Whether or not it was once true that most bank presidents inherited the job, it isn’t now.
Family banking isn’t what it used to be. Larger organizations have bought many banks handed down from father to son or daughter. Other family banks have succumbed to “shirtsleeves to shirtsleeves in three generations” — grandfather founds it, son or son-in-law builds it up, grandchildren run it into the ground.
But for every family bank that has followed this course, many remain — and owe their strength and stature to family ownership.
Unfortunately for the families, many such banks prosper because the owners underpay themselves and pay no dividends, subsidizing the bank’s role in the community. Obviously they feel status and/or the opportunity to serve neighbors in a personal way makes it worthwhile.
I have often heard stories of how the president of a family-owned bank went the extra mile — for example, opening up on a Sunday morning to help a forgetful neighbor get travelers checks for a trip.
And I have almost never heard of a community complaining because its bank is family-owned — though I have heard owners complain about the low pay they tolerate to keep their bank viable.
What other problem do family-owned banks have? One is training the kids to take over. In-house training alone can shut off fresh ideas. Back when major banks had large correspondent divisions, they were delighted to have the children of family-bank leaders in their training programs. The relationships forged that way would keep correspondent balances loyal.
But banks can now earn a return on their excess funds instead of leaving them with a money-center to meet reserve requirements. As a result, correspondent banking has become a dying art, and school is out at the programs that nurtured the scions of family banks.
This helps explain why so many family-bank children now attend bankers schools. And that’s a lucky break for those schools, since the money-centers have generally decided to train in-house.
Family banks also have an employee-retention problem: Top-quality nonrelatives think they will never reach the top or build a meaningful shareholding, as they might at other community banks.
Employee stock ownership plans help a little, and the rare sale of stock to meet inheritance-tax payments or generate money for other purposes also has led to some wider distribution of shares. But the employment problem still exists.
On the positive side, the constant creation of new banks helps keep family banking alive. After all, many incorporators are mostly trying to line up good jobs for the kids.
