Monthly Archives: December 2011

Salary data provides perspective on Commissioner compensation

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After I wrote this piece about the Deputy Commissioner of Commerce for the State of Minnesota being underpaid, I began to wonder what the chief bank regulator in other states earns. I went to the Conference of State Bank Supervisors with my question and they provided data from their annual Profile of State Chartered Banking. Salary data in the profile shows that the chief bank regulator in Minnesota is paid less than peers around the country.

Thirty-five states in the profile provide a salary range for the top official in their bank regulation department; 10 states simply provide one figure, and five states did not provide information.

By far, the biggest salary range, and the highest potential salary, is in Alaska where the chief bank regulator can make from $103,116 to $229,824. Other states with ranges that were highest are Texas ($122,500 to $192,600), Alabama ($130,000 to $180,000) and Florida ($72,470 to $164,255). The salary range listed for Minnesota is $76,713 to $109,962, although the state job posting lists the current salary range at $80,973 to $116,072. The lowest paying bank commissioner job is in West Virginia, where the salary is stated as a flat $75,000.

If you ranked the 45 states that provided data according to the highest figure in the their respective salary ranges, top to bottom, Minnesota would come in No. 32 using the $116,072 figure and No. 37 using the $109,962 figure. The median salary is $123,198.

Of course, the number of state chartered banks in each state varies widely. It is difficult to compare a state with 20 banks to a state with 200, so it is useful to divide the commissioner’s salary by the number of banks for which he/she is responsible. If you total the top salaries at all 45 states and divide by the total number of state chartered banks in those 45 states, you come up with a cost of $1,128 per bank. Granted, Alaska skews the figure, given the commissioner there can make up to $229,824 and is responsible for only four banks making the per bank allocation $57,456. So, if you take Alaska out of the equation, you end up with a nationwide per state bank average of $1,083.

In Minnesota, where the Deputy Commerce Commissioner is responsible for 295 state chartered banks, the per bank average is $372 using the $109,962 figure, or $393 using the $116,072 figure. That is the second lowest compensation in the country, ahead only of Illinois, where the top bank regulator makes up to $138,700 to supervise 419 banks, or $331 per bank. Texas, by comparison, which has 333 state chartered banks, pays its top bank supervisor up to $192,600 or $578 per bank.

I think in the case of most states, you could argue that the top bank regulator is under-compensated, but I think in Minnesota, the under-compensation issue is particularly acute.

Salary data offers insight into market conditions for regulators

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This article from Government Executive affirms the point I made earlier about the chief regulator of state banks in Minnesota being under-compensated. The article explains that the highest-paid 1,000 federal employees earn annual salaries ranging from $216,345 to $350,000. Turns out the highest paid federal employee is a medical officer for the National Institutes of Health.

The story includes a link to a list of the 1,000 Federal employees with the highest salaries. The list is dominated by NIH employees, but I was surprised at the number of employees from the Federal Deposit Insurance Corp., who appear on the list. FDIC employees earning $260,000 per year show up at spots 74-76; FDIC employees making $257,250 appear at spots Nos. 86-87, and employees earning $250,000 per year show up at spots Nos. 144-155. Others appear lower on the list.

If you are really interested, you can sort the database linked to this story and see the salaries of 7,496 people who work at the FDIC.

On Oct. 28, I posted this information about the retirement of Kevin Murphy as the Deputy Commissioner of Commerce for the State of Minnesota. He has retired, and Bill Horlitz is serving as acting deputy commissioner until the position is filled on a permanent basis. In my article, I linked to the state of Minnesota job posting, which lists the job as paying between $80,973 and $116,072. That’s a fine salary, to be sure, but I think it is not commensurate with the responsibility of the job. There are about a half dozen banks in Minnesota with dangerously low capital. Let’s face it, the person in this job is going to have to make some tough decisions in 2012, including probably closing some banks. This is a very large responsibility.

A person with the skills and knowledge to manage this kind of thing is easily making $175,000 or more at a law firm or other organization in the private sector. Looking at the FDIC’s list of salaries, even if the Minnesota job paid the top listed rate of $116,072, there would be 2,919 people at the FDIC making more than that, including folks who work in support services administration, human resources and — my favorite — “miscellaneous administration and program.” 

