If Very Large Banks Used the Technology of Community Banks, They Might Never Fail

I will probably be called a bigot because 97% of my banking clients are in the small and mid-size ranges of the total bank population. Having worked for only eight of the top 34 U.S. banks (two if you try to find them today) I can give you one very important reason why I believe large banks are in trouble. It's not the $1.5 trillion average asset size ($1.17T - $1.73T) of the top four that spooks me (if this were baseball, the 5th would be in the minors). It's the fact that their tech systems know it, and the systems can't get their arms around the whole of that T-figure. IT systems at the giant banks are not integrated; they are fragmented to serve hundreds of fiefdoms. So when CEOs sit in the hot seats at Congressional hearings and say they don't know, you can point the finger at IT. Maybe the slogan should be "Too Big To Integrate."The most powerful term in the business of technology in any organization is "enterprise integration." Even smoke-stack industries know that - the front end of a car has to know what the rear end is going to look like long before the steel arrives. If Ford designed cars the way the four top banks use technology, the beautiful new Taurus would look like it was created in a junk yard with salvaged body parts.

It's a left hand, right hand kind of unlinking. Even Chuck Prince (a lawyer who thought he could run a giant bank) admitted the problem existed even when things were on a roll at Citi just a short four years ago. He was a complainer then, now turned apologizer. He told an American Banker reporter he was incredulous that Citi's system couldn't link a customer who had a checking account and a mortgage.

After I read the article, I told the reporter he should have calmed Chuck's concern by telling him his counterpart in Charlotte was no better off. The regulators have something called "know the customer." Their intent was to trap money laundering activities. I would suggest the regulations be expanded to know the customer for the purpose of doing good. And it wouldn't hurt to give the now lost breed of loan officers better IT tools so they could view ALL relationships of the applicant. Even my own giant bank can't identify the entire relationship so how would they know I have a few accounts with other banks that I have kept just because they have been good to me and I respected the idea of loyalty long before tech systems made it the name of a tech solution. "Loyalty (Rewards) Programs" was one of last year's hot tech apps that banks were buying.

The herculean problem the top four banks have is they are saddled with patchwork antiquated IT software that was developed decades ago either in-house or single-app-vendor-supplied that requires maintenance similar to that of old city infrastructures. Ironically, the CIOs of those banks last for only two to three years at the most. Does that sound like a secure environment to manage $5.8 trillion worth of assets and 228 million customers? My answer is failure of any large bank will be catastrophic because there isn't a bailout, government or private, on the planet that can solve an enterprise IT default of that magnitude.

Here's some good news. Fiserv, FIS, Jack Henry, Harland Financial Solutions, Oracle, TEMENOS and several other companies have integrated systems for any commercial bank, thrift, credit union, or online bank, both domestic and international. When a bank licenses systems from these companies, it gets every core application and then some - all linked and using one database that reacts to real-time transactions. If you try to buy only one core app, let's say the loan system, they might have to sell you the whole system because to do otherwise is to disintegrate the integrity of their system. Now that's real integration that large banks would die for. Oops, "die" might be a bad choice of words during these times when the Congress is doing major surgery on the "too-bigs."