Thirteen years after he founded Community First Bankshares, Donald R. Mengedoth stepped down as chief executive officer of the Fargo, N.D., company in May to focus on his new role as president of the American Bankers Association.

Mr. Mengedoth, who takes over as ABA president this week, brings nearly 35 years of banking experience to the post. He began his career at Midland National Bank in Milwaukee and later headed operations, credit cards, retail banking, and other divisions at the former First Bank Systems of Minneapolis, which bought Midland in 1977.

While at First Bank Systems, Mr. Mengedoth achieved national recognition as a founder and original chairman of Plus, a national automated teller machine network organized by 26 banking companies. In 1987, he founded Community First, which is now one of the 100 largest banking companies in the country, with $6.2 billion of assets and branches in 12 states.

Community First is now headed by Mr. Mengedoth's hand-picked successor and longtime deputy, Mark Anderson. Mr. Mengedoth, meanwhile, will rack up frequent-flier miles in the coming 12 months representing the ABA at banking conventions, town meetings, and, of course, on Capitol Hill.

Alan Kline, community banking editor at American Banker, sat down with Mr. Mengedoth recently to discuss his goals for the coming year.

You've held leadership positions at the ABA for several years now. How much does the workload increase when you become president?

DONALD MENGEDOTH: I am seeing more and more travel time, and it's going to increase even more in the next year. Committees at the ABA like to have the president attend one of their meetings. I'm expected to testify [before Congress] and meet with the leadership of both parties and both houses. And the ABA president is often invited to participate in things like FDIC regional conferences.

Plus, as you know, there's an awful lot going on in banking. Financial modernization passed last year. For the first time in history, we have federal privacy legislation. Certainly there's a lot of expectation that there will be major changes in the FDIC insurance. Those will be time-consuming issues.

Will you continue to be active at Community First?

I plan to stay involved at the corporate board level, chairing the board, participating on the strategic and finance committee activities of the board. But the company needs somebody that's going to be there every day, to make the decisions that we need to be making so that we can continue to be effective in executing.

The commitment to the ABA was an important one for me to make. I'd been invited to be the volunteer leader of the largest association for banks in the country, at a time when we were addressing important issues about how we are going to serve the expanded financial services sector.

Let's talk about the new financial modernization law. In what areas do you see community banks benefiting most from this?

Well, I think there's a diamond in the rough here in the whole merchant banking area. If you think about what community banks have been doing for years, they are not the ones that are financing GM and the Fortune 500 companies. They're financing businesses that have started in their community, and it's very much of an equity kind of relationship. It's a very deep relationship between the borrower and the bank.

To me, the merchant banking provides an opportunity for a community bank to get into an equity position with a company where it really is acting as an equity partner, in many respects, to begin with.

You're out there trying to communicate this message, I take it.

I have started talking about that, and of course, I've been following very closely the comment period on the rules. I am very disappointed that the regulators have taken such a punitive view in terms of the [proposed] 50-cent-per-dollar equity allocation for that kind of activity.

What do you think is fair?

It's got to be much more modest than that. The important thing is maybe controlling the total amount of investment in any one customer. If there has to be any equity allocation at all, I think it should be done on the 10% or 15% level.

You've said in the past that financial modernization is going to make banking a far more attractive career choice. How so?

Instead of just doing deposits and loans, we'll be able to offer insurance products. We'll be able to offer investment products. And that'll require a better skill on the part of people who are serving the customer.

Although it's been a nice job in some small communities, banking hasn't been a very exciting and challenging job, beyond the lending function. But for community banks, I think there are going to be great career opportunities when they start offering some of these other products.

Community First has been active in selling nontraditional products. What has it meant for the company?

We've been involved in [investment products] since 1996, and the reality is, our customers like it. We'll sell $250 million of investment products this year. That's like acquiring a $250 million bank, in terms of investments of assets by our depositors. So it's a meaningful business for us. It's increasingly important from a fee income standpoint, as margin pressures continue.

You mentioned privacy earlier. It's obviously a hot topic, but right now it appears to be largely a media and Washington issue. How concerned are banks about this?

Very concerned - especially from the standpoint of things like identify theft. Reportedly now there are 800 cases a day of identity theft. And that's across the country.

What I'm really concerned about is that the banking industry is going to be tagged with privacy violations, unjustifiably.

You've got government entities that are publishing our mortgage filings and requiring other kinds of filings of individuals, and all of these are being published on the Internet. It's not that they weren't available before, but now you can sit in your den and go click, click, and find out what your neighbor paid for his house. And what does the neighbor think when he finds out that you know what his monthly mortgage payment is? He thinks you got it from his bank.

