accept approximations. It’s been too much like the case of the statistician who drowned crossing a stream--the average depth of which was only three feet. If we are going to offer efficient services at realistic prices, we are going to have to stay abreast of new developments in equipment. Looking at personnel again, I think banking services of the future will require people who not only know banking thoroughly but are also familiar with the workings of particular industries. The size of the bank will, of course, limit the number of specialists; but we should use them as much as possible. I noticed recently that a large New York City bank has established an aerospace division to handle customers in aviation and other related fields. Incidentally, this same bank also has specialists in public utilities, petroleum, electronics, chemicals, and mining. Digitized for FRASER (More) http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis BANKING SERVICES OF THE FUTURE 6 People with a deep understanding of a given field, in addition to a "broad understanding of banking, are valuable for two reasons. First of all, a customer who comes to your bank feels that he is getting the best service available if you have an expert from his field working on the account. Secondly, a man who knows the inside workings of an industry is in a good position to devise banking services to meet the particular needs of that industry. Such a man can also predict demands that may develop for the industry in the future. The need for specialists has also been felt recently by banks that want to become active in the mortgage business but do not have the personnel to operate such a department. I hope those who do enter the field develop the proper staffs before they launch their programs. It would seem to me that the time to do this is now— while the demand for mortgages is not excessively high. Then they will be ready for the big increase in demand as the number of household formations increases in the years ahead. The secondary market for conventional mortgages, proposed by the National Mortgage Market Committee, would also make mortgage lending more practical for bankers because it would increase the liquidity of conventional mortgages. This would help smaller banks that cannot afford to tie up funds for a long period. Agricultural banking will become more complicated as the credit demands of the larger farms increase. This will require agricultural specialists in the country banks, and it will also require correspondent banks to know a lot more about agricultural credit. These specialists will be necessary, but they will be only a part of the aggressive bank that seeks to offer one-stop banking for both business and individuals. The challenge facing management will be to develop the specialists into a working team. (More) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis BAWKIWG SERVICES OF THE FUTURE 7 For example,, right now the Federal Government is doing everything possible to stimulate exports, A banker working with a domestic producer should be able to obtain the necessary information on foreign markets which the producer might tap. This will require coordination with his or another bank’s inter­ national division. With so much emphasis on exports, every banker should be looking for ways to help his customers in the field of international trade. One way we can do this right now is by helping to publicize and explain the new export insurance program of the Foreign Credit Insurance Association (F.C.I.A.) to customers. The Association, in conjunction with the Export-Import Bank, supplements export credit insurance already available through commercial banks. Commercial risks will be insured equally by F.C.I.A. and Eximbanko Political risks will be insured solely by Eximbank. Under this insurance program, corporations will be more willing to export because their foreign accounts receivable are insured. They will also be more willing to extend proper credit to customers abroad. Commercial banks and other lenders will extend credit more readily than if the accounts were uninsured. If you have not informed your customers who are potential exporters about this new program, you may be missing a chance to help your customer increase his sales. That’s service with a capital S. Many of us talk about one-stop banking but never stop to realize that our own customers are the best customer prospects for our other services. The more services we offer a company, the closer the working relationship becomes. If we can meet a company’s credit demands, handle its checking accounts, inter­ national business, trust agency functions, and pension account, we are in a better position to obtain its payroll service business. We are also in a better position to obtain the business of the individuals who work for the company. (More) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis BAIMING SERVICES OF THE FUTURE 8 In-plant banking plans are another way to develop closer ties with companies we serve and their employees. This, of course, is getting into the retail end of banking--the area that will probably expand most rapidly during the coming decade. One-stop banking is more important to the individual customer than it is to the corporation. With payroll services being developed, we have an excellent opportunity to make one-stop banking a real convenience for the customer. In fact, it could develop to the point where banking is almost non-stop. If an individual’s paycheck is deposited automatically to his account, he is saving a trip to the bank. If he has a certain amount automatically transferred to his savings account, he is saving another trip. Some banks now have arrangements which permit deductions from checking accounts for mortgage payments and instalment loan payments. This is not only convenient for the customer, but it is also more efficient for the bank because it eliminates those long lines at the tellers’ windows during the noon rush hours. It is also conceivable that in the future the individual will send his bills to the bank to be paid. For example, the customer might sign his electricity bill, water bill, or telephone bill and simply send them all in a package to the bank. As more and more people with more and more income use banking services, I am sure that we are going to see these and other drastic changes in crur services for individuals. Time hasn’t permitted me to begin to cover the list of banking services that may be available in the future. Yet, every service we consider always comes right back to the one basic essential that we must have if we are going to compete with each other and with nonbanking institutions. That essential element is people. (More) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis BANKING SERVICES OF THE FUTURE 9 If we can attract, keep, and train the best personnel available, we will be able to keep up with changes in industries and changes in the demand for various banking services. People are the greatest asset of any service industry. If they are intelligent and imaginative, they can see opportunities as they develop. They can make the most of new equipment. In short, if we want to provide excellent banking services in the future, we should start now to develop excellent banking personnel. # Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monroe Kimbrel (1962, June 6). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19620607_monroe_kimbrel

@misc{wtfs_regional_speeche_19620607_monroe_kimbrel,
  author = {Monroe Kimbrel},
  title = {Regional President Speech},
  year = {1962},
  month = {Jun},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19620607_monroe_kimbrel},
  note = {Retrieved via When the Fed Speaks corpus}
}