Compliance. An issue most bankers don't relish. Often times it is explained away as a necessary evil! This approach makes difficult for the bank to stay on top of compliance issues and often leads to problems with examiners. This leads to compliance waves where the compliance officer works to get things ready for an exam or audit then the work load relaxes until the next exam or audit.
Based on the current state of affairs, most banks' find themselves overwhelmed with compliance workloads; they have limited staff and schedules, along with the increase demands from examiners, who want more risk management. Internal audits are conducted by just a few people, typically, they are reactionary, and they utilize outdated technology, if any technology at all. The workload is not slowing down anytime soon-if anything it is increasing.
What we propose is a complete rethinking of compliance-to what is called "Next-generation Compliance"-this is where banks are proactive with compliance rather than reactive. It smoothes out the waves and distributes the work throughout the organization, which makes the compliance load much lighter and much easier to manage. Such a change must happen on three levels: a bank's operational culture, their level of collaboration, and the technology used in audits.
I. Culture
- 1. Devise a compliance strategy
- Get executives onboard with the strategy
- Promote all team members to be proactive
- Create metrics to quantify the value of proactive compliance
- Does compliance result in an increased speed of reporting?
- Quality compliance management response?
- The larger scope includes overall compliance simplicity?
- Money and time saved?
II. Collaboration
- 1. Include people from multiple departments in compliance audits
- Standardize process across all areas of compliance audits
- Be flexible, and have reasonable expectations
- Make your auditors business-focused, independent, strategists
- They shouldn't be on an island
- Promote productivity
- Communication with regulators
- Involve them in the process early so they understand the improvements from the positive changes
III. Technology
- 1.Reassess your current compliance tools
- Is technology working efficiently for you?
- Break from the spreadsheet! You can't properly collaborate from a spreadsheet - there are easier ways
- Increase use of collaboration tools to centralize the compliance audit workflow
- With them, everyone can discuss and facilitate improved risk management
- Track the use of audit recommendations
- What good are recommendations if they aren't used?
- Provide continuous up-to-date analysis/status of risk management
Compliance and Banking
Regulators are asking for more risk management and compliance, but banks aren't able to address this increased workflow with more manpower. With tighter operating budgets, the solution is working smarter. Often times when a bank is not able, to deliver properly on compliance issues it results in the issuance of an MOU or a C&D to the bank. Restoration plans and strategies may be implemented and managed through continuous compliance.
If you're buying a bank, the regulatory hurdles are less. But modifying an existing bank's compliance processes requires a team effort; it's all about building a smarter bank!
If you're starting a bank, a culture of compliance can be built from the ground up as your institution evolves. A blank slate is easy to work with. But at the same time, new banks are subject to harsher regulatory scrutiny, which means compliance has to be a priority.
To learn more about Next-generation Compliance, click the link for more information.
If art imitates life, then the burgeoning market of art-as-loan-collateral is a mirror of today's financial sector, of asset-based lending.
Last year, venerable portrait photographer Annie Leibovitz called on Art Capital Group (ACG) for a $15.5M loan. Leibovitz's collateral? The rights to her entire photograph collection.
ACG only makes loans against an artist's or art patron's collection. Their website explains: "Unlike traditional sources of capital, we are comfortable utilizing fine and decorative art as the sole asset securing a loan or as a component of a collateral package."
And you thought the medical profession was specialized.
A preeminent photographer borrowing against her artistic catalog makes headlines (and blogs!), but asset-based lending and lending tailored to a business industry aren't new nor confined to the fine arts.
What is new is how popular this lending practice has become.
As Kyle Stock writes in the Wall Street Journal, "Asset-based lending, excluding mortgages, swelled by 8.3% to almost $600 billion in 2008, according to the Commercial Finance Association, an industry trade group. The association is still gathering data on 2009, but preliminary surveys show double-digit percent increases in lending. In comparison, syndicated lending in 2009 sagged by 39%, according to Dealogic Inc."
Interest rates for asset-based lending are typically higher than traditional loans, but still less than a credit card's terms. And if you can't persuade a bank to lend money through the usual channels-whether because of poor credit or the contracted credit market-then it's your best option.
Loans are made based on a business's accounts receivable, invoices, inventory, patents, and equipment. Most lenders require a detailed (and optimistic) business plan. But depending on the lender, businesses can use the cash for, among other things, acquisition, management buyout, recapitalization, growth financing, and turnaround.
Along with higher interest rates than traditional loans, asset-based loans also typically carry stiffer penalties for default, including a quick seizure of the collateral rather than a penalty. And if a bank has to liquidate assets, knowledge of the industry is very important.
Asset-based lending that matches a specialized lender with a customer-as with Leibovitz's loan-benefits both parties. The lender knows that what they're-literally-buying into, and the business gets payment terms that are tailored to their billing cycle.
Several banks around the country--both large and small--offer asset-based lending including, Bank of America, which offers several specialties, and is the asset-based lending industry leader.
According to the Wall Street Journal, the industry's biggest companies funded 23% more asset-based deals in 2009 as compared to the previous year.
And BOA, Wells Fargo, JP Morgan Chase, and TD Bank are all taking steps to expand their asset-based lending to stay competitive.
Whether this trend will continue remains to be seen. Much of it will depend on the default rate of these types of loans. Late last year, ACG accused Leibovitz of defaulting on her loan. Although ACG threatened a lawsuit, the issue was resolved last September without court proceedings.
Andy Warhol once said, "Being good in business is the most fascinating kind of art. Making money is art and working is art and good business is the best art."