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Rick Clayburgh, president and CEO of the North Dakota Bankers Association, stands in front of the vault doors of the Bank of North Dakota in Bismarck. IMAGE: KYLE MARTIN PHOTO

Bank on it: A Q&A with Rick Clayburgh, president and CEO of the North Dakota Bankers Association

Editor’s note: In this Q&A, Prairie Business talks with Rick Clayburgh, president and CEO of the North Dakota Bankers Association.

Clayburgh is a former North Dakota tax commissioner, chosen in statewide elections three times. He has served as the president and CEO of the North Dakota Bankers Association since 2005.

He is a graduate of Concordia College in Moorhead, Minn., and holds a law degree from the University of North Dakota School of Law.

Q. When you go to national conferences, what elements of North Dakota banking do you find yourself describing? In other words, what sets North Dakota banking apart?

Being from North Dakota, I am proud to answer questions regarding Carson Wentz, Cara Mund and what’s happening in the Bakken. But the No. 1 question that I get by far is about the Bank of North Dakota and its relationship with the state’s banking community.

The only state-operated bank in the country, BND provides a unique competitive advantage. It does this by acting as a “banker’s bank” to help North Dakota banks meet the credit and financial needs of North Dakotans and our communities.

Here’s an example. Banks are the backbone of our economy; they touch the daily lives of their customers and put deposits back to work in their communities.  And a bank’s ability to do this has been made much more difficult by the avalanche of rules brought about by the Dodd-Frank Act of 2010.

One of the most critical and altered areas was mortgage lending.  The new requirements were so onerous that some smaller North Dakota banks found themselves lacking the staff and other resources to comply. As a result, BND developed a program to help local banks both comply with the new rules and make mortgage loans more available.  

BND fulfills its mission to “promote agriculture, commerce and industry” in North Dakota and to “be helpful to and assist” North Dakota banks. Whether through loan participation programs, assistance with rural mortgage lending or capital assistance for farmers, BND is a vital partner to North Dakota banks, which – despite ebbs and flows in the economy – remain among the safest and soundest in the nation.

Q, What are community banks, and what role do they play in the region?

A community bank is a cornerstone of a community. A bank’s presence in a town means the bank has a direct stake in that community’s growth, health and vitality. A bank’s presence also is a symbol of hope and a vote of confidence in a town’s future.

When a bank sets down roots, communities thrive.

A community bank’s success rests on the bankers’ knowledge of local markets, market participants and business environment, as well as their ability to customize services. Small businesses (and businesses focused on smaller markets) depend heavily on community banks for many financial services, especially credit terms sensitive to local business conditions. This local knowledge benefits community banks’ customers as banks are able to support their customers through the business cycle’s ups and downs.  

In many small communities, the local community bank is often the only banking service available.  Community banks specialize in making loans to small businesses, generating 41 percent of these types of loans and 82 percent of agricultural loans nationwide. 

Q. What trends do you see emerging in the region's banking marketplace?

Because of the increasing costs of regulation and supervision as well as the challenges of workforce and succession, we expect to see continued consolidation and mergers. For a family-owned bank, succession can be challenging.  In many rural communities, kids head off to college and may not be interested in coming back to run the bank.

Cyber and data security also remain top priorities for banks. Criminals are constantly searching for new ways to steal money through fraud and cybersecurity vulnerabilities. And as consumers and businesses rely more on smartphones and other electronic devices, vulnerabilities increase.  

Last year, a massive security breach at the credit-reporting company Equifax exposed 140 million Americans to possible fraud.  The impact on banks was substantial because banks must protect customers’ information and money.

Nowadays, banks must seek out and address vulnerabilities in their own systems as well as guard against threats that originate with the negligence of third parties.

Banks also are focusing on changing demographics. For years, banks have put tremendous effort into making their in-branch experience customer focused.  As the millennial and later generations grow up and start careers, bankers need to respond to how those young people want to bank, borrow, invest, deposit and plan their futures.