If we think bank regulation is important in this state, then we have to compensate the professionals in this field commensurate with the market.

Credit union riles veterans with naming rights in Des Moines

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There’s been a big flap in Des Moines in recent days over the renaming of the city’s downtown auditorium. For years, the facility has been known as Veteran’s Memorial Auditorium. It was remodeled lately and Polk County authorities announced Dec. 15 they had struck a deal with Community Choice Credit Union for the naming rights. Here is the article from the Des Moines Register in which it is announced that the credit union agreed to pay $2.5 million over 10 years for the auditorium to be called the “Community Choice Credit Union Convention Center.”

Well, it didn’t take long for veterans’ groups and others to express outrage over the dropping of the “Veterans” name. Four days later, facility supervisors agreed to change the name to “Veterans Memorial Community Choice Credit Union Convention Center.” The agreement is quite detailed about how the name will appear on the building, and about which walls on the building will bear the name. Read the details in this Register article. Ultimately, the folks at the Des Moines Register said they believe authorities did a pretty good job balancing the interests of Veterans and commercial enterprise. Here is the newspaper’s editorial.

The editorial, however, misses a key point. How is it that a non-profit organization such as a credit union has $250,000 per year for ten years to spend on something like naming rights? Community Choice Credit Union was founded as the State Employees Credit Union in 1953. It obtained a community charter in 1996 and changed its name in 2000. Today it has 31,724 members and assets of $285.7 million. Clearly, a financial institution of this size — apparently with a substantial marketing budget — does not need a federal income tax exemption.

Directly across the street from the Veteran’s Auditorium in Des Moines is the Wells Fargo Arena. I am sure the credit union people believe that putting their name on the auditorium right next door to the arena puts them in the “big leagues.” But if the credit union really wants to be in the same league with the big players like Wells Fargo, then it seems to me they should start by paying taxes the same way banks do.

Fed says outlook positive, but questions remain about ag

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The Federal Reserve Bank of Minneapolis hosted a briefing yesterday in which economists Toby Madden and Rob Grunewald said the economy in the Ninth District performed better than expected in 2011. They also said they expect continued growth in 2012. Here is a summary of their forecast.

The agricultural  and manufacturing sectors have been the driving forces behind growth in the region’s economy and are forecast to contribute to 2012 economic growth. These bright spots, however, depend on a demanding export market and could darken if there is significant recession in the Euro zone.

The manufacturing sector has been supported by growth in exports. Up to October 2011, District exports increased by 11 percent compared to the same period in 2010. Twenty-two percent of manufacturing exports from Minnesota went to the Euro zone in 2011. The possibility of mild-to-severe recession in the Euro zone has large implications for demand in this industry.

Agriculture has been one of the bright spots in the U.S. economy through the last few years. The Minneapolis Fed’s survey result contradicted the predictions made by the U.S. Department of Agriculture. The Fed survey said that farmers expect lower commodity prices in 2012 whereas the Department of Agriculture predicts commodity prices to increase. This gives an unclear picture as to the expectations for commodity prices. The Euro Zone crisis only adds to the uncertainty.

Michael Boehlji was quoted in the Dec. 15 NorthWestern Financial Review saying “Twenty-five percent of every dollar that farmers make in terms of gross revenues comes from sales of products overseas.” A recession in the Euro zone is worrisome because it means a decrease in the demand for agricultural exports from the United States.

Will mobile-payment services reshape the marketplace?

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Many observers have predicted that people between the ages 18 to 34 will gravitate away from brick and mortar banks because of technology. However, the American Banker published the results of a recent study done by Market Strategies International which suggest otherwise.

The results indicate that consumers ages 18 to 34 are likely to use mobile-payment services when they become available. However, they would rather have those services provided by an established financial-services company. A face-off between online companies like Facebook, Google Inc. or Apple Inc. and banks is by no means a foregone conclusion. The study shows banks have the advantage of already holding the trust of consumers.

Wells Fargo releases 2012 economic outlook

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Wells Fargo economists predict moderate to under-performing economic growth in 2012. It expects the slow housing recovery to contribute to low U.S. economic growth of 2 percent. State and local governments will need to balance spending growth with the new slower pace of revenue growth. Wells Fargo economists held their 2012 Economic Outlook meeting on Dec. 8.

