BankNotes ...

It's a tangled mess in the financial jungle. In order to navigate the issues of portfolio management and compliance while still staying profitable and able to weather the market's unpredictable trends, financial institutions must arm themselves with the best information and resources. Yet many don't have either the knowledge or analytical resources to not only stay abreast of changing trends but also act on them in a timely and profitable manner. We have solutions.

New Rules, Economic Trends

A financial planner I know is now telling his older clients that the stock market is so volatile that it cannot be relied on as a stable platform for long term investing. Thus, the age-old saying that "assets are soft and debts are hard," has never been truer. In these difficult economic times, financial institutions need reliable information about their asset portfolio, including how the loans are matching up with the current value of the assets supporting the loans, along with the borrower's strength, all at a simple click of a mouse. 

By the time the CFO, CCO, CLO, CEO or any other member of the management team assembles enough information about the portfolio in a spreadsheet to make decisions, it seems the market may have changed enough to make the choice more difficult.  The analytics we can provide at a simple click of the mouse gives you 100 percent loan penetration and enough analytical information about your assets that your institution will have an objective defendable system to help manage the portfolio.  

Regulatory Requirements

The frequency and breadth of audits are increasing; requiring financial institutions to stay in a mode of continuous compliance, in one year's time they could be subject to internal and external loan review, IT audit, financial audit, CRA exam, and regulatory exams. Compliance is mandatory and with RiskKey, staying in continuous compliance is much easier.   

Industry Standards

There is a paradigm shift coming to financial institutions. Because lending is often formula driven, bankers need aggressively take on the roll of being asset managers. In addition to managing the loans in the portfolio, they need to manage the assets that support the loans. The tools and knowledge to help actively manage your portfolio are available with a simple, cost effective, mouse click!

Evaluate

With forward-thinking analytics, you can determine your portfolio's risk. These analytics provide a defensible probability of default within the portfolio, you can also stress test the portfolio along several different data inputs, including, percent of asset recovery, interest rate, fico score, and others. This basis can provide a direction as to the quality of the overall portfolio, all the while allowing the banker to zero in on the individual problem loans and assess their grade based on the institution's custom grading scale.

Act

Armed with a new, comprehensive understanding of your portfolio's risk, the analytics will subsequently locate the most pressing issues and provide options.

Assess

Finally, with your portfolio's risk evaluated and acted upon, you will have the tools and resources needed to clearly and concisely report your findings, to loan committees, the board of directors, and regulators.

Easy, Secure & Forthright

Working with us is simple. We take care of merging your data into a single platform. Your data will be protected and your analyses kept completely confidential. Our pricing is straightforward and simple.

People, Time & Action

Your employees should be generating revenue and managing accounts, not gathering statistics.  De Novo Strategy will allow your people to get back to profitable work. Our innovative practices are well beyond spreadsheets and simplistic reports. There's no laborious compiling of figures or making difficult assessments across a range of formats. Integrated reports and analyses mean less lag time between making a decision and executing it.

To learn more about Silverback Portfolio Analytics click and let us know. This will help you Build a Smarter Bank!

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. 1. Devise a compliance strategy
2. Get executives onboard with the strategy
3. Promote all team members to be proactive
4. 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. 1. Include people from multiple departments in compliance audits
2. Standardize process across all areas of compliance audits
3. Be flexible, and have reasonable expectations
4. Make your auditors business-focused, independent, strategists
• They shouldn't be on an island
• Promote productivity
5. Communication with regulators
• Involve them in the process early so they understand the improvements from the positive changes

III. Technology

1. 1.Reassess your current compliance tools
1. Is technology working efficiently for you?
2. Break from the spreadsheet! You can't properly collaborate from a spreadsheet - there are easier ways
2. Increase use of collaboration tools to centralize the compliance audit workflow
1. With them, everyone can discuss and facilitate improved risk management
3. Track the use of audit recommendations
1. What good are recommendations if they aren't used?
2. 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. 

The U.S. federal bank regulators (OCC, FRB, FDIC, OTS) along with the National Credit Union Association (NCUA) have collectively produced a set of guidelines regarding liquidity risk management for financial institutions. The agencies are soliciting public comments on these guidelines through September 4.

The proposed guidelines define a framework for the identification, measurement and monitoring of funding and liquidity risk; they include specific recommendations for:

Under the proposed guidelines, an institution's board members are ultimately responsible for managing liquidity risk. The board must therefore establish an appropriate level of risk tolerance for the institution, and then communicate that risk tolerance profile to the internal management team. At least annually, the board should revisit the liquidity strategy to ensure that:

The institution's liquidity management plan should:

The plan should establish liquidity projection assumptions and a periodic review process, to ensure that those assumptions continue to be valid over time. Qualitative targets and quantitative objectives should be clearly defined. Examples include:

The guidelines also recommend that senior managers receive liquidity reports at least monthly, or more often when economic conditions are severe. Board members should be evaluating the institution's liquidity position at least quarterly.

