The pandemic of 2019-20 (and beyond?) has impacted every aspect of human interaction, banking and finance included. Arkansas Money & Politics spoke with a few local experts to get their take on how COVID-19 has impacted the industry, from banking and investing to starting a business, and what might lie ahead.
Donald J. Cook
Bank of America, N.A.
What are some of the implications of COVID on banks’ risk management practices?
Weathering the ever-evolving conditions of COVID-19 involves keeping up with industry trends, monitoring economic outlooks and taking a close look at operations. During Bank of America’s recent earnings report, strong capital-markets results provided an important counterbalance to the COVID-related impacts on our consumer business, and our industry-leading digital capabilities allowed us to support clients amid difficult working conditions.
The bank nonetheless built up extra reserves during our last earnings period to cover any future credit losses. Bank of America is well-capitalized with strong liquidity, and we’re taking a lead role in helping consumers navigate the COVID-19 pandemic. With the current impacts on commercial businesses, we have employed a strong portfolio review of all of our commercial clients to ensure the stability of our current customers. Competing in business today requires endless resilience amid disruptions that can reinvent entire industries without warning.
Will the recent emphasis on digital banking reshape how bank branches are done?
Financial centers need to ensure they have the right mix of products and services as well as adapt to customer preferences — how, when, and where they want to bank. Although our clients are using our digital tools more and more — 39 million digital users, including 30 million active mobile users — they still rely on in-person or videoconferencing conversations with financial center professionals for some of their more complex financial needs, such as buying a home and saving for retirement or college.
Our high-tech and high-touch approach in our financial centers means we can help clients with their financial needs throughout their lifetimes and deliver extraordinary client care at all times — face-to-face, in person or through high-tech videoconferencing or on their mobile device — however they choose to do their banking.
Arkansas District Director
U.S. Small Business Administration
How has the pandemic impacted SBA’s mission in Arkansas?
When COVID-19 began to cause Arkansas businesses to close in March, SBA pivoted from our traditional programming and focused on answering the call for disaster relief and assistance. Through our private and public partnership authorized under the CARES Act, SBA and our partner lenders delivered more than $4 billion in critical federal funds to sustain our state’s small businesses. Our attention has been solely focused on implementing and supporting the Paycheck Protection Program (PPP), Economic Injury Disaster Loans (EIDL) and EIDL Advance relief, saving more than 375,000 Arkansas jobs since the pandemic began. Although the application period for PPP loans has ended, borrowers can still apply for EIDL funding for working capital for their small business or nonprofit.
Now our team is focused on helping applicants navigate the PPP forgiveness process and ensuring EIDL applicants are getting the attention and assistance they need. Our contracting division has also been working to keep small businesses certified and eligible for federal contracts throughout the economic disruption caused by the pandemic. The economic impacts from COVID-19 have highlighted how essential SBA support is for small and disadvantaged businesses and how SBA programs will continue to be essential tools in helping our businesses and economy rebound after COVID.
SBA’s core programs are still available, such as 7(a) loans to help start and grow your small businesses; 504 loans for fixed assets like land, buildings, and equipment; and microloans up to $50,000. As the pandemic continues, the SBA Arkansas team is working harder than ever to fulfill our mission to support our local small businesses, which are the lifeblood of our state.
How has it impacted entrepreneurship?
Most businesses, especially startups, have little cash to weather economic disruptions like the one caused by COVID-19, and many businesses will shut down or even forgo starting up at all. However, our state’s entrepreneurs have turned to innovative solutions and new technologies to adjust to the restrictions and the new normal created by the pandemic. Social distancing has forced small businesses to adapt themselves to technology or face closing. Every day, small businesses are reinventing themselves and exploring virtual alternatives such as e-commerce, digital marketing and social media to continue to sell products and services.
Many businesses locally and nationally have found opportunity amid the crisis by addressing the new demands in personal protective equipment and developing cutting-edge technologies to keep Americans safe and socially engaged while physically separated. Disaster support has been a core component of SBA programs since its creation in 1953, and although less prominent in recent years, disaster planning now takes a more prominent seat in new venture formation moving forward through the pandemic. As startups and existing companies shed jobs and talent, entrepreneurship will continue to be a viable alternative for those pioneers who choose to take control of their futures. Amid the crisis, there is a flurry of entrepreneurial activity that will hopefully break down the presumption that entrepreneurship is only for technology startups and increase the accessibility of entrepreneurship to a broader audience that sees opportunity in change.
This pandemic may be our collective opportunity and reminder that change is constant, and as a society, we need to further embrace innovation and entrepreneurship. Entrepreneurs are the individuals that help to find adaptable solutions among chaos and change.
