Editor’s Note: BankBeat spoke with approximately two-dozen local bankers and industry experts about what they expect for this year. This is the first in a two-part series chronicling their thoughts. The second part will run Jan. 13.
In last month’s edition of BankBeat, we looked back at 2024 and concluded it had been a tough year for community bankers, with rising costs, squeezed margins and regulatory burden that could best be described as beastly. But as it turns out, one day can bring pivotal change, or at least the promise of it. That day occurred Nov. 5, 2024.
With any new administration, there are clues laid that tell us how policy will shift. Many expect a pro-business tax policy and grip-loosened approach to governance that will foster innovation and growth and increased profits. Would these developments translate into overwhelming optimism throughout banking?
Could lower taxes and reduced reg burden be enough to set aside worries about fraud or lack of succession or putting the right people in the right seats? We wondered. For this edition, we reached out to nearly two dozen individuals, most of them bankers but also some advocates and experts (see accompanying list), and asked one simple question: What will you be watching for in 2025? Their answers revealed a lot.
The following narrative is built from their responses.
Out of the regulatory stockade?
With Republican control in Washington secured, everyone is looking at 2025 as the year of regulatory relief. “I think the current regulatory environment is the most concerning to me — 1071, 1033, CRA, and the individual interpretations of what is fair or unfair continues to be out of control,” said Bryan Bruns. “We’ve just been through such a long period of what I think is egregious regulation,” added Noah Wilcox. “The CFPB, in particular, has just been a nightmare of an agency. It operates with impunity. Some of the rulemaking they’ve done is just outrageous.”
The CBA’s Jenifer Waller said while she doesn’t expect that Section 1071 will be eliminated, she is “hopeful that the 81 data points financial institutions must collect and report under the rule will be reduced.”
Pennie Lutz, who runs a $43 million community bank in South Dakota, is “concerned about 1033 in the sharing of information. We’re supposed to be exempt from that, but if the bigger bank down the road is able to do that, it always trickles down to the smaller institutions as well.”
“I think all bankers would be pleased to have the CFPB reigned in a little bit,” added Alan Tubbs.
“I think the politics of some of those regulatory agencies are in for a sea change,” Wilcox said. “What that means for people like me, I’m not exactly sure.” At the very least, Wilcox said he hopes for tiered regulation.
Jim Amundson pointed to a comment by French Hill (R-AR), a former community banker who was named chair of the House Financial Services Committee: “He’s been on record saying ‘make community banking great again.’ He speaks about some of the issues that are impacting community banking. Having someone like that, he’s going to be impactful.”
The IBA’s Adam Gregg said he’s hopeful the new administration and Congress will usher in an era of deregulation “unleashing free enterprise and allowing the private sector to thrive through robust competition.”
Such a loosening of the regulatory reins, some said, may bring about the sort of innovation that community bankers say they need to stay competitive.
Making what’s new even better
Chris Grimm would like to see regulators adopt “a good attitude” toward bank-fintech partnerships rather than one of “fear and intimidation.” Grimm is looking to the future and AI’s potential as a game changer: “I think there’s gonna be a lot of really great things that come out of that.”
“I continue watching how the core banking software companies appear to be shifting their stance,” said Bruns. “Only a few years ago the major core providers pretty much frowned upon using a third party to interact with their core software; but they are slowly getting the message and now talking about APIs and middleware which, in my opinion, will be the path for real innovation in the banking industry.”
“All signs with this administration is that they’re more pro-business and about less regulation,” said Kris St. Martin. “That is going to allow community bankers an easier time tapping into some of those fintech solutions.” That could be good news as bankers try to grow business beyond their footprint. Good news, even for the cautious.
“We have seen a few products with intriguing uses of AI, such as in fraud monitoring,” said Mark Heinemann. “We are open to using those products on a trial basis, but will tread carefully as the use cases and regulatory expectations become more clear.”
“With fintech, there are ways to gather new accounts that have been hindered by new account fraud and by regulation,” St. Martin said. Roughly one out of every three new accounts opened online today is discovered to be fraudulent, he said. “But if you combine all this together, and it could be we are at a point where it’s maturing, deregulation combined with AI and reduced new account fraud, we might see some real successes out there.”
Deregulation will not be a panacea for banks looking to expand their use of tech innovations, however. “I feel like the scammers know how to manipulate out-of-pocket technology, and so I hear more and more bankers rolling back their mobile or online account opening versus opening it,” said Rich Eckert. “My question is, ‘how do we take some of these technologies that we quickly accelerated, and just make them better’?”
Maturing AI will also be in the hands of the fraudsters, St. Martin admitted. The greatest potential for growth through tech innovations might not come this year, or next year, but “it is on the horizon,” he predicts.
Meanwhile, Erin Procko sees opportunities in key industries, including clean energy and sustainability, the health care industry, and digital commerce, which she says “has the potential to drive growth in 2025.”
