Peter W. Callow is chairman, president and CEO of Peoria’s $500 million asset Commerce Bank, N.A. His 23 years in banking has taken him from the Chicago area to Kansas City, and most recently to St. Louis, where he was regional president with The Boatmen’s National Bank of St. Louis for 13 years. He is a graduate of the University of Wisconsin of Milwaukee and is currently active in many civic, charitable, and business organizations. He serves on the Board of Directors for the Peoria Area Chamber of Commerce, Heart of Illinois United Way, Allied Agencies Care and Treatment Board, Economic Development Council for the Peoria Area, Heartland Partnership Community Development Corporation, Methodist Medical Center, Advanced Medical Transport, and Peoria Symphony Orchestra.

The face of the banking industry in Peoria has changed significantly in the past few years with regional bank holding companies acquiring most of the area’s larger locally owned banks. Commerce Bank was the second regional banking company to enter the market with the acquisition of First National Bank of Peoria. It seems to have been very successful in maintaining continuity and focus with customers and the community. What were the challenges and how did you meet them?

The biggest challenge was name recognition. First National Bank of Peoria had a long and well-respected name in the community. When we came in and put up the new signs, Commerce Bank was not readily identifiable.

When we ran newspaper ads and got very little response to products and services we were offering, we were very perplexed.

What was required was to go out into the community and begin to change the recognition of the bank. My officers and I have spent a lot of time being active in the community, in business and charitable organizations, to get people to start associating the great reputation of First National with that of Commerce Bank.

One of the criticisms leveled against the regional banks is that they come into an area, take over a local bank, downsize the workforce, and are less responsive to needs of local businesses and the community. Is it your sense that has indeed happened in Peoria?

There are some organizations who come into a community and don’t have the sensitivity to the local issues. It takes a period of time for them to address what they may have overlooked when they came in.

Our corporation refers to itself as a “super-community bank,” as opposed to a “regional bank holding company.” We like to believe we can respond to the needs of the community. For example, on the loan side, our local people have lending limits that allow them to respond to 95 percent of all requests they receive in the community. We have the ability to make those decisions on a local basis.

We also conduct local focus groups so we are aware of what the marketplace in Central Illinois expects from Commerce Bank. We tailor our marketing, advertising, product development, and service implementations to that market.

I think there’s always going to be the perception that big is not necessarily better. We like to approach it on a basis that big is better insofar as it brings the consumer a greater variety of products and services that perhaps they would have previously received only from a bank in Chicago or St. Louis, for example. We can offer these services locally now, through our affiliation with Commerce Bancshares in Kansas City.

People tend to view a bank’s participation in community issues and events on the basis of how that bank demonstrates its ability to meet the needs of the community, understand the direction the community is going, and be sympathetic to local causes. We think we make every effort to do that.

We also think there will always be a need for true community banks. Everyone talks about how interstate banking is going to change the face of banking in this country, and that the 11,000+ bank charters out there will be cut in half by the year 2000; and there’s probably a good chance there will be further consolidations. But the United States is very unique – different from any European country, Canada, or Japan. Each community in the United States has a very strong sense of local pride in institutions and business. There will continue to be strong, independent banks ($25 million to $200 million) throughout the country, even after interstate banking takes full effect. I don’t foresee a situation, like in Canada, where there are only five or six banks. That just won’t happen here.

One of the theories of the advantage of fewer, larger banks as opposed to more, smaller banks is that larger banks are necessary to compete in an increasingly global financial market. What are your thoughts on this?

I think the global community is more apparent to us in Central Illinois, thanks to Caterpillar, than it might be to other communities throughout the state outside of Chicago. Cat depends on the ability to manufacture products in this country and sell them abroad.

The world financial picture is becoming more interdependent. The fact that some of the largest purchasers of U.S. treasury instruments today are Japanese banks is an example. Everybody says, “Well the banks in Japan are having financial difficulties now.” Perhaps they are, but our country went through similar financial difficulties in recent times and we turned it around; in fact the Federal Deposit Insurance Corporation is probably stronger now that it has ever been, and the health of the banking community in this country is very good.

The global financial picture is going to ebb and flow. This world we inhabit is shrinking; we are all more interdependent that we would like to admit to each other. As the financial markets begin to support each other in international projects, in the same way we had military alliances during the cold war, we’re going to see alliances in the financial markets for the betterment of individual countries and the world at large.

