2014 Banking Outlook Conference: Banking's Next Chapter: Challenge, Opportunity, Risk - February 27, 2014

A full day of presentations and panel discussions explored a range of issues related to this year's conference title of Banking's Next Chapter: Challenge, Opportunity, Risk. The conference drew top experts to discuss topics such as the economic and policy environment, the way forward for banks, and the outlook for commercial real estate.

Changing demand for commercial, office space
The changing labor market and the rise of e-commerce are influencing demand for different types of office and commercial space, explained Sam Chandan, president and chief economist at Chandan Economics. For one, consumers are doing more of their shopping online, and that is affecting some retail categories more than others. Electronics stores and bookstores have been hit especially hard while other product categories such as grocery stores have not felt as much pressure from online retailers, Chandan said. These changing trends in the demand for commercial space require investors to look ahead to what the "best and highest" potential use of those properties might be, he noted.

Demand for office space is also changing as more workers telecommute. However, 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
In the day's keynote speech, Consumer Financial Protection Bureau (CFPB) Deputy Director Steven Antonakes said that the agency's consumer protection mandate is not in conflict with a healthy, profitable financial system. Indeed, "consumers benefit from a healthy, competitive, and diversified financial services system through greater access to credit and competitive pricing," he said.

Since opening its doors in July 2011, the CFPB has fielded hundreds of thousands of complaints, many of which deal 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, Antonakes 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 comprises the second largest consumer lending market, he said. 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 knock-on effects on society and the broader economy.

The way forward for banking
The conference also featured a candid discussion about the future of banking from Atlanta Fed President Dennis Lockhart and Kansas City Fed President Esther George, both of whom bring unique perspectives to their current policymaker roles. Lockhart is a former banker, and George spent much of her career in bank supervision and regulation.

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, some consolidation is inevitable, he said.

Looking ahead, the next chapter of banking is "already being written," said 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 were successful at ending too big to fail while leaving the country with a diverse enough 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.