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Banks, Small Business and Risk

Posted by Wendell Brock on Thu, Sep 16, 2010

In the recently passed legislation, the Dodd Frank Law, the FDIC is given the mandate to change the way it assesses deposit insurance premiums from banks, mostly based on risk. This will greatly impact small businesses, by limiting their access to capital through loans. Perhaps as much or more than the recent health care bill will.

First the Law

The law “defines a risk-based system as one based on an institution’s probability of causing a loss to the Deposit Insurance Fund (the Fund or the DIF) due to the composition and concentration of the institutions assets and liabilities, the likely amount of any such loss, and the revenue needs of the DIF. …allowing the FDIC to establish separate risk-based assessment systems for large and small members of the Deposit Insurance Fund.

“Over the long-term, institutions that pose higher long-term risk will pay higher assessments when they assume those risks. …should provide incentives for institutions to avoid excessive risk.” (the information quoted is found in the following paper about the new score card produced by the FDIC located at: http://www.denovostrategy.com/new-fdic-score-card/)  The new assessments will be based on a performance score, which will be comprised of three main elements: 1) CAMELS Score, 30%; 2) Ability to withstand asset-related stress, 50%; and 3) Ability to withstand funding-related stress 20%. It is the asset-related stress that has the regulators concerned and if an institution has too much risk in that category, it will also affect the CAMELS rating, as the regulators will perceive that management is not doing their job – that of taking care of the bank.

The banker’s number one job now it to make sure that the bank never becomes a problem bank, that may cause the regulators to pay on deposits; everything else is now ancillary to that goal.

Small Businesses

All small businesses are risk rated, based on their credit score, (or the owners credit score), which becomes the basis for easy or difficult access to credit at a financial institution. At times bankers make loans to small businesses, because they understand the business, the risk associated with the business and they know the owner, even though the credit may be simply o.k. (not great, but not terribly bad either).

This new way of assessing deposit insurance will now cause the banker to ask the question – how will this loan affect the bank’s portfolio and ultimately it’s DIF assessment? As bankers ask this question more loans will be turned down. This is not to say, that all loans should be written as applied for, but as the bell curve moves towards safety, it will certainly leave a larger percentage of good small business loans unfulfilled and business owners without the much needed capital to continue in business or to grow. And we all know that when small businesses don’t continue, or fail to grow, then lay-offs occur and unemployment lines increase.

Did Congress and the regulators think this one through completely? Is there a better way to asses risk?

Topics: Bank, FDIC, banks, Regulations, FDIC Insurance Fund, Loan Grading, Risk Management, Bank Regulations, Growth, small business

Bankers Should Have Cautious Optimism on Housing Market

Posted by Wendell Brock on Fri, Apr 30, 2010

This week, Standard & Poor's posted new figures that show the domestic housing market's rebound is anything but certain, causing bankers to have cautious optimism.

Utilizing 10- and 20-city composites, the S&P/Case-Shiller Home Prices Indices data compared one-month price changes from January to February 2010, and also twelve-month prices from February to February.

January to February

In the 20-city composite, only one location-San Diego-saw a rise in prices from January 2010. The 0.6% rise, though, was slight. All other cities saw decreases that ranged from New York's -0.4% to Portland's -2.4%. The 20-city composite fell -0.9%.

What a Difference a Year Makes

A brighter picture emerges, though, in the sampled metro areas' twelve-month comparisons. San Francisco's 11.6% rise was the largest among the surveyed cities. San Diego came in second with a 7.6% increase. The 20-city composite improved 0.6%.

Las Vegas, which has endured one of the country's largest drops in home value, continues its decline with a -14.6% drop from February to February.

Writing in USAToday.com, Stephanie Armour states that prices in Charlotte, New York, Las Vegas, Portland, Seattle, and Tampa have fallen to new lows.

Home prices peaked nearly four years ago in June and July of 2006. February's average prices dropped close to their numbers from 2003's summer and early fall.

But David M. Blitzer, chairman of the Index Committee at Standard and Poor's, is cautious. "It is too early to say that the housing market is recovering," he says. "The homebuyer tax credit...is the likely cause for these encouraging numbers and this may also flow through to some of our home price data in the next few months. Amidst all the news, however, we should also pay heed to foreclosure activity, which have reached their highest level in at least the last five years."