The housing market is predicted to be a rerun of 2011. Falling prices for foreclosures and bank sales continue to drag overall home prices lower. The inventory of existing homes for sales is around 2.86 million units with another estimated 2.0 million units in the foreclosure process or 90 days or more past due. Lenders have tightened up credit requirement which has made credit less available and more expensive to borrowers. The housing market is having an additional drag on job mobility. Since many home owners cannot sell their homes they cannot seek jobs in other parts of the country.

The global economy is predicted to continue to grow at a below average pace. This prediction assumes that Europe does not enter a serious recession. Global growth will primarily come from developing countries in particular China, Indonesia, India and Brazil. North American recovery will remain intact. Mexico and the South American countries have well balanced economies and appear poised for growth.

China is expected to continue growth despite the economic conditions of the rest of the world. It slowed its growth in 2008 due to the crisis in the Euro zone and the United Stated. However, it went on to grow 2 percent in 2010 and is on pace to grow 9 percent in 2011. China’s inflation does appear to be receding.

In Europe, sovereign debt issues in both Spain and Italy continue to threaten the financial system. A default by a large European country could lead to another financial crisis because of the extensive financial links between European countries. European GDP is predicted to contract by 1 percent next year.

Consumer spending is predicted to remain limited. The Great Recession showed that American consumers are dependent on credit for their role in the economy. The ever broadening availability of credit provided the means for consumers to spend more than they earned based on the expectation of future income. The consumer does not have this expectation any longer.

Household debts now exceed the value of their home and financial assets. Job and income stability will also constrain household spending in the future. Households are saving today because of the risk that they will need savings to get through possible unemployment or low income in the future.

What does ‘creativity’ mean anyway?

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At banker meetings, I have heard expert use the work “creativity. ” Bankers are urged to be creative, particularly with fee income. A recent survey by the American Banker received a number of responses saying bankers need to be more creative in finding ways to deal with unprofitable customers.

But Andrew Kahr principal at Credit Builders LLC, takes a contrarian view. “What a remarkably wrongheaded notion,” he writes. “When bankers get creative, the consequences can be catastrophic.”

I agree with Kahr that bankers should stick to sound practices but there are ways to be creative without sacrificing prudence. Bankers can leverage their knowledge and that of their employees to increase efficiency, find ways to serve customers better and mitigate the cost of doing business. They can find ways to encourage customers to become invested in the bank. 

Before I came to NorthWestern Financial Review, I worked at a firm that required all of its employees to contribute five company improvement suggestions per year. Bank presidents could do somthing similar. It would foster creativity among the bank staff.

This might be especially useful for managing customer relationships. Studies estimate that an unsatisfied customer will tell between nine and 15 people about a bad experience with your bank. Ask the people who deal with customers everyday at your bank to help create a customer satisfaction survey. The survey should solicit feedback that helps you offer the best service possible. Customer suggestions also can give valuable direction when creating a marketing campaign or help improve even simple things like your bank’s telephone greeting.

A great way to get started is to encourage creativity at your bank; make it clear that employee suggestions for improved processes at the bank are welcome. There is a lot of creativity out there; so little of it is tapped.  

CUs lost accounts in the weeks before bank transfer day

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When I wrote about Bank Transfer Day for the Dec. 1 edition of the NorthWestern Financial Review I was suspicious about the reliability of the estimates reported by the Credit Union National Association. I also expressed reservations on this blog post from Nov. 14.

It turns out CUNA’s reports were quite distant from reality, the American Banker reports. CUNA estimated that some 650,000 new members joined credit unions from Sept. 29 to Nov. 4. The official numbers for that period have arrived and now CUNA is reporting 214,400 new members, about a third of that originally estimated.

CUNA also estimated that those new members brought $4.5 billion in new savings deposits over the same time period in addition to the $4.5 billion monthly average. It turns out CUs lost existing members in the weeks before Nov. 5. The $4.5 billion in new savings accounts estimated turns out to be a negative $400 million in reality.

The American Banker quoted Bill Hempel, chief economist at CUNA: “We were not precise enough in drafting our questionnaire. When we got our regular numbers, they looked different. We said, woops, we have got to go out and fix that.”