Bankers will need to be innovative in not only communicating with customers, but also developing personal relationships with them, just as bankers did with the customers’ parents and grandparents.  

By focusing on changing demographics, banks will be leveraging financial technology and partnering with startups to ensure that their digital experience matches their top-notch branch experience.

Q. Banking's future certainly includes more "clicks." So, what about "bricks"? What should North Dakotans expect about the number of bank branches?  

Meanwhile, as banks are focused on enhancing their customer’s digital experience, branch banking is not going anywhere. Today’s technologies provide customers with convenience, which means they may not need to step into a branch to deposit a check. But community banking has always been about relationships, and branches are an important venue for banks to connect with and serve their customers and communities.  

That relationship is developed when a small business owner or ag producer sits down with his or her local banker to talk about the business and address credit needs.

Q. What key messages does the North Dakota Bankers Association hope to communicate to state and federal lawmakers in 2018?

With no legislative session in North Dakota in 2018, NDBA’s main focus will be on Washington, most notably regulatory relief and support for the new Farm Bill.  

Regulatory relief is not a new issue, yet its importance grows every day.  The sheer volume of bank regulations, especially for community banks, is hurting those banks’ ability to meet customers and communities’ needs.

Perhaps the most obvious impact of excessive regulations has been on the rapid consolidation of bank charters. For the first time since the 1890s, there now are fewer than 6,000 banks. And since the 2010 enactment of Dodd-Frank, 1,976 banks – 25 percent of the total -- have disappeared.

Certainly, consolidation would have occurred without that legislation, but the sheer pace is concerning.  More than 43 percent of banks with under $100 million in assets have been eliminated, as have 17 percent of banks between $100 million and $1 billion.  

The concern is this trend will continue until some relief is provided to community banks.

Regarding regulatory relief, bankers’ immediate focus is on Congress passing the Economic Growth, Regulatory Relief and Consumer Protection Act (S. 2155).  In late December, the Senate Banking Committee passed this bill out of committee with a bipartisan 16-7 vote. The legislation, which was crafted by Senate Banking Committee Chairman Mike Crapo of Idaho and a group of moderate Democrats led by North Dakota Sen. Heidi Heitkamp, represents the first meaningful regulatory reform measure to be taken up in the Senate Banking Committee since the enactment of Dodd-Frank.  

Enactment of the legislation will go a long way toward giving community banks the relief they need to better serve their customers and communities.

Regarding the Farm Bill, the vast majority of North Dakota banks hold most of their loan portfolio in ag loans. Banks are one of the largest providers of credit for North Dakota’s farmers and ranchers. It is important for ag customers and banks to support the passage of a Farm Bill with meaningful crop insurance provisions.

Not only will that provide a strong safety net for producers, but also it will boost lenders’ confidence to provide farmers and ranchers the capital they need to produce our nation’s food, fuel and fiber.

Q. Banks everywhere are trying to improve the retail customer experience, often with mobile apps, voice banking and the like. What tech innovations have you heard about recently that have made you say, "Wow!"?

Tech innovations have been rapidly advancing and improving customers’ banking experiences.  Two of the more intriguing advancements are in the areas of biometric and regulatory technologies.

Biometric technology is particularly interesting. As trusted custodians of their customers’ most sensitive data, banks are the gold standard in data security. Traditionally, to better secure digital services, you had to make those services harder for customers to access. With recent developments in biometric technology, banks can better secure customers’ accounts while providing customers with a seamless banking experience.

Regulatory Technology or RegTech has huge potential to improve the banking experience. This involves using technology to help banks comply with regulatory requirements.  It is no secret that regulatory burden has increased tenfold over the past 10 years. This burden is particularly acute for small-staffed community banks.

RegTech has the potential to automate a bank’s call report, simplify a bank’s suspicious activity reports and provide for machine learning of new regulations.  This can provide a “win win” that promises to give regulators better insight into the banks they oversee while reducing regulatory burden and allowing banks to focus on serving their customers.