Glimmers of economic hope
Bankers far and wide are expecting the tax cuts from President-elect Trump’s first term to be extended in this new term. “I think that is going to be some relief, curtailing an increase in corporate taxes, leaving things where they are,” Tubbs said.
One thing that rarely changes from year to year is bankers’ focus on monetary and fiscal policies. At the beginning of 2024, experts were predicting six rate cuts. There were two (as of press time). In 2025, some experts are predicting four rate cuts.
Mike Daniels doesn’t believe the number of rate cuts, real or projected, is at issue: “It’s all about the velocity at which they go up or down. Velocity hurts everyone and causes angst and uncertainty.”
“Those of us who were very concerned about rising rates and compressed our net interest margin are glad to see some relief,” said Mike Bilski.
“Bankers are cautious, in terms of how quickly the economy will rebound,” commented Rose Oswald Poels. “Interest rates on mortgages are not expected to decrease significantly in the short term, and housing stock and prices remain a challenge.”
Bank customers have been saddling themselves with debt, noted Rich Eckert. Inflation is a worry, and insurance costs for cars and homes rise and rise and rise. How much can consumers stomach, Eckert wonders. “Our credit card debt continues to climb and climb. We’re starting to hear our customers say, ‘Hey, we’re not flush with cash.’ Savings rates are really, really low … so I feel like something’s got to break.”
“There is a credit nervousness that is out there generally” amongst regulators, Michael Vekich said. “There is a lot of criticism on asset pressure in community banking. Small businesses have been hanging on by their fingernails.”
Vekich also tells us pressure for deposits is not dropping at the same level as interest rates. “Customers are still looking for good rates.”
“We are hoping liquidity pressures ease across the industry, not because we have liquidity pressures, but because that is a better thing for the industry,” said L.H. “Tut” Fuller. “We can’t control the Fed or long- term rates, but we need to plan and model accordingly. Staying in tune to that and planning in a way that does not try to predict where rates go (because you usually get it wrong) are key.”
“Banks have all been struggling with net interest margins and I think maybe we’re over that hump,” said Lutz. “I’m hoping we’re going to see some more of the deposits come back. “That would be a nice trend to see.”
Wisconsin banker Daniels isn’t expecting quick changes on the economic front: “The first six months of the year we are going to be following the bouncing ball, politically. If people could talk with each other instead of over one another that would help.”
“Fiscal policy (state and federal) has a direct impact on our local economy,” said Greg Larson, “not only for stimulus but also at a macro level. We see the impact manifest itself in inflation.” Larson said he plans to keep an eye on Sub S legislation and any changes to employment law in Minnesota.
When it comes to tax reform, Ed Elfmann would like to see the ACRE (Access to Credit for our Rural Economy) Act included as part of tax reform. “We think that’s going to be a fundamental change for our customers by finding a new way to help lower their costs to get loans.”
EDITOR’S NOTE: With a new year upon us, we asked members of the industry what they’d be looking for in the months to come. The following graciously shared their thoughts:
- Jim Amundson, president and CEO, BankIn Minnesota
- Jerry Baack, president and CEO, Bridgewater Bank, St. Louis Park, Minn.
- Michael Bilski, president, North American Banking Company, Roseville, Minn.
- Bryan Bruns, president, CEO and chair, Lake Central Bank, Annandale, Minn.
- Mike Daniels, president, Nicolet Bancshares, Green Bay, Wis.
- Rich Eckert, president and CEO, Beardstown Savings Bank, Beardstown, Ill.
- Ed Elfmann, SVP, agriculture and rural banking policy, American Bankers Association
- L.H. “Tut” Fuller, CEO, chair and founder, Capra Bank, Dubuque, Iowa
- Adam Gregg, president and CEO, Iowa Bankers Association
- Chris Grimm, CEO, BANKIowa, West Des Moines
- Mark Heinemann, president and CEO, Arcadian Bank, Albert Lea, Minn.
- Greg Larson, president, Drake Bank, St. Paul, Minn.
- Katie Lorenson, president and CEO, Alerus Financial, Grand Forks, N.D.
- Pennie Lutz, president and CEO, Richland State Bank, Bruce, S.D.
- Heather Malcolm, vice president-ag lending, Bank of the Rockies, Livingston, Mont.
- Rose Oswald Poels, president and CEO, Wisconsin Bankers Association
- Erin Procko, Twin Cities banking director and president, Bell Bank, Fargo, N.D.
- Kris St. Martin, bank program director, CBIZ
- Neil Stanley, president, The CorePoint
- Al Tubbs, chair, Ohnward Bancshares, Maquoketa, Iowa
- Michael Vekich, chair, BNC National Bank, Bismarck, N.D.
- Jenifer Waller, president and CEO, Colorado Bankers Association
- Noah Wilcox, president, CEO and chair, Grand Rapids State Bank and Minnesota Lakes Bank, Delano
