This episode takes us fully into grappling with how innovation is impacting community banks and how to respond, through a conversation with one of the most thoughtful and thought-provoking people in the field.
The community bank is a unique feature of the U.S. financial system, and Brian Graham, CEO of Alliance Partners, is both one of its most eloquent advocates and an innovator with new ideas on how small banks can compete in the digital age. In 2011, he and his colleagues founded BancAlliance as a collaborative solution that enables community banks to access attractive lending markets typically dominated by larger banks, through use of a shared lending platform. The mission is to empower member banks to diversify prudently into high-quality loans that meet all commercial and regulatory standards – without changing the nature of the community bank.
Brian’s team initially focused on large commercial loans. Then, in February of this year, they expanded to consumer credit with the announcements that BancAlliance would partner with Lending Club to enable member banks to offer co-branded personal loans to their customers through Lending Club’s online platform. The program gives community banks and their customers access to the benefits of the Lending Club’s low cost of operations, paired with the banks’ low cost of capital, to help drive down the cost of credit for consumers., The Wall Street Journal noted that, even after Lending Club’s partnerships with Alibaba and Google, the arrangement with BancAlliance might be its “biggest one yet.” CEO of Lending Club, Renaud Laplanche (whom I interviewed in Episode 5), said, “Community banks are the lifeblood of American communities. This program will help them level the playing field with national banks by offering affordable, consumer-friendly loans to their customers. We’re excited to make Lending Club’s low cost of operations available to community banks, for the greater benefit of their customers.”
BancAlliance’s network includes over 200 banks in 39 states, with assets ranging from $200 million to $10 billion. In aggregate, BancAlliance would rank fourth in branch count among all U.S. banks and 14th in assets.
I have been a longtime optimist about the future of community banks, until the last few years. Small banks today face the twin challenges of innovative technology and regulatory burden squeezing the industry’s business model from two directions at once. Brian’s vision offers a potential model for addressing both.
In our conversation, Brian makes the case for the value of community banks; offers advice to them for thriving through technological disruption; and makes suggestions for regulators (including on “suitability). He also describes a proposed new “bill of rights” for small business borrowers – he’s been involved with a coalition working on this with the Aspen Institute.
Brian also offers insights into how technology, after decades of favoring consolidation and large players, is suddenly creating advantages for small ones, through the unbundling of tech solutions and through unexpected developments like Square, transforming the small business lending market.
Brian was previously a partner at Blue Ridge Capital Management, held various leadership positions at CapitalSource and Fannie Mae, and served in the government and investment-banking sectors. He holds a graduate degree from Harvard College and an MBA from Stanford University.
It was a pleasure to host him at my former abode in Washington, DC -- the day before I began packing up to move to Boston for my new fellowship on Regulation Innovation at Harvard! It was a very fitting finale for my Washington days and a launch into my “year at the frontier” of fintech innovation.
Also, remember to watch my website for the Regulation Innovation video briefings on these same topics, coming soon!
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