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Next-generation Compliance for Banks

Posted by Wendell Brock on Wed, Feb 17, 2010

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 Internal audits are conducted by just a few people, typically, they are reactionary, and they utilize outdated technology, if any technology at all.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. 

Topics: Buy a bank, Bank Risks, regulators, Bank Regulators, Bank Regulation, Regulations, Bank Policies, Risk Management, Bank Regulations, Building Smarter Banks, Start a bank, Smarter Banks, Restoration Plan, distressed banks, Compliance, Next-generation Compliance

Composition of Distressed/Underserved Community List Remains Largely Unchanged

Posted by Wendell Brock on Fri, Jul 10, 2009

Last week, we addressed the FFIEC’s 2009 list of distressed and underserved communities in the context of identifying geographies appropriate for bank acquisitions. This week, we’ll look at how the composition of that list has changed between 2005 and 2009, and what that might mean for bank acquirers.

The chart below shows the ten states with the highest number of distressed or underserved counties in 2009, along with the data from 2008 through 2005 for those same states. To clarify, the FFIEC list identifies specific community tracts and the counties in which those tracts are located. The data below represents the number of counties in each state that have one or more distressed or underserved community tracts.




As the chart indicates, several of these states show relatively small changes over the five-year time period. Texas, Georgia, Mississippi, Missouri, Arkansas and Oklahoma show an increased number of counties in 2008 and 2009 compared to prior years. The data from Nebraska, Kentucky and Kansas, however, have remained almost flat.

Obviously, we don’t have the data here to understand why these particular states routinely have distressed or underserved community tracts in more counties than other states. But, since the composition of these “top ten” hasn’t changed much in five years, it’s probably safe to say the banking community hasn’t found an effective and sustainable means of serving many of these communities.

The 2009 data reports that in Texas alone, there are 335 distressed or underserved tracts, spread out among 126 counties. Among those tracts, poverty is the most pervasive problem; 173 tracts are designated as impoverished, while 120 have suffered from population loss. Another 85 tracts are in remote rural locations. Only five of the tracts have a noted unemployment problem. (Some tracts fall into more than one of these categories).  

In 2005, Texas had 258 distressed or underserved tracts among 109 counties; 125 of the tracts were designated as impoverished, 120 had experienced population loss, and 85 were in remote locations. Twenty-six tracts had problems with unemployment. The change from 2005 to 2009 in Texas’ data looks to be largely driven by an increase in the number of poverty-stricken communities.

Residents of poor, shrinking and/or remote communities aren’t the ideal “target” for most banks. But the conventional school of thought supports the notion that these customers do offer opportunity for banks. They can be weaned onto starter banking services and eventually converted into more sophisticated banking customers.

A bank acquisition team that addresses these customer segments early in the strategic planning process can devote the resources necessary to gain a foothold in underserved areas. That foothold can then develop into a strong competitive advantage, as residents and businesses benefit from the financial support of a community-oriented bank.

For additional reading on addressed underserved communities, see:

•    Dryades Savings Bank Case Study
•    FDIC Advisory Committee on Economic Inclusion
•    Reaching Underserved Borrower Prospects: A Case Of A Small Rural Bank

Topics: underserved areas, distressed banks, distressed tracts, FFIEC

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BankNotes© is published by De Novo Strategy as a service to clients and other friends. The information contained in this publication should not be construed as legal, accounting, or investment advice. Should further analysis or explanation of the subject matter be required, please contact De Novo Strategy at