Pub. 2 2014 Issue 2

www.uba.org 22 I n 1997, the McKinsey & Company consulting firm proclaimed that “the war for talent” would separate winners from losers in the years ahead. Sixteen years later, the banking industry is on the cusp of losing the war. To understand the issue, consider a talent management planning session conducted by a community bank a few years before the financial crisis hit. Like many community bankers, the CEO of this bank started his career in the credit department of a bigger bank in the 1970s. Confident in his own background, over the years he had hired commercial bankers with similar training and experience. As the CEO evaluated his bank’s talent, he discovered good and bad news. The good: He had a solid team. The bad: No one was under the age of 40. Concerned, he instructed his HR manager to build the bench of commercial bankers. To his surprise, HR came back and said it could not find one well-trained, experienced commercial banker under 40 in the marketplace. Why were there no young and well-trained commercial bankers in his market? The CEO discovered that the bigger banks in the region had stopped running traditional credit departments back in the 1990s. Reasons for the Current Situation At least five factors drove the change. First and foremost, much of the industry was in bad shape at the time, which drove con- solidation. Some 3,000 financial institutions failed from the early 1980s to 1993. Industry profitability was anemic. Banks respond- ed as expected; weak ones merged into stronger ones, and hiring and training slowed. As the industry started to heal around 1993, mergers accelerated. As merger mania struck full force in the mid- to-late 1990s, many banks found themselves with excess talent. Second, credit departments began to morph into centralized risk management functions, overseen (so we were told) by risk ex- perts. The evolution of credit scoring models and more technical credit products led to a concentration of top credit experts in risk management departments. Bankers in the field evolved into “re- lationship managers” who didn’t need an understanding of how to analyze loan applications. In truth, they were sales representa- tives who relied on product specialists and credit underwriters to support them when customers and clients wanted a loan. Third, in the late 1990s—despite a rebound in bank hiring from college campuses—new recruits explored different career paths. Trainees no longer moved into general management with an emphasis on credit training. Instead, they took on specialist ca- A talent shortage is already bedeviling banks. And unless financial institutions take action, it will only get worse when experienced baby boomers retire in droves By Richard J. Parsons The Next Banking Crisis TALENT RISK?