The overall economy is looking good these days, but very few people live or work in the overall economy. They work in tech (strong) or aerospace (got a few problems at the moment, as you may have read) or retailing (undergoing massive structural change) or one of a thousand other occupations and business sectors, each with its own trends, dynamics, challenges and opportunities.
Each of those generate enough news to keep those of us in the business media busy, but let’s take a break from what’s going on with airplanes that aren’t flying and stores that are closing to focus on a big, important business sector that in February 2020 isn’t producing much news or speculation, but a decade ago was producing far too much of it.
That would be banking.
This is a good time to reflect on what’s going on in banking, or more properly what isn’t, because this month marks the 10th anniversary of the demise of one of Tacoma’s rare publicly traded companies — Rainier Pacific Financial Group, which operated as Rainier Pacific Bank.
February 2010 was a dire time for banking and the economy. By then Washington Mutual was five months defunct, having been taken over by federal regulators worried about the company’s deteriorating loan portfolio and a string of quarterly losses that, amounting to the billions, threatened to burn away WaMu’s capital. The branch network, assets and deposits were sold to JPMorgan Chase.
That was the most spectacular of the banking busts, but it was hardly alone. The Federal Deposit Insurance Corp.’s count of bank failures jumped from 25 in 2008 (the year of WaMu) to 140 in 2009 and 157 in 2010.
Rainier Pacific didn’t attract much attention when it went under on Feb. 26, 2010, partly because it was a relative newcomer on the scene (at least under that name), it was a smaller institution and there was so much else going on in banking. The state Department of Financial Institutions counted 11 bank failures in Washington in 2010. In fact Rainier Pacific wasn’t even Pierce County’s only representative on the list. Pierce Commercial Bank would go under in November 2010.
Rainier Pacific took a somewhat unconventional path through banking history. It started as Tacoma Teachers Credit Union in 1932, converted to a mutual savings institution in 2000 and then to a publicly traded stock company in 2003.
By the time of its demise, Rainier Pacific was based in Fife, had 14 branches and $718 million in assets. It was part of a cohort of mid-sized locally based banks that were emerging to fill a gap in the market between very small community banks and giant interstate institutions. It was also part of an economic-development plan that saw Tacoma as a mini hub in financial services, anchored by Russell Investments and Columbia Bank.
That plan got shelved when Russell moved out of town and Rainier Pacific was taken over by regulators and sold to Oregon-based Umpqua Bank which, like Columbia, has been far more successful at building that regional middle-market bank. During the financial crisis both banks were recruited by regulators to take over remnants of failed banks.
The contrast to current conditions in banking is striking. Last year FDIC recorded just four bank failures in the entire United States. The year before that (2018), the total was zero.
That’s indicative of conditions inside and outside banking. The housing market, source of so much pain in the last cycle, has gone from foreclosures and see-through houses to escalating prices. A review of the latest quarterly earnings reports from regional banks shows problem loans at bare fractions of the levels experienced in the recession and its aftermath.
Bankers and regulators ought not to get complacent or cocky about those numbers. They looked pretty good in the mid part of the Aughts, too, and we know how that movie turned out. Housing markets, even those with constrained supply and growing demand as this one supposedly is, are capable of turning sour, as that decade so vividly demonstrated.
While we may comfort ourselves with the notion that everyone learned a lot of lessons from that experience and that lending practices and policies are much improved, we really won’t know just how good those loan portfolios are until the next downturn comes along to test them.
For the moment, though, things are peaceful and serene in terms of business cycles, loan quality and the periodic crises that afflict banking. Here’s where else nothing is happening of note — the structure of banking and how we handle, move and store our money.
By now we are used to a daily drumbeat of news items chronicling the massive restructuring of retailing. In the future, no one will go to department stores, shopping malls or most bricks-and-mortar retailers, and all shopping will be done remotely with purchases delivered to homes and businesses.
The forecasts have been just as sweeping and have been made for even longer, about banking. Branches will disappear, the checking account will die, brand new payment and lending systems and companies that create and run them will supplant old-line banking companies.
So far, hasn’t happened.
Yes there have been shifts and changes. But even such supposedly antiquated relics of banking as the paper check and the brick-and-mortar branch haven’t evaporated. Financial tech innovation, including some features common on other continents, has been slow to take hold here.
It could be that this is merely a lull between waves of upheaval and change; the industry has experienced recurring bouts of bad economic conditions (remember Third World lending, oil-patch loans or the S&L crisis?). For all its stodgy reputation, the banking industry has in the past adopted technology that its customers enthusiastically took to, be it credit cards or telephone and internet banking.
But the conditions that swamped Rainier Pacific and WaMu and more than a dozen other banks in Washington alone roughly a decade ago are not so removed as to make us forget that, when it comes to banking, a little placidity is a good thing. It’s only money? Not so “only” when it’s our money.