Banking and finance: with Utah's economy finally showing signs of growth and recovery, banking officials and experts discuss the challenges of new federal regulations on the industry and give advice to business execs who are wondering if now is the right time to finance expansion. Capital is available, say the experts, and banks are eager to work with qualified borrowers.

• Position: Industry Outlook - Interview

We would like to thank Hal Heaton, professor of finance at Brigham Young University, for moderating the event.

PARTICIPANTS:

Back Row:

Douglas DeFries, Bank of Utah; Hal Heaton, Brigham Young University; Michael Morris, Zions Bank; Mark Howell, AmericanWest Bank; Jeff Thredgold, Zions Bank; David Golden, Wells Fargo Utah; Lorry Pitcher, Key Bank; Boyd Hunter, TAB Bank; Darryle Rude, Utah Department of Financial Institutions

Front Row:

Matt Packard, Central Bank; John Stillings, Zions Bank; Scott Irwin, Holland & Hart; Howard Headlee, Utah Bankers Association; George Sutton, Jones Waldo Holbrook & McDonough PC; Frank Pignanelli, Utah Association of Financial Services, National Association of Industrial Banks; Rick Beard, Bank of American Fork; Curtis Taylor, Heber Valley National Bank

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What is your outlook on Utah's economy, specifically, but also the broader regional and national economy?

THREDGOLD: Right now Utah ranks third in the country in terms of percentage growth of employment. We've added about 31,000 jobs for a 2.6 percent increase. We've recovered half of the 80,000 jobs we lost in 2009 and 2010. Our outlook will remain about the same, in that two-and-a-half percent range.

Our biggest weakness is the national economy which is characterized by what I call a recession of confidence. We're officially celebrating two and a half years now of U.S. economic recovery statistically, certainly not emotionally, but it's all about a lack of confidence at this point in both the eyes of the business sector and the consumer.

HUNTER: TAB Bank does a lot of national lending. We've historically focused on the transportation industry. We've seen that very slowly but very steadily increase over the last couple of years as far as freight volumes, and that bodes well overall. But the numbers have certainly not been significant enough to say that there's a bullish feel.

The biggest concern we have is the same one that Jeff mentioned--the national economy and where it's headed. People just don't think that we're in a recovery.

SUTTON: Our sense is there is a lot of pent-up demand. We're seeing spending sort of holding where it is, but we're seeing a lot of shrinkage in our loan portfolio. People are paying off their credit. They seem to be very nervous about what the future holds, so they're holding back. And as long as they're concerned about all that, they're trying to keep their bills paid down. That's the trend we see right now.

Do you expect the de-leveraging to continue during 2012?

SUTTON: It depends on both the European political situation and what's going on in Washington. If things finally steady out and stabilize, then you'll see a lot of activity emerge. But if it doesn't, people are going to hunker down even more.

PACKARD: At Central Bank, were involved in real estate quite a bit. And in Utah Valley as well as in Utah as a whole, there's a lot of family creation--people getting married and having families. So we're watching a lot of the surplus homes slowly get absorbed into the marketplace, and that's a very healthy sign.

One of the big challenges moving forward is the fact that we've pretty well wrung out anybody who possibly could afford a home loan. Four percent is a pretty low interest rate, and when you move it to six, people are going to go into convulsions.

HEADLEE: My perspective is a little bit different. I'm not making loans every day. But from my view at the association, its a bit daunting from a regulatory vantage point. And there's more regulations to be drafted. I don't need to tell your readers that it's not just the banking industry. Whether it's the EPA or the CFPB or the bank regulators and the Dodd-Frank Act or the Healthcare Reform Act, there's still a ton of regulation that has to work its way through the system.

And regulation matters. A lot of what people are frustrated with initiated in some well-intentioned yet misguided regulation. While it makes for a real warm and fuzzy political sound bite, when it's actually promulgated and deployed it has a real impact on the economy. And, unfortunately, a lot of times people don't understand the root of what they're upset with, and so they tend to point fingers and cast blame in areas that are logical but not accurate.

I don't see that ending, and it's very discouraging to me. I think it explains a lot of the reason why, whether real or perceived, this economy is moving forward so slowly. There's a lot of uncertainty associated with the regulations still to be promulgated, so people are just waiting and seeing.

Regarding Dodd-Frank, regulatory agencies are writing hundreds of thousands of pages of rules and administrative guidelines, and some of them are in their 10th goround with discussions back and forth. Are we ever going to see Dodd-Frank really implemented? If so, will that affect the smaller regional banks here in Utah, or is that simply a big bank issue?

RUDE: It will definitely trickle down to the smaller banks, even if they are rules and regulations that are focused on the $10-billion-and-above banks. That has a way of becoming a best practice and trickling down. We try to not make it a mandatory thing, but if it's a good, positive risk deterrent, you will see it trickle down.

There's so many things that still need to be done with Dodd-Frank and other regulations; it's somewhat of a damper on the economy and on the banks because they don't want to get into something and then find out its been reversed or changed in the meantime as these rules are promulgated by the agencies. So we're in a waiting mode to some degree also.

The derivatives bill--the details on that are still not finalized. The states are forced into a position where they have to pass something or the state charter banks will not have parity with the national banks as far as derivatives go. So you see that coming up in the legislative session. It's something we're working on at the state level.

But overall we're seeing some slow but positive growth in the state-chartered community banks and other institutions in Utah. At year end 2010, 48 percent of the community banks had negative earnings. Through September 2011, that's down to 25 percent. So we've seen some massive strides in bank earnings locally here.

A few weeks ago, I heard President Obama say it was the "unregulated banking industry" that got us into this economic situation. If this industry is unregulated, I'm not sure what he means by "regulated." Do you see anything coming out of the election that might lead to major growth in regulations or change?

RUDE: The Dodd-Frank Act was specifically designed to capture that unregulated section of banking. To some degree, everyone's regulated, whether it's a mortgage banker, an investment banker or a broker dealer on Wall Street. They're all regulated to some degree, it's just how extensive the regulations are.

So when you say "banking" to me, I think of an insured depository institution that has numerous regulations that they're following. We're living with them on a daily basis, and they have a very high standard to meet.

The mortgage and investment hankers and the Wall Street firms were not held to that same level of scrutiny, and Dodd-Frank is designed to gather some of those folks in and make it a more level playing field for regulation.

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HEADLEE: That's the point that drives me crazy. That statement right there just catches it all. They are not hanks. There is no such thing as an unregulated bank. So he is not talking about our industry; he's talking about unregulated financial services companies. But the language is just all messed up, and it confuses the public. And it's maddening.

DeFRIES: There's no doubt that many consumers were taken advantage of by various individuals, so some of...