Banking in today’s market Featured

7:00pm EDT November 25, 2007

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 or (888) 422-6562.