Pub. 5 2016 Issue 2

l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s 6 T HE POLITICAL temperature in Kansas matches that of the national climate with deep divides between parties and difficult financial decisions being pushed off when possible. The 2016 Public Affairs Conference was held at the Topeka Country Club on February 3. Governor Sam Brownback opened the conference stating that the state needs to grow. The unemployment rate is 3.9% and many unfilled jobs force employers to look outside the state for qualified applicants. Much of his focus has been on schools and water. K-12 education funding is 50% of the budget and is now over four billion dollars. The new funding formula is in process but probably won’t be finalized this year. KPERS has been changed from a defined benefit system to a defined contribution system for new enrollees. The Governor declared that he has moved people from poverty to prosperity as the welfare caseloads are down 70%. The way out of public assistance is to work and the number of enrollees who have risen out of poverty has tripled. He made note of the zero tax base for small business that has created over 80,000 private sector jobs from 2011 to 2016. Government sector jobs have been cut but new business growth is up in the state. He closed with a point that revenue is up and that the revenue projections the budget is built from created by three university professors have missed the mark continuously. ABA President Rob Nichols was warmly welcomed by conference attendees. He noted that the next five to ten years are critically important to this industry like never before. He noted two primary reasons this time period is so critical 1. Millennials 2. The Rise in Financial Technology. The demography of those born between 1981 and 2000 are the largest generation with over 84 million people. As adults they don’t have the same financial starting point as previous generations with large student debt and lower earnings prospects. As a result they are delaying life events such as marriage. It is concerning that they have a distrust of banks and as many as half don’t think they need a bank. They are digital natives and as such they have expectations that extend into banking. They are 200% more likely to open an account with their phone and mobile engagement extends their satisfaction. It was noteworthy that they are going to be the recipients of the greatest wealth transfer ever with over 30 trillion dollars moving over 25 years. They are also the least financially literate. From a labor force aspect there is a lack of interest by millennials to serve in the financial services industry. We need to make banking cool. The challenge is how to attract the best and brightest again. The rise in fintech is the second factor critical to this industry over the next decade. In 2013 four billion dollars of venture capital was invested into fintech. In 2014 the number rose to 12 billion and in 2015 it is estimated to be 30-40 billion dollars in venture capital. Some of these startups want to partner with the banking sector and about half want to disrupt the system. As the fintech industry grows we must be vigilant to ensure that an unleveled playing field doesn’t develop. Nichols noted that, “the fintech industry is not an ally of financial industry regulators. Sometimes the enemy of your enemy can be your friend.” To this end the banking industry alignment with regulators is helpful. Nichols described the dialog in D.C. with a foundational observation that the U.S. capital market is the envy of the world with community, regional and large banks. He stressed that we must fight to protect our banking system and the government should allow the banking system to do what is needed to help the economy grow. Nichols is calling for a fundamental audit on how we reach out to decision makers on Capitol Hill and regulators. “We need to be far more politically muscular. We’ve been too nice.” He went on to say, “We need to never again say, this will hurt my bank.” He continued, “They don’t care if it hurts your bank. We need to provide as much tangible evidence linked to the damage regulation is doing to constituents.” There was a Legislative Leadership Panel focused on state budget and policy. The panel included Senate President Susan Wagle, Senate Minority Leader Anthony Hensley, Speaker of the House Ray Merrick, and House Minority Leader Tom Burroughs. Senator Wagle made an opening statement that she believes the Republican Party is moving back to pocket book issues because people don’t feel fiscally secure. State Representative Hensley followed with a statement that we need new leadership at the state level because the governor has led us down the wrong path. He believes the political climate has changed since the governor took office in 2012 and we have a budget crisis as a result. Senator Burroughs swiftly noted that there has been a “raid on the bank of KDOT” and that the political environment is caustic and partisan. He believes that the state has taken too much control from local communities. Representative Merrick chimed in last with a few statements on much committee work being done and a judicial budget passed. He said, “It’s easy to get caught up in the stories and politics and forget why we’re here.” He continued, “We are here to make Kansas better and leave something for our children.” He made a few comments about the efficiency study that can save over 2 billion dollars but it is only as good as the provisions put into place. It was noted that they plan to have a shorter session 2016 PUBLIC AFFAIRS CONFERENCE