The banking system with all its complexities, challenges and opportunities touches virtually all aspects of our daily lives. Using a credit card to make a purchase, writing a personal or business check, paying bills and moving funds online or accessing your funds through an automatic teller machine are just a few examples of how you may participate daily in the banking system. Even the local pawn shop provides banking-related services such as loans and check cashing in communities where those services are either not readily available or where consumers perceive the pawnshop to be their best or only banking alternative.

According to the Fannie Mae Foundation, pawnshops represent approximately 42 million transactions annually for a total of $3.3 billion in gross annual revenues.

In this article, we will address a number of topics including the types of services provided by full service banks, demographic changes and potential opportunities, mergers and acquisitions, regulatory issues and predatory lending challenges, financial literacy and fringe banking services.

Changing Demographics and Potential Opportunities

The growth in minority populations across the country could have significant opportunities for college graduates over the next 10 to 20 years. This statement, however, must be tempered by several assumptions without which corresponding opportunities for African-American college graduates may be minimal. First, we must assume that the banking industry will accept the demographic trends as a bonafide business opportunity to expand into relatively under-served communities including low and moderate-income and minority communities. Second, we must assume that the banking industry believes that tapping into the minority community will yield bottom line results in terms of shareholder value and profitability.

There is certainly significant data to suggest that profitability, business growth and increased market penetration could be the outcome for the banks that aggressively pursue the minority community as a business objective. One such example is Bank of America and its strategic alliance with the National Association for the Advancement of Colored People (NAACP). Bank of America is the third largest bank in the country with assets of approximately $609.7 billion. This strategic alliance recognizes the viability of expanding access to credit to low- and moderate- income communities, community-based organizations and individuals for residential mortgage loans, small business loans and community and economic development initiatives.

Fortunately many banks across the country are recognizing the business value of minority communities as emerging markets. Because, it is estimated in the next 20 to 25 years, 38% of the population of the United States will consist of minorities. The three major minority groups are expected to be African Americans, Hispanic and Asian Americans.

Collectively, these three groups are expected to represent over one trillion dollars in annual spending power. This suggests the potential for tremendous competition within the banking industry for market share of minority dollars. These minority dollars offer the industry a significant supply of potential low cost deposits. In the current interest rate environment, mortgage rates, student loan rates and consumer loan rates in general are relatively low. Banks need low cost deposits in the form of retail checking accounts, savings accounts and certificates of deposit in order to improve profit margins.

If demographic and population trends follow expectations, the industry should yield career opportunities at all levels. Opportunities could include entry-level positions such as business support services, information technology, telecommunications, marketing, advertising, sales, relationship managers, attorneys, accountants, compliance officers, junior, middle and executive level managers, investment bankers, investment advisors, insurance agents, consumer lenders, mortgage and commercial lenders to name a few.

Internships during your college years can serve as a key method of exploring whether a career in the banking industry is right for you. I would encourage you to expand your contacts and build relationships to include exposure to a wide variety of industries.

The business and economic environments of the new millennium are constantly changing, and you will serve yourself well by being prepared to adapt to those constant changes.

Mergers, Acquisitions and Economic Downturn

As demographic and population trends offer potential opportunities, mergers, acquisitions, consolidations and economic downturn offer just the opposite.

With all of the mergers, acquisitions and consolidations prevalent in the banking industry, you do not need to look far to see whether opportunities are shrinking or growing. Even though population trends and changing demographics may change the landscape of opportunity in the future, a current view of the industry is those opportunities in the short- term are shrinking. By way of example, Citigroup, which is the nation's largest bank with assets of approximately $944.3 billion, less than $56 billion away from becoming the country's first trillion-dollar bank, has filed with the Securities and Exchange Commission (SEC) its intent to cut 3,500 more corporate and consumer jobs. This type of trend certainly does not indicate the need for more bankers. As banks seek to reduce expenses in order to pay for the mergers and acquisitions, and attempt to maintain shareholder value and profitability, it remains to be seen how mergers and acquisitions, when balanced against demographic changes and population trends, will ultimately impact employment opportunities for African-American college graduates.

But, some banking executives remain optimistic. Barbara Lumpkin, (left) senior vice president of The Northern Trust Company in Chicago, predicts the banking industry will continue to provide a wealth of opportunity for African-Americans across a broad spectrum of fields and disciplines. "The banking industry provides opportunities to work with and provide financial solutions for businesses, institutions and individuals. The African-American community is a powerful economic force in this country, and it needs and demands a complex array of sophisticated financial services and products. Solid, long-term careers exist and are being created on a daily basis in the banking industry to meet the specialized needs of focused communities," said Lumpkin. She continued, "In this light, input towards the creation and execution of bias-free and accessible financial services products can be more successfully developed by a representative end-user, and therefore, interesting and satisfying career opportunities exist in areas such as relationship management, finance, research, product development, sales and marketing, public relations, and advertising. And these opportunities exist at all levels -- from entry-level college graduates all the way up to the most seasoned senior executive posts."

The Industry Leaders

Collectively, the top 10 banks represent $3.7 trillion in assets and they span virtually all regions of the country in distribution of retail branches, automated teller machines (ATM's) and Internet banking. They provide valuable support to community-based organizations, provide discounted mortgages to low and moderate-income individuals, and provide the financing to expand small businesses across the country.

