(Constance Brown)
The banking industry in New England has experienced a tremendous transformation over the last 15 years. The industry has gone through considerable consolidation and has had its share of turmoil. But all of these events have resulted in a stronger, more stable banking environment than existed 15 years ago.
In the late 1980s, banks in New England suffered through one of the worst periods in memory. Many banks were caught off guard by the downturn in the real estate market and bank failures were commonplace. Some banks succumbed to the mounting loan losses and others were brought near to failure.
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But those institutions that survived this time period were the ones that recognized the value of financial depth and stressed asset quality. Since that time, banks have put an even greater emphasis on asset quality, giving financial institutions much stronger balance sheets today than in the late 1980s. This should bode well for New England in the future during inevitable downturns in the cyclical real estate markets or slowdowns in the overall economy.
Consumers are also more cautious about their banking relationships. The credit union crisis in the early 1990s has made Rhode Islanders particularly leery. Since then, financial institutions in this state have done a good job of reassuring customers of the overall strength of the industry.
The troubles in the 1980s also paved the way for a wave of consolidation. Shawmut, BayBanks, Bank of New England and BankBoston as well as Rhode Island mainstays such as Hospital Trust, Old Stone and Eastland all have disappeared from the banking landscape.
The consolidation of the industry has had some positive affects. It has allowed two home grown financial institutions, Fleet and Citizens, to build a dominant presence in New England. Fleet has grown to be one of the 10 largest financial institutions in the country. And the consolidation in the marketplace also created the opportunity to start Bank Rhode Island, which emerged from the Fleet/Shawmut merger in 1996.
The banking industry has certainly changed a lot in the last 15 years, and changes will continue to come, not only here, but across the country. Online banking is sure to have an effect on the industry. We’ve already seen increased home mortgage competition, and more consumer choices, thanks to the Internet.
Banks are also being affected by regulatory changes that have blurred the lines between banking and financial services. Banks can now offer insurance, mutual funds and other products, and financial services providers are increasingly offering banking services.
While the banking landscape is much different than is was 15 years ago, it is clear that banking and financial services are still a vital part of the Rhode Island economy.
The state’s efforts to create a friendly environment for financial services companies appear to be paying off. The financial services industry should continue to bring good jobs and access to capital to Rhode Island businesses. It is a solid building block on which to grow the Rhode Island economy.
