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This Isn’t the First Crisis The Valley’s Banking Industry Has Faced

The Valley has come a long way over the past 25 years, and the banking and financial sector is no exception. Challenges, crises and legislation brought about dramatic change that has created a new era in banking and finance. In the mid-80s local banks dominated the sector, while regional and national banks were nonexistent. The Valley was home to the “big three” — Valley National, First Interstate Bank of Arizona and The Arizona Bank.

The financial sector was real estate driven, with a considerable concentration in housing and commercial real estate development. Second to real estate were the “Five C’s” of Arizona’s economy: climate, cotton, citrus, cattle and copper.

The savings and loan and real estate crises of the late-80s were the turning point in the Valley’s banking sector. At a time when Arizona’s “big three” were suffering, large banking corporations invaded. Bank of America’s first “real” presence in the Valley was assimilating five different savings and loans in the state.

In summary, there have been many milestones over the past 25 years that have shaped the banking sector. Such milestones include sustaining itself through the S&L crisis and the severe commercial real estate downturn of the late-80s; recovering from the infamous Lincoln Savings and American Continental debacle; weathering the “dot-com” implosion of 2000; and passing the Interstate Banking Act that led to dramatic industry consolidation of local banks into regional, national and global banking organizations. More recently, the securitization boom in both the residential and commercial real estate market revolutionized real estate lending.

Today’s “big three” — Chase, Wells Fargo and Bank of America — control the vast majority of deposits statewide and a much more dramatic concentration of banking resources overall. But more importantly, small and mid-size banks have reemerged. 
There is also now more proactive leadership in the business community.

Arizona and the Valley have a more diverse economic base due to the dramatic progress of our investment in education, as well as the high-tech, defense, life sciences, health care, biotech, telecom, optics, hospitality, entertainment and transportation industries. We now have an “alignment” of stakeholders, including the public, business, academic and philanthropic sectors, and therefore stronger initiatives for more diverse economic development, such as sustainable systems, solar and renewable energy and land management.

That said, in 2009 we are again faced with many economic challenges that will no doubt continue to shape our industry and affect how we operate. Banks need to grow wiser and smarter in serving their communities and Arizona’s businesses. We are resource constrained from a state revenue standpoint and by expenditures driven by our phenomenal population growth and federal-mandated programs. Arizona is a high-growth state and we need to strike the right balance between infrastructure “catch-up” and smart and balanced growth. The banking industry has and will continue to support a more knowledge-based and service-oriented economy.

What does the future hold for the banking and financial sector? Banks will need to play a transformational leadership role in public issues, specifically economic diversification and development, as well as public finance. The industry must become a recognized leader for innovative approaches to capital formation and connecting intellectual capital with financial capital.

We must also promote a diverse array of financial institutions from small local community banks and mid-size niche banks to larger regional and global institutions that promote cross-border trade finance and strategic alliances.

There is no doubt that the next 25 years will bring as many challenges and reforms as we have overcome in the past, but our state’s banks will regain their strength; the strong will survive, consolidate the weak and prosper with our state’s growth. And as Arizona’s banking industry continues to grow stronger and smarter, we foster confidence as we reaffirm the leadership role in Arizona’s economic foundation.