We’re going to continue to see a situation where financial policy in this country will affect the entire world.

How global is the banking industry? How might an impending Japanese bank crisis affect U.S. and world markets?

It is of concern to us largely because the Japanese are such avid buyers of our treasury securities. But I don’t think it is going to be to the point where it will create a trauma. There will be a blip that the financial world will struggle through. The Japanese will that the losses they need to take, as the banks in this country did, and they’ll rebound. They have a very vibrant economy and much of the world depends on the Japanese economy.

How serious do you believe Congress is in attacking and eliminating the deficit?

I think we have a Congress that is very serious about the deficit. Last January, I went to Washington as a member of the lobbying committee of the Illinois Bankers Association. We spent four days lobbying freshman congressmen, largely members of the House Banking Committee (there are 17 freshmen on the House Banking Committee, the largest number ever). I was impressed by two things that I brought back and shared with other Peoria business people. One, these new members of Congress firmly believe in the agreement they made in The Contract With America, and they are committed to getting it done. Secondly, when you express to the risk of not getting reelected if the majority of their constituents aren’t favorable towards what they do, they tell you they realize that, but they are there to do a job, and if it means they put their reelection chances at risk, so be it. Their guiding light is: “I was sent here to do this by my constituency and if I do this then I’ve met the request of the voters.” If voters’ opinions change or if their constituency thinks they’ve gone too far, they realize that’s a risk they have to take.

To me it was refreshing to see members of Congress who actually believe their job is to do what the voters wanted them to do, not just get reelected. If that continues throughout the Congress, I think we will see a renewed faith in the Congress which we haven’t seen in a number of years.

We hear and read about how technology and computers will change the banking industry, allowing customers to bank from the convenience of their homes via PCs. Banks are worried that communications and software companies will become the banks of the future. How do you see the evolution of technology affecting the banking industry in the next millennium?

It’s inevitable, and sort of ironic. If you look at banks today, versus the rest of the commercial industry, you would have to say banks are behind in technology. Yet I can remember, when I first got into banking in the late 60s and early 70s, banks were the leaders in technology. We were the prime customers for the IBMs of the world. They sold many rooms full of computers to banks to handle the processing of checks and all the paper flowing through the banks. We always thought we were on the cutting edge back in those days.

Things have changed, largely because of complacency on the part of the banks. We haven’t kept up, and now we’re all running for cover. We have Intuit out with Quicken, which I have on my computer at home. Quite frankly, it’s a fantastic service, and with a few minor changes and the addition of a modem, someone could largely do all of their banking from home. I think banks realize this, and have stepped up our technology vision of the future. You will see banks becoming much more competitive in all of these areas of service.

Interestingly enough, if you look at the demographics today, you will find the majority of money in the banks in the hands of people 55 to 75 years of age. But in the next 15 years that money is going to change hands and it‘s going to fall to the baby boomers and Generation X. These two generations are very technologically inclined. They use ATMs; they bank by mail; they have computers at home. They just don’t come into the bank much anymore. So, it’s imperative that banks realize that the demographics of the deposit base today is only temporarily. It is going to shift to the computer-literate generation, and unless we’re there to meet that challenge, all of the companies that are, like Edward D. Jones and Merrill Lynch, are going to take those dollars away from us. U think banks realize that and are really stepping up their efforts. I know our company is.

What are your thoughts on the potential diversification of banks into securities and insurance? What regulatory changes do you envision?

I think there is a strong argument for allowing banks to get back into the securities business. When Glass-Steagall was passed in the early 1940s, it was reactionary to one of the problems that brought on the crash of 1929. Throughout the 1930s the country was still reeling from the crash of 1929, and Congress was wringing its hands over what to do to prevent this from happening again. So they began to pass laws that precluded the banks from being players in the securities business.

I think we will see the banks getting some relief in the sale of securities. There will be a more difficult struggle on the annuities side; the insurance lobbies in Congress are extremely strong and very protective. They are fearful that once banks begin selling annuities, they will want to expand into selling insurance policies. To the average insurance person, the most important thing is the insurance policy, where they control renewals, and ultimately, the customer. Insurance powers is the last thing they want to see go to the banks because it would put pressure on them to either lower their commissions, which means less return, or sell out. I think the insurance piece is going to be a bit harder.