Vice Chairman and President
Encore Bank, Little Rock
In what ways has the pandemic fundamentally changed how we do banking?
The entire banking industry has radically changed over the past decade. Our view is that COVID-19 has simply accelerated many of the trends that were already happening within the industry and with consumer desires and expectations more generally. The tremendous advancement in digital banking and fintech has caused a dramatic decline in branch locations, much like retail has shifted to online from brick-and-mortar. Most, if not all, banks had their lobbies closed for at least part of the year.
Almost anything an individual or business needs can be accessed via mobile or online banking: paying bills, checking balances, transferring funds and now with digital wallets, you don’t even have to carry a debit card anymore. The pandemic has validated our view that clients don’t have to come to a bank branch to transact most business. It has also sped up the development and rollout of financial technology.
In our view, these trends won’t slow down anytime soon — with machine learning, chatbots and artificial intelligence, bank delivery channels will continue to evolve. Of course, all of this technology and digital advancement won’t replace the importance of the relationships we build with our clients; in fact, we simply see these as tools to deepen our relationships.
What’s the outlook for smaller banks the rest of 2020?
Our view for the remainder of the year, and really the next few years, is that smaller banks are in a prime position to capitalize on some of these trends because they don’t have as much infrastructure to tear down and rebuild as the larger banks. The size and structure of smaller banks allows us to be nimble and change directions — or pivot, as we call it — rapidly, allowing us to better meet the ever-changing desires and needs of our clients.
Moreover, smaller banks that have an opportunistic mindset are well-positioned to attract talent and business from larger banks during a time when many of these banks are in a defensive mode given the uncertainties in the economy and the regulatory environment. Certainly, there are challenges with tighter margins and beefed-up loan-loss allowances, but this is a great time to differentiate your business model and service and delivery channels from the competition.
Luckily for us at Encore, we were already having strategic discussions about the kind of bank we wanted to build well before this pandemic began, and we believe many of our key initiatives will position us well for the coming years.
Meredith Moll, CFA
Foundation Resource Management, Little Rock
What will be the result of increased investment activity at the retail level?
We are in an investing environment that feels frenetic, and during times like these, the human instinct to “act” can drive many investors to treat investing like a roulette wheel. But with roulette, the wheel stops in just a few minutes and you know the winner. Investing is not like gambling because most investors have a horizon for their funds that is longer than a few minutes or a few quarters.
Our clients rely upon us to help them achieve their goals over decades, which means attempting to grow and preserve either their personal wealth to support a comfortable retirement or the pool of capital they have gathered to support a charitable mission or pay insurance claims as they arise.
Today, the top of the large-cap stock index is more concentrated in a handful of companies than ever before. One percent of stocks in the S&P 500 now account for more than 22 percent of the market capitalization. Similar conditions in the late 1990s produced the “lost decade” for passive stock market investors from 2000-2009, when the S&P 500 annualized at -0.95 percent.
We believe frenetic environments like these can actually provide opportunity for investors who think differently and keep their eye focused on the long-term goals for their funds. While we do not know what the future holds, we live by John Templeton’s words of caution that the most expensive words in investing are, “This time is different.”
Did the Fed place the country in a weakened financial state heading into the pandemic?
Historically and intuitively, economic expansions are periods when companies, countries and individuals are improving their balance sheets — growing their productive capacity by more than they are growing their debt. Instead, when the Federal Reserve maintained extremely low interest rates for the decade following the Great Financial Crisis, many government and corporate borrowers borrowed as much as they could because doing so was very inexpensive. Unfortunately, much of this borrowing has not added to the productive capacity of the economy.
Instead, many corporations have used this debt to repurchase shares or pay unearned dividends to boost short-term returns. (In contrast, we love earned dividends!) This economic contraction should serve as a time of reckoning where conservatively financed companies can outshine those who succumbed to the siren song of unproductive debt during an economic expansion.
Again, we believe a focus on the long-term can benefit patient investors. Our second quarter 2020 commentary addresses more about the history of the Federal Reserve’s actions and is available on our website at www.frmlr.com.
Chief Executive Officer/President
Sowell Management, North Little Rock
What might the post-pandemic regulatory environment look like?
With the pandemic forcing businesses to work virtually, it has put cybersecurity front and center. That was already a major focus of regulators, but I think it will now be even more heightened. Pre-pandemic, investment management firms focused on internal systems like firewalls, multi-factor authentication, etc. But now with people working from home, we have to ensure that the same level of security is available for remote access. Interestingly, we are required to “test” our business continuity plan on an annual basis in case of a business interruption; typically you would think of a fire or tornado. The pandemic allowed us to test our systems for the entire firm. Fortunately, it worked as designed. As a firm, we have a lot of resources dedicated to protecting our data and client information.