This is a politically very populist issue. Nobody is going to stand up and say, "I'm against consumer privacy." So it's going to be very, very difficult to make sure that everybody understands the implications of the law.

From a marketing standpoint, how important is it for banks to share information with third parties?

It's interesting. The ABA recently did a survey, and the first thing we learned was that fewer than 1% of the population thinks this is an important issue. If you ask them what is the most important issue facing the country, it's things like health care and crime.

But the point I want to make is that when we talked about privacy in the consumer survey - when [respondents] were educated about some of the benefits of sharing information with third parties, there was a huge change [in attitude]. It went from something like 26% of the people, who didn't want you to share any of their information, to like 3%.

It seems unlikely there will be any legislation dealing with privacy this year. What do you see happening in the last few weeks of this Congress?

We had some hope for bankruptcy legislation because of its overwhelming support in both houses. Unfortunately, we think politically that's unlikely to happen.

A bill we are a little more optimistic about is 24 [monthly] transfers. We looked for a bill that would permit 24 transfers on business checking accounts, which in effect would give banks that are now using sweeps and other sophisticated kinds of ways to compensate corporate customers on their deposit balances.

That, again, has passed both houses, both chambers, by substantial majorities, and it's much less controversial. There's nobody out there saying, "No, we don't want banks to pay interest to corporate customers."

What about raising the coverage on deposit insurance?

We don't think that will happen this year, and frankly, that's probably good.

One of the presumptions of doubling the amount of insurance to $200,000 is that it will help us get funding - that insured deposits will attract either funds from competitors or funds back to the bank that may have even been invested in mutual funds.

There isn't any empirical evidence to support that, so the ABA is trying to gather some. Given that, politically, a bill of this magnitude is not going to get addressed in this Congress, let's take some time to find out from consumers what their reaction will be.

I've talked to a number of community bankers who say they could be net losers in this. What if you've got a lot of CDs at $99,000, but also some at $60,000 and $70,000, and the reason you have those is because the customers have a $99,000 CD at your competitor down the street? To try and determine whether you're the primary bank, or your competitor is the pri-mary bank, isn't always very easy.

Keeping abreast of legislation and regulation that affects banking will obviously be a big part of your job as ABA president. But you're also the head of the industry's largest trade group. Have you set any goals for the ABA as an organization?

One of my objectives is to make it clear among our members that there's great advantage in the diversity that we have.

For years, we've been hearing that the industry should have one voice politically, particularly because there are other associations. There has been kind of an ongoing industry divisiveness, that's been promoted by some, of big versus small.

You mean that the ABA only represents big banks?

We hear that all the time. But one of the huge strengths of the ABA is that we have more than half of the community banks with assets under $250 million.

We also have an Ag Bankers Council, a Credit Card Bankers Council, and a Mortgage Bankers Council. We really are the voice for the industry, and if you really looked at the diversity that is a part of the ABA, there isn't any other association that can claim that.

Before we go to Congress, we know what our position is for the industry. We're not kind of hip shooting and saying, "Well, this is good for small banks, so let's go do it," or, "This is a major advantage for big banks, so let's go do it." The important part of what I'd like the message to get out is that we represent the whole spectrum, and we represent the majority of the whole spectrum.

Any plans to revive merger talks with one of the other trade groups?

It's probably inappropriate to talk about exactly how those things emerge because they don't emerge if you talk about them in public. And that's from experience of 35 mergers that I've had in my company.

So what are you going to do when your term is up a year from now? Go back to Community First full-time?

That's a good question because I just recently turned 56, so in the ideal world, perhaps this invitation to head up the ABA would have come a little later in my career. When I get done, I'll be 57, and I'll be saying, "Gee, what am I going to do for the next 10 years?"

Certainly I have some ongoing commitment to continue to serve in a board capacity as chairman, in a compensated way. But I certainly don't expect to come back to Community First and step into the leadership role.

One thing I guess that I always look back on is my experience with venture capitalists that invested with our company originally. It almost takes me back to the original plan to go into finance and, you know, have the variety of looking at different credits in banking and lending.

And I think it would be great to work in a merchant banking, or some kind of a venture capital or merchant banking consulting role, perhaps, for financial institutions. I have built some real friendships in the venture capital community with some quality firms, and maybe I'll have an opportunity to do some work for them.

You know that if the venture capital firms read this, the job offers are going to start pouring in.

Well, I don't know if that's the case, but certainly, having a position like this may open up some doors that I haven't even thought about.

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