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Perspective on the lending industry

My summer schedule is full with banking and lending schools that focus on subjects ranging from agriculture to small business to interpreting domestic and global economics. Recently, the Graduate School of Banking at Louisiana State University (LSU) provided a great opportunity for networking with 546 bankers from 24 states and Mexico. I joined Dr. Tom Payne, Dean of the Business School at Tennessee Tech, to team-teach a session on interpreting economic change during this school. This opportunity provided an excellent venue for stimulating interaction. Tom and I polled the class with a series of banking-related questions and then bankers and Farm Credit employees in attendance responded thru “clicker technology.” These lenders provide a unique perspective because they are often on the other side of the desk looking at the stability of their clients’ industries.

Of the students in our class at LSU, 55% worked for an institution that had been involved in a merger in the last three years. Consolidation continues to be a major trend in the banking and lending field today. This trend was accelerated by the increased burden of additional compliance regulations, which have been especially hard for smaller banks to absorb. Additionally, the next-generation of many family-owned banks has no desire to continue the family business, which bears significant impact as approximately one-third of smaller community banks are family owned.

In a similar light, the attendees were also asked how many of today’s 6,000 American banks would be remaining by the year 2025. Over one-third indicated less than 3,000 banks would remain while one-half tallied in less than 5,000 banks would remain. Regardless of the exact number that will survive, bank consolidation is a reality. This is a major trend for which producers must be prepared. It is likely that your lender will change over time, but your entire lending institution may also look completely different.

Interestingly, the Mexican bankers enrolled in the course at LSU stated that in Mexico, six large banks do most of the lending to agriculture. There are eight intermediate size institutions and 40 smaller banks in Mexico. This presents the question whether or not the United States is heading toward a Canadian or Mexican type of banking system with only a few large banks. Only time will tell!

The biggest challenge in banking today, as seen by the students, is regulatory requirements. Regulatory burden is followed by the implementation of technology and, certainly, the hiring and retaining of talented, productive people. Remarkably, agricultural producers face these same challenges, as well. Regulation, technology and labor are three of agriculture’s largest issues, each fraught with complication and uncertainty.

The lenders in our class reported the biggest threats to their country’s economy, which included the U.S. and Mexico, are government dysfunction, and government and individual debt levels. Of all the students, an overwhelming 81% indicated these same issues as problems. Not surprisingly, similar issues are bringing about major transformation both in the production agriculture and agricultural lending industries. Today’s producers face squeezed margins and immense industry change; some voluntary and some not. The lender sitting on the other side of the desk has a very similar view. 

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