Introduction | Spotlight: Housing Market Overview: Challenges to the Housing Recovery | Spotlight: A Guide to Trust Preferred Securities | Spotlight: Conference Looks Ahead to Banking's Next Chapter | State of the District | National Banking Trends
Conference Looks Ahead to Banking's Next Chapter
More than 100 bankers and regulators gathered at the Federal Reserve Bank of Atlanta on February 27 for the Supervision and Regulation Division's annual Banking Outlook Conference.
A full day of presentations and panel discussions explored a range of issues related to this year's conference theme: "Banking's Next Chapter: Challenge, Opportunity, Risk." The conference drew top experts to discuss many subjects including:
Economic conditions improving, housing price gains to slow
Last year's rising home prices will give way to somewhat slower appreciation in 2014, Duncan predicted. The previous year's increases were largely driven by supply-side factors such as low levels of new home construction and an influx of institutional investors into the housing market. Those factors, along with millions of underwater homebuyers, constrained the supply of homes for sale, he explained in an interview with the Atlanta Fed.
New mortgage regulations, such as the qualified mortgage rule, are also having an impact on the housing market, he said. This topics was a common one during the conference. "In the very near term, people are still adjusting to exactly what that rule means," said Duncan. Citing Fannie Mae research, he suggested that about 5 percent of loans made in 2012 wouldn't have met the standards, which, among other things, requires lenders to make a good-faith determination of a consumer's ability to repay their mortgage loan. However, he added that because households can make adjustments, such as taking out a smaller loan or changing the loan terms, "it's not clear if that entire 5 percent would have been affected by the new rule."
Duncan's take on the broader economy suggests that 2014 will be a year in which government actions take a backseat to the private sector. His team forecasts that U.S. gross domestic product will grow 2.9 percent this year. Downside risks to that forecast included weak productivity and job growth, he said.
Online retailers, telecommuting influence CRE demand
Demand for office space is also changing as more workers telecommute. Working from home is more of a complement than a substitute for in-office work, Chandan explained. Still, this and other trends—such as changes in the types of jobs that are being created—are affecting the amount of space demanded per office-using employee. "There's been a shift away from financial services and from legal services in job creation trends, and that is lending itself to a smaller footprint for office demand," he said.
Consumer protection, healthy banks can coexist
Since opening its doors in July 2011, the CFPB has fielded hundreds of thousands of complaints, many dealing with debt collection and mortgage issues. Addressing these issues is a core part of the agency's work, and it also helps inform its supervision and enforcement priorities, he said. Indeed, the CFPB has focused heavily on debt collection and consumer reporting issues, but it is also keeping a close eye on student loan debt, which makes up the second-largest consumer lending market, said Antonakes. As the cost of higher education steadily increases, graduates are beginning their careers with more debt. Today, more than 40 million Americans altogether hold approximately $1.2 trillion in outstanding loan balances, which has a domino effect on society and the broader economy, he said.
Cybersecurity: Panel shares regional perspective on broad challenge
These and other efforts to defend against cyber-attacks are critical, said King. Indeed, an inability to fight off such attacks would ultimately erode confidence in the banking system— in turn, putting at stake "the very heart" of the whole economy.
Next chapter in banking ‘already being written'
As a former banker, Atlanta Fed President Dennis Lockhart sympathized with the tough environment in which banks operate, noting that higher costs related to compliance, information technology, and other major investments make it difficult for smaller banks to compete. As a result, "banking is increasingly a scale economies business," said Lockhart. Some banks will be able to boost profits by aggressively attacking costs, but with roughly 6,700 banks nationwide, some consolidation is inevitable, he said.
Looking ahead, the next chapter of banking is "already being written," said Kansas City Fed President Esther George. Just as regulations in the 1980s dramatically changed the banking landscape over several decades, "the choices we make today will have many effects going forward." At issue is whether the regulatory reforms put in place following the financial crisis will be successful at ending too big to fail while leaving the country with an appropriately diverse banking system, she added. Bank regulatory agencies still have a tough task ahead of them when it comes to ending too big to fail, but they've made progress. "It's a condition that we're trying to treat and manage as opposed to an illness that's been cured," Lockhart said.
Recruiting for the future
Hershatter offered a few suggestions for employers looking to incorporate millennials into their organization:
This article was written by Lela Somoza, a staff writer in the Atlanta Fed's public affairs department.