Some of the pain of the 2008 financial meltdown could have been avoided if regulations requiring income verification and better documentation for mortgage applications had been in place, says KeyBank’s top Idaho executive.
Bankers often complain about the burden of new federal regulations that followed the housing collapse and the financial-sector meltdown then. But Darren Schuldheiss, KeyBank’s Idaho market president, says new regulations meant to ensure that borrowers could afford their mortgages were good for the country.
A University of Montana graduate, Schuldheiss, 39, has served as Idaho market president for KeyBank since 2015. He joined the bank in 2009 as an investment specialist and later as a senior vice president and director of national sales.
KeyBank, with $1.2 billion in deposits as of June 30, is the third-largest bank in the Treasure Valley, behind Wells Fargo and U.S. Bank, according to the FDIC. KeyBank has 12 percent of the deposits in this market, up from 8 percent a decade ago.
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Q: What is your bank’s role in the Treasure Valley?
We’ve got 27 branches across Idaho, and that’s really focused on serving our retail clients. We also have healthy corporate and commercial bank teams here, as well as our agricultural banking team. We’ve got a full-service private banking team.
Q: Talk about the scope of your responsibilities.
I drive the strategy and make sure that our teams are delivering on extraordinary client experiences, achieving revenue objectives and really being involved in community leadership.
Q: Is there a type of lending your bank doesn’t do?
There’s really not. We’re a bank with a moderate risk profile. I wouldn’t say there’s anything we’ve hard and fast ruled out. It really is dependent upon the situation and the client.
Q: As kind of your working philosophy, has that changed any since the 2008 downturn?
Not really. By nature, we’re conservative. We’re very sensitive to monitoring the markets and making sure that we’re not overexposed to certain areas.
Q: How does regulation play into your operations?
It does play a major impact. I think you cannot regulate people into having ethics and integrity. That said, I think we have some good and common-sense regulations that have improved transparency to consumers, which I favor.
We probably could have avoided some of the pain of the last recession if we had some of those rules in place surrounding verification and documentation. The flip side is that we’ve got to find that balance between protecting consumers and adding unnecessary costs and burdens on the parties involved. Some good things came out of the added regulations that came out of the downturn.
Q: Do you think mortgages are better today because they got past those days where you just wrote your own income on the application and a number of companies didn’t verify whether you could really afford that amount?
I do. The folks I’ve seen buying houses, the applications I’ve seen approved, are reasonable and prudent. There’s been a lot of cleanup.
Q: How has your mortgage business fared coming out of the recession?
I think the mortgage industry had its challenges. But it looks to be very healthy. We’ve grown mortgages well in this state. Boise has a very strong housing market, and there’s been a nice run-up in values.
Q: What has the recovery meant for KeyBank?
It’s been good for not just for the bank but everyone in Idaho. If you’re in Boise, you can’t really look down a street without seeing a sky crane. We’ve seen a nice trend with our financials.
Our business owners that we bank, we’ve seen their businesses improve and their results improve. Everyone is still a little bit nervous — 2007 doesn’t seem like it was that far back in the rear-view mirror — but it’s been a good recovery.
Q: What’s been the effect from interest rates that have stayed low?
Banks have had some challenges with the low rates to their net-interest margin. Banks loan money on the long end and borrow on the short end. So a steep yield curve is a positive boost for banks’ margins. In this recovery, we’ve had a flat yield curve.
For the consumer, if you’re borrowing, this is a great period. If you’re retired and want a bond portfolio to provide you income, this is a tough period.
Q: Who do you see as your biggest competitors?
We’ve got some capable competition from our large competitors, like Wells Fargo and U.S. Bank. Some of the smaller banks do a great job with customer service.
Credit unions are playing a role. Online is playing a role. Frankly, competition is coming from a lot of different angles. It makes us better. It helps us keep a relevant suite of products and services for our clients.
Q: What makes your bank stand out among those other folks?
I think we’re the right size. We’re small enough and big enough. We have the resources and technology of the large banks. We’re playing where the big banks won’t and the small banks can’t.
Q: You mentioned online banking. How has that affected you? Do you see customers in your banks anymore?
A lot is moving online. Mobile banking is here. This past year, KeyBank purchased HelloWallet, a technology company, to help our clients make good, responsible financial decisions. It’s the co-pilot that launches their transactions.
We’ve started to think of ourselves as a technology company that provides financial services. We think that trend of “clicks over bricks” is going to continue.
Q: How does that affect the relationship when 30 years ago people were used to going into banks to cash their checks, putting their money into a savings account and having their passbook stamped?
At the end of the day, I think people still buy people. So we’ve really got to keep investing in our people. Technology has become more of the driver, but we still have to have great people who can help our clients when they have issues and complexities.
Q: At what point does that affect having a branch somewhere?
We have to be thoughtful. We’ve got to have locations for our businesses that can take care of a wider range of needs. ... We’re not going to have as many brick-and-mortar locations.
Q: Could some of those branches in the future use smaller spaces?
I think so. If you look at the overall trend, the square footage has probably gone down. We don’t see five-teller windows anymore. They’ve become more compact and efficient.
Q: What keeps you up at night?
I feel responsible for my team and our clients, and you have to think: Have I done everything I can do as a leader to set them up to be successful? That can weigh on you.
Q: What do you see as the major problem in the Treasure Valley?
There’s a talent shortage. We in the Treasure Valley and in Idaho need to continue to invest in our children and our employees and ourselves.
I hear this problem from owners of businesses of all sizes and every industry type.
Q: What do you think about funding for startup companies?
That’s critically important in Idaho. ... In Utah, they’ve been a real hotbed of economic activity and have a thriving startup culture. As a state, they made a financial commitment years ago to help foster and invest in that stage of a business life cycle.
Public, private and education need to work together for the entrepreneurs. As a bank, we’re generally the lowest cost of capital, because we tend to fund lower risk. We need angel investors, private equity and others to bridge that gap to continue to grow Idaho, and Boise in particular.
Edited for length and clarity. This story is part of special coverage of banking in the Oct. 18-Nov. 14, 2017, edition of the Statesman’s Business Insider magazine. John Sowell: 208-377-6423, @JohnWSowell
KeyCorp was founded in 1825 in Albany, New York. Today, its headquarters is in Cleveland. It has 1,200 branches in 15 states, with 28 branches in Idaho. KeyBank had $134.5 billion in assets as of March 2017.