Regulatory Environment

No article about the status of the banking industry would be complete without at least a broad scope view of some of the regulatory issues confronting the industry. The impact of some of the regulations could ultimately affect the cost of services to you as a consumer. One such regulation is the Community Reinvestment Act or CRA, which was enacted specifically to hold the banking industry accountable to its regulatory  agency and to the communities it serves. The CRA encourages banks to meet the credit needs of its entire community commonly referred to as its assessment area. Each year, the banks provide an annual report on their activities. Bank performance is evaluated by federal and/or state regulatory agencies using three tests including the lending, investment and service tests.

In short, banks receive a rating of outstanding, satisfactory, needs improvement or substantial non-compliance. This rating is very important to banks because it determines whether regulatory agencies act favorably on applications by banks to open or close branches, merge with or acquire other banks. The banks in the top 10 typically maintain the appropriate ratings necessary to engage in expansion activities. A satisfactory CRA rating ensures the ability to grow through mergers/acquisitions and maintain shareholder value. Shareholder value helps to ensure adequate capital infusion to compete in an industry where the ability to compete has become extremely difficult for banks with assets of less than $10 billion.

The Community Reinvestment Act has served to increase access to credit to many low and moderate-income consumers and low and moderate-income communities across the country, especially in the area of residential mortgage loans and community and economic development initiatives. The CRA is under review by regulatory agencies who are soliciting public comments from the industry, community groups and individuals regarding areas where there may be a need for reform. Consumer groups have expressed recently that the CRA has improved access to credit and the next frontier is to improve the terms of credit under which consumers must repay the credit they receive. This brings us to the next challenge for the banking industry and lenders in general, some of whom are not banks.

Predatory Lending

In the world of lending, we can best discuss predatory lending in the following context.

There are two types of consumers. First, there are consumers who qualify for the best combination of interest rates, fees and loan terms known as prime borrowers. The prime borrowers typically have good to excellent credit profiles. The credit profiles are maintained by credit bureaus and credit scores are assigned based on the credit history of the consumer. Second, there are consumers who have some blemishes in their credit profiles and who in theory pose a higher repayment risk to the lender. These consumers would typically have lower credit scores and as a result pay higher interest rates and fees. There is some debate about the concept of credit scores and how the scores are determined, and whether the factors used to determine the scores are fair and equitable for all consumers regardless of such factors as education, income, and residence. This pricing model based on actual credit risks and the potential of loan default is known as risk-based pricing.

The loan provided to the consumer who poses the higher risk is known as a subprime loan. Subprime loans at there best and when done responsibly provide a valuable service in the form of access to credit to consumers with less than perfect credit. The economic basis for taking on the higher risk of default is the potential profitability tied to interest rates and fees. There is very little debate about the need for and the value of responsible subprime lending, and the legitimacy of responsible risk-based pricing.

Unfortunately, there are some lenders, most of whom are not banks, but some of whom may be subsidiaries or affiliates of banks, who according to consumer advocates such as the American Association of Retired Persons (AARP), have gone much too far in their risk-based pricing analysis. Predatory lending, therefore, can be characterized as an abusive lending practice that takes advantage of the actual or perceived risks associated with a particular consumer or targeted group of consumers.

A predatory lender makes use of unfair and deceptive practices, which may include outright fraud, unnecessary insurance, hidden fees, excessive interest rates and fees or terms and conditions that systematically impede the borrower's ability to repay the loan or adds excessive cost to the borrower beyond the associated risk of loan default.

There is a tremendous amount of pending and proposed legislative action around the country on the topic of predatory lending. In an effort to protect consumers and minimize the banking industry's cost of compliance, there will most likely be some form of federal legislation to augment existing laws around unfair and deceptive practices and other existing consumer protection laws in general.

Once you familiarize yourself with all sides of the issue, you may be of the opinion that additional laws need to be enacted. You may be of the opinion that more resources need to be allocated for the enforcement of existing laws. However, as this debate makes its way through the local, state and federal legislative and legal process, one fact remains; one of the most critical defenses against predatory lending is an educated consumer.

Fortunately, the banking industry participates in a major way in financial literacy and with the assistance of community-based organizations, this knowledge and information can help to curb the tide of predatory lending. The Consumer Bankers Association (CBA) recently conducted a survey which indicated, "the banking industry has been diligent and resourceful in its effort to advance financial literacy… Industry commitment is evident in the readiness demonstrated to create partnerships, develop and deliver curricula [and] help fund organizations providing financial education."

Participants in the survey included 48 banks representing more than half of the industry's assets, and they indicated they participate in financial literacy efforts in some way. You may visit CBA online at www.cbanet.org for the complete report.

One of the components of predatory lending has been the financing of single premium life insurance. Citigroup, for example, which recently acquired a sub-prime lender, announced that they would no longer finance the single premium credit life insurance in their mortgages. Consumers may ultimately be able to purchase this type of insurance on a pay-as-you-go basis. The heightened awareness of predatory lending will most likely apply market pressures and create greater competition for prime and subprime loans. There is clearly significant data to warrant greater access to banking services in low and moderate-income communities, as these communities, along with minority and elderly individuals, tend to be the most vulnerable to predatory lenders.

In addition, table 3 indicates additional growth markets exist for the banking industry in general, and innovative banks in particular. The banking industry, with its various challenges, continues to perform financial services every community needs to become full participants in the American free enterprise system. As you decide on your future professional opportunities, be sure to educate yourself in the intricacies of free enterprise, so you and your community may benefit from all free enterprise has to offer. Good luck and enjoy your journey!