The banking model in the Chicago market is undergoing drastic change. In
addition to banks that follow the traditional transactional model and rely on
formulas and objectivity to determine their
target markets, there are banks that are
emphasizing the relationship between
themselves and their clients.
“There are advantages to working with a
relationship bank,” says Mitch Feiger, president and CEO of MB Financial, Inc., the
holding company of MB Financial Bank in
Chicago. “One advantage is that a relationship bank can provide a client with sound
financial advice because it truly knows the
client’s business inside and out.”
Smart Business spoke with Feiger about
relationship banking and the advantages it
has over “transactional” banks.
What kinds of changes are taking place in the
Chicago banking market?
In much of the rest of the country, small
businesses and middle-market businesses
are served by banks that follow a more
transactional model. That means that those
business owners may not be that close to
their banks or bankers and, conversely,
those bankers may not know much about
them either. The transactional model is
more formula-driven, and a relationship
doesn’t make that much of a difference. In
Chicago, relationship banking has been
somewhat of a standard way of doing business. What’s happening in the Chicago market now is that large banks, many of which
are headquartered outside of Chicagoland
but still influence the local market, are
focusing on transactional banking. The
effect is that relationship banking is less
prevalent than what the Chicago market is
used to, and the market isn’t readily going
to accept that. The good news is that most
local banks still offer true relationship
banking, and I think that’s a valuable thing
for most small and mid-sized businesses.
What is the core of relationship banking all
about?
You have a banker and a bank that understand your business, provide you with
sound financial advice and have a better ability to be with you in hard times, which
is something all businesses go through.
Banks rooted in the transactional model
don’t understand your business and are not
as open to sustaining a partnership during
challenging times. Relationship bankers,
on the other hand, understand cash flow
and economic cycles of your business.
And, they act as a liaison to other financial
professionals to help you manage the
whole picture — business and personal.
What strategies do bankers take to get close
to their clients?
Relationship bankers spend a great deal
of time with their clients. They ask a lot of
questions and listen so that they gain a
complete understanding of the business
plan and strategy. The banks that don’t use
the relationship model don’t spend that
time. Their credit, underwriting and sales
decisions are more mathematical and
objective. The decisions of relationship
bankers have a significant subjective component to them. It’s truly a partnership.
Do you believe relationship banking will prevail over the transactional model?
I don’t know. I do know that businesses in
the Chicago market want relationships with their banks at this time. Our growth at
MB reflects that trend right now. We’ve
been in the market for many years and
understand how it operates.
Don’t you take on more risk using the relationship model?
We believe the numbers show that we
run less risk using the relationship model.
We know our customers better, have confidence in them and make more informed
decisions. The more informed the banker,
the fewer surprises there are. Ultimately,
this results in lower credit costs and fewer
charge-offs, and that adds up to less risk,
too.
If a business owner deals with a bank
using the transactional model where there
is no true relationship and something
unfortunate happens — a sales decline or
an uncollectible accounts receivable — the
bank will move the client into a workout
area in the bank or raise its rate out of fear
rather than knowledge.
If a company is with a bank that follows the
transactional model and things are going
well, should it still consider a relationship
bank?
I think so. Changing banks is painful, we
all understand that. When things are going
well, any bank will do just fine. But when
things go bad or you need something
unusual to grow your business — whether
it be buying a company or investing in a
large piece of equipment — that’s where
relationship banking can be powerful.
Relationship bankers will understand
where your business is now and where you
are going and will help ensure the steps
you take toward those goals are the right
ones. I think those are good reasons to
change from a transactional bank to a relationship bank.
MITCH FEIGER is president and CEO of MB Financial, Inc. in
Chicago. Reach him at [email protected] or (888) 422-6562.