FUNCTIONS OF THE BANKING INDUSTRY

The banking industry is the economic center of any community in the United States, whether it is a small town, major city, state, region or the U.S. as a whole. This stems from the fact that the financial resources of a given  area typically flow through the banking industry. The banking industry literally mirrors the economic activity of a given area. It may influence the economics of its area, but it is not likely to get out in front of the commercial and industrial activity of its market area.

As a repository of the financial resources of an area, the banker typically has his/her hand on the pulse of the area. While the banking operations may appear complex from the outside, at the risk of over simplification, when we look below the surface, we will discover that it is really quite simple. The bank serves as a repository for customers who deposit their funds for short terms [demand deposits] or longer periods of time for safekeeping and income [savings deposits].

In turn, the bank lends a portion of those funds for a fee [interest rate] to customers who need to borrow funds. To assure itself that it always has sufficient funds on hand to accommodate the customers who, at their discretion, write checks against their deposits, or withdraw savings without warning, the bank invests a portion of those funds in the bond and money markets. The money market is a "near cash" market that generates only modest income for the bank, but can be liquidated on a moment's notice while risking little or no loss of capital. This is a liquidity management function. The bond market, on the other hand, carries some risk of capital loss, is longer term and income generating, for the bank.

In summary, the bank serves as a safe keeping repository of funds of the public while, at the same time, it lends and invests part of those funds for its own account. The expense associated with lending and investing those funds comprises the balance of the economics of the banking industry.

JOB CATEGORIES

With the functions of the banking industry as a frame of reference, it follows that the employee structure of the banking industry is made up primarily of tellers who receive and pay out funds to customers, the lending officers who lend to customers and investment officers who invest part of those funds. The functions of the banking industry can be classified into three broad categories, i.e., lending, investments, and operations, the function of which comprises all of those functions that do not fall within the lending or investment functions, such as accounting, purchasing, check clearing, and human resources etc. I should point out that while these functions make up the core function of the typical bank, the passage of the Depository Institutions Deregulation and Monetary Control Act in 1980 made it possible for banks to own businesses that prior to the passage of the act, they could not own. Included among those non-traditional services are Investment Banking, Insurance, Mortgage Banking and others.

THE CHANGING STRUCTURE OF THE BANKING INDUSTRY

During the last two decades, the banking industry has undergone the most dramatic changes in its structure since the great depression of the 1930s. During that period, widespread failures reduced the number of commercial banks by 50 percent, from 30,000 to 15,000. The passage of the Federal Deposit Insurance Corporation in 1934 stabilized the number of banks in the U.S. during the next 50 years at about that number. This act restored public confidence that the bank was a safe place to put their money, since the act insured bank deposits against loss, in case of bank failure.

Unlike the period during the great depression, the decrease in the number of banks was not due to widespread failures, but rather it was due to widespread mergers and acquisitions. Under the act, banks were allowed to expand beyond state borders, to offer service across industry boundaries and interest rates were allowed to float according to market demand, i.e., without ceiling. In this environment, it was predictable that during periods of high demand for funds, interest rates would rise beyond the economics of small banks. This made small banks prime targets for acquisitions by larger banks.

For example, at the end of 1982, when the Depositary Institutions Deregulation and Monetary Control Act went into effect, there were 14,500 commercial banks in the United States. By the end of 2002, twenty years later, the number of banks had decreased to 9,364. [Table I] With 5,136 fewer banks, the assets of the industry had increased by more than 300 percent from $2 trillion to $8.4 trillion during the twenty-year period ending 2002. [Table I; Note: The asset total at the beginning of the twenty-year period is not a part of Table I. It is from an earlier database]. It is clear that the banking assets in the U.S. are becoming more concentrated in fewer hands. When this trend will stabilize is anybody's guess. But the likelihood is that it will continue for the predictable future. 

The upshot of this trend is that banks are managing more assets per employee than was true in an earlier period. For example in 1993, banks managed $2,644 in assets per employee. However, by 2002, this figure had increased to $4,181 per employee, or just fewer than 60 per percent more assets per employee than was true a decade earlier. [Table I].

WHO WORKS IN THE INDUSTRY

From Table II, it can be seen that while white males are still the dominant component of the bank employee group, their position as a percentage of the employee group has decreased to 71 percent during the decade ending in 2002, from 76 percent at the beginning of that decade. The decrease in white male participation is a function of the increase of minorities in the industry. It appears that the industry is gradually moving towards including minorities in the same ratio as they prevail in the total population of the U.S. Significantly, white male participation in the industry was even more pronounced a decade earlier; in fact, white male participation represented 83 percent of the bank population in 1981.

WHAT CAN YOU EARN IN THE BANKING INDUSTRY?

• "Clothes do not make the man" but unless you conform to the unwritten dress code of any industry, you will not be hired or will be left behind, if you're hired.

• There are politics in every organization, large or small. While it is unwise to become identified with any known cliques or political machination, it is equally unwise to position oneself such that you do not understand what is going on around you. The written rules generally govern an organization, but the informal ‘grapevine' often telescopes what the formal organization will do at a later date or time. While it may be difficult to achieve, make a serious effort to be plugged into the informal network.

• Doing the job that you are assigned is a minimum criterion for promotions in any organization. The wise employee will not only master the job to which he/she is assigned, but will constantly seek to improve it and then seek to learn something beyond his assigned job that could be of benefit to the company. That's the person whose name will be mentioned and selected at promotion time for higher responsibility.

• You will be fortunate to be assigned to a secure, competent and fair supervisor. However, you are equally likely to get a supervisor that is the converse of these attributes. One piece of wisdom will get you through this type scenario. You cannot win a fight with your supervisor, even if he/she is wrong. Don't try it. Instead, try to make him/her look good every chance you get, even if you have to grit your teeth to do it. Making him look good over time can often change his attitude towards you. If it doesn't, "keep you head down' until he's moved or you're moved. I emphasize, it is not easy. But it beats the alternative of being written up in negative fashion or getting fired.

• It won't be easy, but seek out one or more mentors in and outside your department, within and outside your organization. Without a mentor, do not expect to get above the crowd in any organization. Seeking and nurturing a mentor relationship is an art and a skill. It may be more important than your technical skills. Read everything you can about mentor/mentee relationship. There is much written about it. It used to be called the "Old Boy Network." The modern term is mentoring. There is a lot to be learned about seeking and nurturing a mentor relationship. One of the cardinal principles to be remembered is that it must be a "quid pro quo." i.e., a two way relationship to survive. Seek to find some way to be of assistance to a potential mentor.

• Finally, there was a time in banking and other industries that when one got a job, the company took a personal interest in you and nurtured your career throughout your working years. That day is gone. You are responsible for your own career. There is little or no loyalty flowing from the employer to the employee in today's world. The company will be concerned with your career as long as the company thinks that it needs you. No matter what length of time that is, one year or thirty years, when that time is over, they will let you go, without remorse. It's called downsizing, rightsizing, reengineering or other fancy names, but the net result is the same. You're out and you're on your own.

So for long-term career success, whether you're in banking or any other industry, do your job as best you can and keep learning your job and beyond. Make a conscious effort to blend into the network. Seek out a mentor. But do not be surprised if your boss walks in one day and hands you a pink slip and tells you to "clean out your desk and take your belonging with you."

Edward D. Irons, D.BA., is Distinguished Professor Finance/Entrepreneurship at Clark Atlanta University School of Business in Atlanta, Georgia.