Interestingly, there are a number of proposals being put forth by members of Congress to address those issues, and no two of them are alike. Until they come together, we’re going to continue to talk about it but probably won’t see any major changes, with the exception of securities. I think Glass-Steagall will probably either be amended or abolished, if not during this congressional session, then for sure in the next one.

What other trends do you foresee in banking and in the financial services industry? In what areas of financial services is more regulation needed and in what areas is less needed?

We’re going to see a further review of regulatory issues. The regulators that are currently in place were all nominated by the current administration and at most times are at odds with Congress on how these issues should be approached. I think we’re going to see some redress in the Community Reinvestment Act. In the future, it will probably focus more on what banks have done as opposed to what banks say they will do. “How many loans have you made in disadvantaged areas?” as opposed to “Do you have a policy for making loans in disadvantaged areas?” I favor that. Results are always the best way to measure.

What we really need, however, is to get capital investment into those disadvantaged areas – not just loans for people who buy homes. We need to get companies to go in and make a capital investment in these areas to build a plant, refurbish a building, and bring in jobs. If we can bring in jobs, we will bring in home owners. If we bring in home owners, we will bring pride of ownership and the things that will rebuild the community much faster than throwing government programs around or telling banks they need to finance 12 homes in a disadvantaged area. If we finance homes and they people don’t stay there, what have we gained for the community? Nothing.

More and more, banks are trying to entice customers from everywhere. If there is anything banks have realized over the past 25 years, it is that we customers from all walks of life and all areas of the financial spectrum. We need a customer base that is going to come to us not just for a checking account, but for a whole relationship. Our bank, and most banks I know of today, are focusing on these relationships. We need to stop being “order takers” and become relationship builders.

What is your view of the role of the Federal Reserve in structure and influence? How do you view the policies of the Greenspan-led Fed?

The role of the Fed has diminished, largely because banks are not the only avenues for financial services in this country. Money market funds, which now contain many of the deposits that were formerly in banks, don’t fall under the control of the Fed. I can’t remember the last time M1 and M2 (money supply) was talked about in any publication I’ve read. Back in the 70s and 80s, everything was M1 and M2.

The Fed is largely a barometer of what’s going to happen in the future. Unfortunately people judge the Fed on what’s happening today. When they raise interest rates, as Mr. Greenspan has done several times the past few years, everyone criticizes them. You might make an argument that he may have made one too many interest rate hikes. Maybe so. But had he not, we could have been back in an inflationary spiral in this country; we would not be enjoying the continued growth we have now; we would not be in a mode for a soft landing if the economy does back off a bit.

The Fed is still important, and it needs to remain independent. We’re one of the few nations in the world that has a Federal Reserve Board that is independent from the administration. I think that’s important. If it ever becomes a political vehicle, we will find ourselves in the same situation as the European countries where the current government decides what the monetary policy is going to be. That can be disastrous.

Mr. Greenspan has caught a lot of hear for some very difficult decisions. When I was in Washington most recently we visited the Federal Reserve and had an opportunity to talk to some of the Fed governors. They firmly believe Mr. Greenspan is of the more qualified chairmen of the Federal Reserve, primarily because he is a good listener. He listens to what is going on in Congress; he listens to the president; he listens to foreign leaders; and he listens, more importantly, to the other Fed governors.

What national economic scenario do you envision over the next year or two?

Well, we’re coming into a political year. Every sitting president loves to have a crisis that he can handle in the six months prior to the election.

I imagine we’re going to see continued growth, but probably not at the levels it has been. We are seeing some falling off in housing, but some of that is seasonal. I think we’ll see some softening in automobile production, but we’ve been experiencing record years. Look at the profits we’ve seen in the last four years from the three big automakers in this country.

Steady growth is better than rapid growth followed by a fall-off. Average Americans are becoming more content with having things just remain on a level playing field with slight increases every once and again, and I think that is where we’re going on a national basis.

We’re going to continue to see a concentration on working down the debt. This Congress is committed to that. The country’s growth or lack of growth will come down to their success in deficit reduction, and the administration’s concurrence with the bills that roll out to address that issue. Average Americans don’t want to penalize their children with the debt that they and their parents created. I think average Americans believe in the success of this country and believe that it can go forward.

