As community banks evaluate why their share of the nations deposits is declining, they may want to reassess one of the most highly touted aspects of their business: The speed of their decision-making.
In addition to correcting errors quickly and smoothly, and knowing their customers personally, local banks have always prided themselves on making decisions quickly. Indeed, one axiom lending officers swear by is A quick no is better than a slow yes.
But maybe speed is not that valuable an asset in decision-making; on occasion it may even be a liability. When a customer comes in and says I need approval of this credit in the next two days, bankers may wonder about the management of that customers company.
Certainly opportunities sometimes arise that will disappear if the money is not forthcoming immediately. For example, a customer may get an offer to buy inventory at fire sale prices, but other bidders may get the inventory if the customer cannot come up with the money in 48 hours.
But normally, if a customer asks for a credit to be approved almost overnight, a good banker will wonder why the customer did not foresee the need for this money and plan for it. After all, borrowing money is serious business, and the decision to make or ask for a loan should not be made on a whim.
Speed can be a danger in other bank decisions too.
Hugh McColl, formerly the head of Bank of America Corp., once told me about his experience with decisions that are made too quickly.
I learned the hard way that you do not make decisions when you dont have time to think them over carefully, he said. I have been burned by agreeing to something quickly, simply because I had another appointment and wanted to get this individual out of my office or off the phone, but had I taken time to think about it, I never would have made the commitment.
I also warn my students about exercising too much speed in their decisions on career changes. What do you do if someone offers you a better job but tells you that to get it, you have to be prepared to quit your current job that day, without giving reasonable notice, and be in the new employers offices on Monday morning?
Do not accept such an offer. If you show so little loyalty to your present employer that you can quit without notice, your new employer will feel that you could show the same lack of loyalty if something even better comes along. And people remember this.
Another problem with quick decisions is that they often rob you of the opportunity to see the other party in person.
One CEO told me that a major rating agency called him and asked him some questions about a public issue his bank was floating. Instead of handling the questions over the phone, the banker went to New York with his top staff and talked to the evaluators in person. As a result, the issue received an even better rating than the bank CEO had expected.
This does not fully negate the value of prompt responses, but bankers have to remember that once a loan is made, it can stay on the books for years to come. If it takes an extra day or week to make sure the loan is worthwhile, then this is a minor delay relative to the life of the credit.
Bankers also must remember that, since they generally earn around 1% on assets, one bad loan can erase the profit from 99 good ones. If a couple of days of work will make sure that a new credit will not go bad, it seems worthwhile to take that extra time.
Mr. Nadler, an American Banker contributing editor, is professor of finance at Rutgers University Graduate School of Management.
