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DECEMBER 26, 2017 • HARTFORD BUSINESS JOURNAL | 9 BANKING & FINANCE BANKING & FINANCE CT bankers chart mid-size firms' success, cyber risk for '18 By Gregory Seay gseay@HartfordBusiness.com C onnecticut's banking-financial services sector in 2018 will continue to juggle and respond to several trends impacting providers and their customers. The potential for a continued climb in interest rates and Congress' efforts at tax reform, including a possible cap on mortgage-interest deductions that could severely impact Connecticut's realty sector, will be front of mind for bankers next year. In addition, as financial-technology providers, or "fintechs,'' increase their digital reach into turf traditionally dominated by banks and cred- it unions, so does the risk of cybersecurity threats and breaches. Bankers, too, have identified several issues currently low on the pub- lic's radar — rising student-loan debt, low literacy rates and the fallout from a bruising state budget cycle — but with the potential to drag on the Connecticut and national economies. Three leading Connecticut bankers — Michael J. Casparino, northern Connecticut president for People's United Bank; Edward Danek Jr., presi- dent/CEO of Hartford Federal Credit Union; and Lisa Maass, Connecti- cut president for Citizens Bank — share their 2018 outlooks. Here are their top five issues to watch: 1. CT's burgeoning middle market presents opportunities Maass: The Connecticut middle market — companies with $10 mil- lion to $1 billion in revenues — remains strong. Citizens Bank counts a good number of the more than 2,000 Connecticut middle-market companies as clients — and nearly all are reporting record years. The reason? Many of these middle-market businesses do not solely rely on Connecticut to drive their bottom line and are inoculated from some of the nagging issues at home. These companies also benefit from Connecticut's skilled workforce and proximity to major metropolitan areas. Casparino: Connecticut's roughly 4,000 manufacturers, which account for 160,000 jobs, are the one bright spot in Connecticut's economy. While this sector ex- pands, so will the need for growth capital, prompting ample opportunity for banks to step in and be a facilitator for continued growth. 2. Banks must prepare for evolving technologies, customers Casparino: The new generation — Millennials and Generation Z — are forcing small, medium and large banks statewide to rethink how they approach customer service and learn a new language. Banks will continue to reach the Boomer gen- eration with the tried-and-true methods … but add a new stream of products and communications channels, and frankly, a new way of thinking to their marketing and public relations efforts to attract and retain the younger generation. Danek: While Millennials would prefer not to see the inside of a branch, many Baby Boomers continue to bank in the more traditional way. However, both demo- graphics prefer to deal with staff as opposed to impersonal and often frustrating automated systems when trying to resolve problems. Look for commu- nity institutions to carve a niche for themselves by striking the right balance between automation and the human touch, including bilingual staff. 3. Risk and cybersecurity improvements ongoing Casparino: As hackers become more sophisticated, so must banks. We should lobby for tougher cybersecurity measures at the state-gov- ernment level, increase capital deployment toward [information tech- nology] and security measures to not only prevent but detect threats faster. In fact, during this year's Connecticut legislative session, a new act was passed to expand credit-card crimes to include ATM cards and their electronic use by criminals. At the same time, acts concerning ransomware and computer extortion failed. Danek: Given the number of high-profile cyberattacks and steadily escalating cybersecurity threats, regulators likely will devote a larger portion of their examination focus to address these risks. This will compel financial institutions to do more in the way of com- prehensive risk assessments and costly intrusion/cybersecurity con- trol testing performed by independent experts outside of the formal examination process. The heightened regulatory oversight in these areas will extend to financial institutions' third-party providers as well. 4. Higher interest rates may lurk Danek: With the Federal Reserve expected to raise rates three to four times in 2018, coupled with the planned unwinding of its $4.5 bil- lion balance sheet, something to watch will be the yield curve. Will there be a steepening of the yield curve or a parallel shift up? A steepening yield curve will bolster financial institution profits, while a flattening of the curve could prolong lenders' narrow interest-rate margins. 5. CT's budget woes to weigh heavily over economy Maass: Connecticut continues to endure fiscal distress with declining revenues frequently leading to tax hikes. This has yielded uncertainty in the marketplace. So while Connecticut's financial-services sector remains healthy for the moment, additional budget issues … threaten the state's fiscal and economic well-being. It will be important for state political leaders in 2018 to establish a budget vision to reassure business leaders that growth and profitability are being prioritized. Edward Danek Jr. is the president and CEO of Hartford Federal Credit Union. ECONOMIC FORECAST Michael J. Casparino, Northern CT President, People's United Bank Lisa Maass, Connecticut President, Citizens Bank