Consumer Confidence

But even with these dismal numbers, it appears that consumers think the economy is turning a corner. The Conference Board's Consumer Confidence Index shows an increase from March to April 2010.

April's Index number was 57.9, which is an improvement over March's 52.3. Providing evidence that the rebound may not be fleeting, this is the highest the Index has been since September 2008. The Index pulls its data from a survey of 5,000 American households.

Americans are also feeling good about the job market. 18% of those surveyed thought the future would bring more jobs, which is an improvement from March's 14.1%. Similarly, those who believed the number of jobs would decrease dropped from 21.1% to 20%.

In March, 45.8% of survey respondents said that jobs were "hard to get." This is a decline from February's number of 47.3. Combined with the optimistic responses to April's survey, these data could indicate a rising trend.

Topics: Banking, Loans, Economic Outlook, Growth, real estate, Standard & Poor's, Case-Shiller, Foreclosure, Consumer Confidence

Grow Remote Deposit Capture

Posted by Wendell Brock on Wed, Mar 17, 2010

Promoting and growing Remote Deposit Capture (RDC) within your institution requires a commitment from top management. The enthusiasm and support system for the RDC Program must radiate from top management all the way through the institution to include the frontline tellers. RDC success includes the following seven elements:

  1.  Perpetual focus and commitment from the top down;
  2.  Ongoing education of employees and customers;
  3.  A central contact person who has taken ownership of the RDC Program with a passion for its success within the organization;
  4.  Consistently applying techniques and ideas outlined in this article;
  5.  Established target goals and an action plan that are reviewed at regular meetings;
  6.  Holding individuals responsible for targeted growth; and
  7.  A marketing and sales program.

Remote Deposit Capture can be known by many different names including: Remote Deposit, Personal Capture, Merchant Capture, or Corporate Capture. What name is your financial institution going to use or are you going to develop a new flashy marketing name? Either way people need to know what it is and how it works to properly implement the service in the bank. We suggest that you stick with the standard Remote Deposit Capture this will avoid confusion when customers call.

Growth of RDC will help keep customers happy, safe and more profitable. RDC is one of the greatest time savers a business could implement in regards to its banking relationship. By not needing to go to the bank to make a deposit keeps employees safe. They can make the deposit in the office, and it saves drive time to the bank and back, (let alone keeping another car off the road, it's good for the environment). So, as banks promote paperless statements - they can also promote green deposits by using RDC.

RDC is the future. Banks that have a good working relationship with its personal and business customers can make it stronger with RDC. Some banks allow customers to use basic scanners to make deposits - not needing any special equipment - makes the process easier and less expensive to implement. Less cost means more profit for both the customer and the bank. As we deal with more and more electronic transactions, will RDC be the standard for old fashion paper checks?  Everything we read and hear, it is moving that direction

To learn more about RDC and ideas about how to grow it in your institution download our FREE white paper by clicking HERE.

Author: Carolyn C. Dowdy, President of Bank Project Solutions
http://bankprojectsolutions.com/

Topics: bank customers, Compliance, Deposit Growth, Deposits, Growth, Grow, Remote Deposit Capture

Bank Portfolio Management - Solve the Problems

Posted by Wendell Brock on Wed, Mar 10, 2010

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!

Topics: Bank, Bank Risks, regulators, Bank Regulators, Bank Asset, Regulations, Bank Policies, Compliance, Growth, real estate, Commercial Bank

GROW: Three Traits Your Organization Needs to Thrive

Posted by Wendell Brock on Thu, Oct 22, 2009

An insightful article I read in the Marriott Alumni Magazine stated that an organizations need to have three traits in their culture to thrive. First, a little background.

Growing Corn

Each semester Stan Fawcett, holds up a fresh ear of corn in his supply chain strategy class and asks, "Do farmers grow corn in Iowa?" The students with puzzles looks wonder why the professor would ask such a straightforward question. Fawcett's response is "No." Farmers don't grow corn, "the corn grows itself. Farmers clear the trees, remove the rocks, plow the fields and provide irrigation. Then they add pesticides, fertilizer and all those other things that lead to a bounteous harvest. The farmers' job is to create the environment where the corn can flourish."

