The News: The Federal Reserve announced last Wednesday that it would sell $400B of short-term Treasuries and use the proceeds to buy $400B of long-term bonds in an effort to lower borrowing costs for consumers and businesses. A week later, debate continues on what effect – if any – Operation Twist will have on the U.S. economy. Some applaud the decision and say that the Fed’s action could boost borrowing and might even help banks; others criticize the move and argue that Operation Twist will have little practical effect except to further erode bank margins.  Read More »

The News: Sweeping changes to UK banks proposed by the Independent Commission on Banking are going to mean a lot of work for financial institutions.  Already, banks are being asked to improve internal processes around transfer of customer accounts – requiring a big reduction on the time it takes banks to switch current accounts from one month to seven working days.  This uniform system will have to be adopted by all banks by September 2013.

Board’s Views: Internal re-organizations can become a nightmare for senior management if not planned and controlled effectively.  With an overabundance of information and choices, decision making in these situations can easily become ineffective if attention is not paid to the right information, especially as this relates to key drivers of your organization’s success

How We Can Help: In such situations, the Corporate Executive Board’s recent Executive Guidance finds that best-in-class companies focus on: developing more informed skeptics within the internal ranks, challenging business biases, and making sure the data being collected and utilized is actionable

The News:As lending to U.K. SMEs has flattened out during the last few months, small businesses are turning to their own customers for cash. The Financial Timesreports that SMEs in the U.K are increasingly using retail bonds to grow their business in a market where credit is scarce. 

Board’s View: In an environment characterized by risk, lending to business customers continues to be difficult for many banks. In the quest to keep their businesses afloat and growing, a large percentage of small business customers are willing to borrow from a non-primary bank, and many are turning to alternative sources such as bonds. These realities make lending to business customers increasingly difficult and banks are looking into various ways to streamline how they decision credit in order to lend to more customers.

How We Can Help:The Board is conducting a survey to understand how leading banks are efficiently providing credit to their business customers. Among many other factors, the Board seeks understand how turnaround time, required customer documentation, and the way credit is decisioned affects lending success. Participate in this study to understand how other banks have streamlined their credit process and view results during our October 27^th webinar. Email Sara Osborne at sosborne@executiveboard.com for more information.

The News: According to latest news sources, Bank of America has launched its new customer cash rewards program under the names of BankAmericard Cash Rewards™ and Cash Rewards for Business MasterCard® credit cards.  This program rewards customers with up to 3 percent cash back on certain purchases.

“Customers have told us they want to get rewarded for what they use their cards for the most…” said Bank of America Executive Susan Faulkner.

Our View: In a market with limited growth opportunities, actively listening and responding to customer needs through investments in the product suite are essential.  As in Bank of America’s experience, these controllable factors help providers differentiate themselves from the competition.

How We Can Help: On the heels of its 2010 Small Business Owner survey, the Business Banking Board continues to conduct and deliver research which helps Business Banking Executives understand differentiating customer profiles.  Review our most recent deliverable, which uses data to help members understand key differences in the profiles Baby Boomer and Generation X Business Owners.

The News: A recent article in the New York Times reports that, in a market characterized by massive declines in profits and losses in lending, many banks are scaling back their operations. These banks have resorted to eliminating the more than 10,000 jobs added in the past year, consolidating businesses, streamlining operations, and searching for new opportunities to cope with the post crisis environment.

Our View: Business banks are realizing that the increase in the supply of new workers over the past year must be reduced to equal declining demand and profits. As business banking executives turn to eliminating newly added jobs to cut costs and cope with loses in profit, it will be necessary for banks to be able to determine which of these new RMs are meeting the banks needs. Banks need to evaluate which of these RMs have met the bank’s requirements in the short period of time, whether they have the necessary credit skills and training to be successful in this environment, and also how well the RM fits in the overall bank culture and structure.  

 How We Can Help: One leading bank was able to determine which RMs were fit for the bank by screening RMs for necessary behaviors that predict success, providing dedicated RM advocates to shadow RMs, and creating assessments to evaluate new RMs after 90 days. Board members, learn more about this new hire evaluation process here.

