Southwest Capital Bank was founded 1890 by a group of local business leaders who managed the institution with a focus on local families. Although there have most certainly been leadership changes in that long history, it is still at its core, a family-owned bank. The Paper. sat down with the Southwest Capital’s newest CEO, Chez Steel to talk community involvement, cannabis and of course keeping a focus on families while running one of the fastest growing “little” banks in the New Mexico.
The Paper.: Would you say that one of a bank’s largest reorganization problems is changes to state and federal laws?
Steel: Understanding the Federal and State differences. Balancing act!
Working with cannabis deposits is federally illegal and lending to the industry has pitfalls that simply do not exist in other industries. We live in a state that has legalized recreational cannabis although still subject to federal law. Fortunately, we have some guidance on how to bank the industry, but it is seriously out of date, we are talking 1970’s and 2001 era, which in general puts the onus on the institution to understand and accept the risks.
In the banking industry, we like to have policy guidance and procedural clarity and those elements are missing in the cannabis realm. If a financial institution accepts cannabis related deposits or originates loans, that institution must do so understanding that regulatory compliance must be at the top of the list. There is no room for waivers or only being partially compliant. A banker puts the entire organization at risk by not doing it correctly.
Southwest Capital Bank made the decision to enter that market long before I arrived at the bank, and we have had some ups and downs with regulatory challenges. Having said that, I am very proud of the foundations that have been built here and the people that put those foundations in place.
For example, New Mexico has just made cannabis legal for recreational use. How did that affect Southwest Capital’s efforts to attract new business?
Southwest Capital Bank has been banking the cannabis industry for a number of years and we love serving the industry. It comes with challenges that generally do not exist in other industries because it is federally illegal, and the bank is federally insured.
However, because the State has approved cannabis, it now needs to be banked, tracked and taxed. While the guidance is limited, the banking industry has currency reporting requirements and more recently risk-based procedures that require the verification of each customer, location by address, principals and, industry information. The bank must have processes in place for all cannabis related accounts and loans and comes at a risk, cost and regulatory burden.
Southwest Capital has several employees specifically assigned to this industry just to stay compliant with the regulations and provide a high degree of service to the clients. For example, every location must be annually inspected by a bank employee. We have clients literally all over the state.
What are the bank’s specific challenges in the recreational cannabis market?
Volume! We were set up to handle the medical portion of the industry and when we knew recreational was approaching, we started to gear up in terms of systems, people, processes and policies. The authorization and approval came at a time when nationally (including in our own state) it is very hard to find employees. To service this industry requires people with very specific training and skill sets. We are very proud of the team that has been assembled, be we need more to keep up with the demand and just like every other employer in America, we are struggling to locate, train and put people to work.
What are the specific challenges you face as CEO with this new entrepreneurial market?
I love the entrepreneur! If we did not have entrepreneurs, our economy and way of life would not exist. In addition, I find it fascinating to meet young as well as experienced and very successful entrepreneurs. These people are optimistic and put their capital at risk every day to help build the economic engine in our communities and our state. We need more entrepreneurs.
We live in a country that is destined to be productive. In general, the tax codes and laws are designed to help companies start, grow and be successful and whether we acknowledge it or not, capitalism works and works well.
I came from an 80-acre farm in Idaho. My dad’s tax return was very modest every single year (I am talking poverty level income). When I was considering college, my father was very supportive, but had nothing to offer in terms of financial resources. He spent 18 years teaching me the value of work and so I went to work, 40 hour/ week to pay for an apartment, food, insurance, tuition and books every quarter and work in a few dates. It was a struggle that I do not have fond memories of, but in a small way, I get what the entrepreneurs do today. They work, sacrifice, and commit all they have financially to the venture. For me, it paid off and I have spent my career in an industry that has provided me with many rewards.
Specific challenges? Just like any other business in America right now, finding people who see opportunity in industry, finding people willing to work, train and put in the time. I recently participated in a conversation with a young man who was offering very specific guidance to me on how to run the bank. He had been in the industry not quite three years and felt empowered enough to counsel me. I still have not figured out if I should consider that an insult or a compliment that he felt he could counsel me so specifically.
One of my fears is washing out as an unsuccessful CEO. The lifespan of CEOs seems to be shortening in the US. Many are excused in one-two years. I have got past the two-year point, but still find daily challenges and things to work on.