This may sound simple, but as managers and leaders, our job is to create a work environment where our employees can grow and flourish in their jobs. By doing this can provide the right conditions to achieve maximum potential and productivity from each employee. The research team from the Marriott School Professors, determined that there are three critical ABC's - affirmation, belonging, and competence.

Affirmation

Creating opportunities to let all employees know that they are valued helps to satisfy the need in all of us for approval. Everyone wants to feel appreciated for their work and efforts to help the business succeed. Fawcett says, "Managers need to look for opportunities to express appreciation."

Professor Dave Whitlark says, "Employees also feel affirmed when they feel like problem solvers in their organization." As well as helping them "view criticisms as opportunities to help them succeed. One difficult job leaders have is to correct people when they are wrong." In addition, "create an environment where employees accept correction and even look forward to it because they know you want to help them."

Belonging

The second element of a thriving corporate culture is the sense of belonging; it refers to people's need to feel socially connected to coworkers and to the organization itself. Belonging leads to higher quality service and productivity.

Professor Gary Rhoads says, "You can scream at employees, and you can threaten them so they're productive, but if you want them to give quality service, you have to capture their hearts. When productivity goes up, quality doesn't always follow, but when quality goes up, productivity always follows."

Competence

The third element is competence. Rhoads says it this way, "You either lift people up, or tear them down; I'm always surprised how many people take the teardown approach. And the way supervisors tear down employees is they peck away at their competence."

Building confidence can come from simple things like providing extra training, and letting employees be in control of their work performance. In house training by other employees, utilizing outside consultants, helping employees go back to school or sending them to a conference, this investment in education strengthens their competence.

Another method is to have a newbie shadow a veteran for a short period. This tells the trainer that the company has confidence in their performance and it says, "you're a great role model ... and what does the new person learn? A lot from someone an enthusiastic employee. This arrangement actually accelerates the learning curve."

By building corporate culture that effectively uses the three traits, employees become more productive, quality improves and loyalty is developed.

Fawcett smiles when he says, "When ... a manager understands and captures the vision of the ABC's, makes people feel valued, creates a sense of belonging, empowers them through competence, and then unleashes them to solve the world's problems, it's awesome."

To download a full copy of the magazine article paper click: ABC's

Topics: Smarter Banks, Positive Thinking, Growth, business owners, Grow

Share the Power of Thinking Positive!

Posted by Wendell Brock on Tue, Nov 11, 2008

By Carolyn C. Dowdy, President, Bank Project Solutions.  Member of CBA of GA

As our world, as we use to know it, spins out of control (out of our control), the choices we make on how we perceive it affects not only our daily happiness, but everyone around us.

During this time of uncertain many of us are focusing on the negatives.  If we think, talk, and preach gloom and doom that is probably what we will get....not to mention the message radiating through our organizations. 

Consider focusing on the positives and things within our control.  For example, lift your staff up and make them feel as important as that customer who walks through the door.   I venture to say the organizations that start focusing on the positives will be the winners when we get out of the slump!

Here are a few ideas to enhance positive results:

  • Have weekly or monthly pep rallies and have each staff member bring two positive ideas to lift the spirits and mood of the institution (no negative comments please).
  • You might ask your staff to bring ideas to grow the organization that doesn't cost money. You will be surprised at the answers.
  • After you get a list of ideas, form a team to implement the best ideas. Have the team meet regularly and reward them with Great Job!....pat on the back....go to lunch with the President...give them a "Certificate" that says Great Job!
  • Maybe we have a hiring freeze and will not get a salary increase this year, think of ways to lift up the mood of your staff. Start making a list of non-monetary rewards and implement them immediately. You will be surprised how far non-monetary rewards go with your employees.

This quote has impacted my life in a very positive way and I will share it with you.  "Look at a situation and ask yourself if you have control, if the answer is no let it go!" Anonymous  I added more to the quote: "I focus my energy on things I have control of!"

Another quote:

"Our subconscious minds have no sense of humor, play no jokes and cannot tell the difference between reality and an imagined thought or image. What we continually think about eventually will manifest in our lives". Sidney Madwed: Famous Quotes about Life

Deal with the problems, resolve them with the resources available, and stay focused on the positives.  It is important to keep our staffs motivated, content, and happy during these uncertain times.  Just a pat on the back and positive talk may do the trick.

Topics: Positive Thinking, Growth, Choices

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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 subscribe@denovostrategy.com.