State of the State's Financial Infrastructure

Dec 17, 2013

Infrastructure can be defined as the basic facilities needed for society to operate. And nobody operates very well without access to adequate funds. As part of our continuing examination of the State of the State’s infrastructure, we look at the infrastructure of financial services in South Dakota, as well as what’s being done to protect those services.  

The president of the South Dakota Bankers Association says it’s good to be from South Dakota. Curt Everson says the 2008 recession did not hit the state as deeply as other areas, keeping the credit environment and the general economic environment healthy. He says there’s no shortage of places for people to go and borrow money in the state. Everson says there are around 80 banks with more than 400 locations to choose from. But he says tougher regulations in the wake of the recession make the borrowing process more difficult today.
“The general reaction in the wake of a problem in the financial markets on the part of both Congress and the regulatory community was to over tighten,” Everson says. “And that’s kind of the nature of the beast. The lending community is still trying to work through all of that, all of the new regulatory requirements, the heightened credit requirements and so forth.”

Everson says it’s tougher to borrow money to buy a home today than it was ten years ago.
“It doesn’t mean that credit worthy borrowers can’t get a loan, because generally speaking they can,” Everson says. “But they have to, generally speaking, put more money down to buy a house than they did prior to the financial crisis. And maybe that’s not all bad.”
Everson says banks are finding ways to manage within the new laws. But one of his main concerns is that the regulations do more to confuse consumers than protect them.
“We have essentially, over the course of time, put so many laws and so many regulations in place, all probably well intended at the time that they were put in place,” Everson says. “But the collective complexity and the weight of all of those, we’ve effectively numbed the consumer to really understand what they probably arguably really need to know to execute a loan document to borrow money to buy a house. That’s unfortunate.”
For businesses looking to grow, Everson says there’s no shortage of funds to lend or borrow. He says each credit decision is made on a case by case basis, just like it always has been. But he says business owners are facing a lot of uncertainty right now. He says with the implementation of the Affordable Care Act and budget debates in Congress, business owners are unsure about their future costs. Still, he says, there are businesses in the region looking to expand.
There are some positive effects of regulations passed in the last few years. Kevin Tetzlaff is the President of First Bank and Trust in Brookings and the Chairman of the South Dakota Bankers Association. He says banks now have to keep more capital on the balance sheet, making them more stable for the future.
“Well, I think the security of the banks, especially in South Dakota is very strong,” Tetzlaff says. “Even pre and during and post crisis era the capital levels in our banks in South Dakota, especially our community banks has always been very strong. And that has only built over the last few years even further.”
In addition to remaining financially secure, banks in South Dakota are looking to keep their technology secure. Dr. Kevin Streff is an Associate professor at Dakota State University and managing partner for Secure Banking Solutions. He says banking systems are moving more toward the self-service model and away from branch banking. That means more ATMs, more kiosks, more ways to bank online or on mobile devices. He says the bank is coming to the consumer, regardless of the location, which is good for a rural state like South Dakota. He says it provides access to capital no matter where a customer lives. But, he says, it also provides ample opportunities for hackers to steal money or data. And he says there’s debate about how to best keep technology infrastructure secure.
“These are private company systems,” Streff says. “Who owns the New York Stock Exhange? Not the federal government. Who owns the banking systems across South Dakota. Not the federal government. At the same point in time we need the federal government’s help.”
But Streff says that cyber security is expensive. And the debate at the federal level raises a question. Who owns the internet?
“Our economy depends on the internet and telecommunications,” Streff says. “So the policy makers in DC and the lawmakers in Washington DC understand this issue and are wrestling with what to do about this. So as the government provides for example, infrastructure of roads and highways, should the government be in business of providing cyber infrastructure? Cyber roads and cyber highways?”
While the federal government debates the issue, Streff says South Dakotans should know that banks in the state are taking the issue very seriously. He says each year financial institutions in South Dakota put tens of thousands of dollars towards securing their networks. And he says consumers can help protect themselves by staying informed.

Whether because of new regulations or new technologies, financial services have changed over the last several years, and will continue to evolve. But those I spoke with agree, there’s also plenty of money for lending, and more ways to access funds, even though the access does come with a few challenges.