The News: According to the Bank of England, U.K. banks have lent only 20% of their full commitment of £190 Billion to small and medium-sized enterprises (SME) across 2011.  The pressure remains on for these institutions to increase their lending numbers in order to help kick start the economy and saving it from dropping into heavy recession.  Specifically, the report shows lending levels at £37.3 Billion for the year.  In addition, a large chunk of this lending has been done by a handful of banks.

Our View: Rightly so, experts will point at the deteriorating relationship between banks and small business owners as one of the primary reasons behind these numbers.  Experience across the previous 2-3 years has left both sides in a more protective situation compared to pre-2008 times.  However, this deadlock needs to be broken for the benefit of all involved.

How We Can Help: The Board notes the need for a major shift in the characteristic of banking relationships.  This is an era which calls for analytics-based relationship providing bank services through a multi-channel framework when the specific business owner need arises.  Technology enabled channels are becoming more and more prominent in the SME business owner world.  Bank relationships do not need to be confined to a face to face set up – especially as time becomes more and more expensive for both sides.  See what European Business Banking Executives have to say on this topic. Read through key learning’s from the Board’s recent European SME Banking conference in London, U.K.

The News: A recent article in the Financial Times noted the  surge in lending by banks such as HSBC and Standard Chartered to Asian businesses across the first six months of 2011.  Specifically it mentions, HSBC’s loan book increasing by 40% in Hong Kong year-to-date, and by a third in the rest of Asia Pacific across the same time period. Standard Chartered provided 20%-30% more loans in each of these two regions compared with the year before.

Although such numbers tower over what European and North American banks are experiencing, experts express concern over the sustainability of this growth and potentially large losses for banks in the long run.

Our View: Assessing the credit worthiness of business owners and borrowers is a tradition every commercial bank has soaked into its processes and practices.  Sticking to prescribed lending rules and regulations is something every banker is now held more strictly accountable for than before.  But Banks need to do more by way of continuously updating the knowledge of its RMs to assess and validate the quality of customers – especially a customer who changes with the economic times and related head winds.

How We Can Help: See how one bank ensures its RMs are paying close attention to customer red flags in lending relationships through an on-going process of sales and credit coaching.  In addition, the Board’s most recent publication on RM tools provides data driven tips for Commercial Bankers on identifying customers who are most likely to buy from the bank as well as borrowing customers who represent a risk to it.

The News: The commercial paper market appears stable despite S&P’s recent downgrade of US debt. It’s a good piece of news amid a bleak economic landscape and suggests that – whatever challenges the US might face – banks and companies are unlikely to see a repeat of the 2008 liquidity crunch. Read More »

The News: Capital One is one of the first U.S. banks to offer a high interest checking account for business customers: Clear Interest Business Checking. With the Clear Interest Business Checking account, Capital One provides customers with high interest rates for the first 12 months (market rates thereafter) along with a business specialist to help business owners better manage their money. EVP of Capital One’s Business Banking Peter Appello explains that Clear Interest Business Checking will enable business customers to manage their business’ money more effectively while also earning interest on their accounts. 

Board’s View: The recent repeal of Regulation Q allows U.S. banks to pay interest on business deposits. But Capital One’s Clear Interest Business Checking goes beyond a basic interest-bearing account and instead is an example of banks placing a greater emphasis on cash flow management and customer experience strategies. Moving away from traditional relationship banking, business owners are placing more value the bank’s ability to help them manage their cash flow and provide easy to use and convenient banking solutions. As businesses focus less on borrowing and more on cash reserves, leading banks are attracting and retaining their customers by providing innovative services and products that help them put cash balances to better use.

 How Can We Help: To learn more about customer needs and preferences in the post crisis era please consult our profile of business owners and the full summary of results from our multinational survey of business owners.

 Read the full article at Market Watch.

The News: A handful of mid-sized US banks are reporting strong loan performance for the second quarter, reminding the wider commercial banking industry that credit opportunities do still exist. U.S. Bank, PNC, and M&T each reported increased new loan volume and less money set aside for poorer quality loans. But despite strong results, executives at these banks acknowledge that credit utilization remains low. More businesses have acquired new credit, but many still do not draw down their lines. Read More »