The Peoria area economy has diversified greatly in the past decade into more service and information-oriented businesses. We continue to see great retail growth. What do you see for the future economic development of Peoria?

This entire community should be very happy that Caterpillar is here. Car has provided this community stability and an opportunity to have national and international recognition. It has brought good-paying jobs and a solid base for the entire economic structure.

Hopefully the labor situation with Cat will be settled with all the recent changes at the United Auto Workers union. I think as soon as that is settled, it will get any negativism about this community out of the news, on a national and statewide basis.

Peorians are the most optimistic people in the Midwest. Since I moved here three years ago, I’ve been very impressed with the optimism in this community. We firmly believe, even if the rest of the country isn’t doing well, Peoria is going to do well. A lot of that comes from the lessons this community learned in the early 80s, as a result of the problems at Caterpillar. This community learned not to be totally dependent on one company. This community diversified; sought other types of businesses in marketing, service industries, and healthcare. I think Peoria has done an outstanding job. The commitment from the business leaders is here to continue to aggressively pursue new opportunities and to get new companies to locate here.

The Economic Development Council does a very good job of working throughout the entire country to identify prospects for location in the Tri-Country area. Just look at the new Postal Service center and the Federal Reserve processing location.

Watching the City Council on TV recently, I listened to all the arguments, pro and con, regarding a development issue in the Glen and Sheridan area. It’s interesting that everyone is for development unless it’s in their neighborhood or on the street they travel home; I guess that is just human nature. But, by and large, this community is committed to development. Its business leaders and citizens realize we have to have new development, and they want it in a structured, coordinated, cooperative fashion. There have been hundreds of millions of dollars of building permits issued in recent times. Look at our plans for the riverfront – plans that will come to fruition in the next three or four years. The development down there will be astonishing and Peorians will have a superb, world-class riverfront. We will be amazed at the people who will come to Peoria from all over the state to take advantage of it.

This community is going to continue to prosper because it believes in the people and the quality of life available in Central Illinois. I came here in 1992 from St. Louis, a metropolitan area of just under three million people, to a metropolitan area of just over 375,000. I will tell you that my quality of life is better, in my mind, than it was in St. Louis. There is a very concerned constituency here, and a strong support for the business community, social issues, and the arts.

You are chairman of the Heart of Illinois United Way campaign this year. What is your philosophy of philanthropy and community involvement?

Our United Way campaign is the organizational event that gets the widest support from both the corporate community and individuals, as is the case in most communities. What most people don’t realize, I would venture to guess, is that Peoria ranks very high nationally, compared to cities of similar size, in the amount of money we raise for the United Way. Our average over the past five or six years has been $5 million. I recently went to a national meeting of the United Way of America and was astonished to find out that the city of Phoenix raised less than Peoria!

The people of Central Illinois are some of the most generous people I have ever met. There are many worthwhile organizations here that are not members of the United Way, and this community somehow finds a way to garner support for all of them.

The United Way campaign is an annual fund-raiser with a big goal. We depend on the generosity of the citizens. While our average over the past five years has been $5 million, the needs of our agencies have been closer to $7 million. Does that mean agencies aren’t providing the services? No. They find a way to provide the services.

Philanthropy is included in our company’s mission statement. One of the things our chairman asks all the officers of the affiliate banks and the holding company is to give back to the community – not to participate in name only, but to be active, devote time, work on fundraising activities, for the betterment of the community and the individual.

Is there a message you would like to give the local business community?

I would tell this business community to keep believing in this town – to keep believing in themselves and the viability of this community.

When our company looked around Central Illinois, we immediately targeted Peoria as on of the communities we wanted to come to – not just because there is a major employer here, but because this is a community which had distinguished itself with its vibrancy and ability to grow.

It distinguished itself with the attractiveness of its educational system, a major university, teaching hospitals, and a medical school affiliated with the University of Illinois.

But more importantly, Peorians believe in Central Illinois and its growth potential. I think that’s what brought Commerce Bank here. We talked to the First National Bank of Peoria for eight years before we made the move here. We kept coming back and coming back. Even when the negotiations were difficult, we never quit; we never gave up on Peoria.

That’s my message to the business community and to the citizens as well – this community is a great place to live. IBI