It is also advised that complex institutions make efforts to build liquidity costs into internal product pricing and performance measurement.

Institutions are expected to measure ongoing liquidity risk with short- and long-term cash flow projections that consider both on- and off-balance sheet items. As part of this process, the institution should have measures in place to ensure the appropriate valuation of assets. Other key components of an appropriate liquidity monitoring strategy include:

The report also addresses liquidity risk management practices for holding companies. Read the Proposed Interagency Guidance here and (http://www.fdic.gov/news/news/press/2009/pr09107a.pdf ) let us know what you think. Are these recommended procedures detailed enough to head off unexpected liquidity crises when economic conditions sour? Have the agencies overlooked key liquidity management tactics? Or are these guidelines too much?

The agencies have agreed that rules implementing the advanced approach should be finalized expeditiously, and should be technically consistent in most respects with international approaches. The agreement retains the Notice of Proposed Rulemaking's (NPR) transitional floor periods. After the parallel run in 2008, those transitional floors provide for maximum cumulative reductions of 5 percent during the first year of implementation, 10 percent in the second year, and 15 percent in the third year.

After the end of the second transition year period, the agencies will publish a study that evaluates the new framework to determine if there are any material deficiencies. If the study finds there are such material deficiencies that cannot be addressed by existing tools, banks will not be permitted to exit the third transitional period unless the deficiencies are first addressed by changes to the regulation. However, if a primary supervisor disagrees with a finding of material deficiency, it may authorize banks it supervises to exit the third transitional period, but only if it first provides a public report explaining its reasoning.

The agencies also have agreed to eliminate language in the NPR concerning a 10 percent limitation on aggregate reductions in risk-based capital requirements.

The agencies believe the annual review process by which they will assess the performance of the new rules is consistent with recommendations of the U.S. Government Accountability Office and provides a structured and prudent framework for managing the implementation of Basel II in the United States.

The agencies also agreed to proceed promptly to issue a proposed rule that would provide all non-core banks with the option to adopt a standardized approach under the Basel II Accord. This would replace the earlier proposed rule to adopt the "Basel IA" option. The agencies intend that the proposed standardized option would be finalized before the core banks begin the first transition period year under the advanced approaches of Basel II.

The agencies also re-affirmed their commitment to strive to achieve consensus throughout implementation.

FDIC Chairman Bair said, "This is an important consensus agreement that provides a framework for U.S. banks to move forward expeditiously with the Basel II advanced approach. At the same time, it will ensure that adequate capital is maintained by our banks during the necessary period of transition and review appropriate for rules that will have such a significant impact on the capital standards of our banks. Today, our banks are strong and profitable. This agreement assures that safeguards are in place to ensure the future health and stability of our financial system. We all want the advanced approaches to work in producing a more risk sensitive framework which maintains strong levels of capital to protect the safety net. But many questions remain about the framework, and this agreement will help assure that we will be able to fix any problems before capital levels are allowed to drop precipitously.

"Clearly, this is a process that required significant thought and deliberation among the regulators. I want to thank Chairman Bernanke for his personal involvement and thoughtful insight and leadership that enabled the agencies to coalesce around this agreement. I also wish to thank Treasury Secretary Paulson for encouraging the process and providing support for this compromise. The result of this announcement is a balanced approach to the many dimensions of this complex issue."

The FDIC wrote some guidelines which will allow and encourage banks to offer "small dollar loans" to consumers in an effort to help them compete with pay day lenders and other businesses that offer these types of loans.

The Federal Deposit Insurance Corporation (FDIC) today issued final guidelines to state nonmember banks encouraging them to offer affordable small-dollar loan products and to promote these products to their customers. FDIC-supervised institutions that offer products which comply with consumer protection laws, and are structured in a responsible, safe and sound manner, may receive favorable consideration under the Community Reinvestment Act (CRA).

"Despite the tremendous demand for small-dollar, unsecured loans, most products available in the market come at a high cost to consumers," said FDIC Chairman Sheila C. Bair. "Banks have the tools and infrastructure to create products meeting this need that are beneficial to both the banks and their customers."

Key features of a preferred small-dollar lending program include:

• Loan amounts of up to $1,000;
• Amortization periods longer than a single pay cycle and up to 36 months for closed-end credit, or minimum payments that reduce principal (i.e., do not result in negative amortization) for open-end credit;
• Annual percentage rates (APR) below 36 percent;
• No prepayment penalties;
• Origination and/or maintenance fees limited to the amount necessary to cover actual costs; and
• An automatic savings component.