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 Internal audits are conducted by just a few people, typically, they are reactionary, and they utilize outdated technology, if any technology at all.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

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

Looking for Deals in All the Wrong Places?

Posted by Wendell Brock on Wed, Oct 08, 2008

 

The U.S. banking industry is caught in one of the worst crises in history. The momentous failure of Washington Mutual underscores how bad things have gotten: the bank's $307 billion asset base sharply exceeds the formerly largest failure of $40 billion Continental Illinois National Bank and Trust in 1984.   

Pressure from the ongoing liquidity crisis has pushed bank multiples down considerably, to the point that bargain hunting investors are out on the prowl. Prior to the present crisis, community banks were selling for somewhere between 2 and 3.6 times book value. Now, multiples have dropped below 2, hovering at about 1.85 times. The dip has created a scratch-and-dent sale of sorts, as investors can swoop in and purchase flawed community banks at a low price.

In early September for example, Yadkin Valley Financial Corp. announced that it would purchase American Community Bancshares Inc. and its American Community Bank subsidiary. The price tag on the deal was $92 million, just 168 percent of American Community Bancshares' book value.

In volatility there is opportunity

Prospective bank investors are recognizing that the best bargains can be had during the worst of times. Of course, the sale-priced banks do not come without significant problems that need to be worked out-but those problems are reflected in the pricing. So a cool-headed investment team with a clear strategy does have the opportunity to create substantial value. 

Investors should be prepared to face stiff competition on the best deals. The low multiples have caught the attention of investor groups of all types, from local community organizers to international investors. Most of these groups, by and large, appear to be focused on buying up the damaged goods, rather than building up from scratch.

Slow is smooth and smooth is fast

The old military quote, "slow is smooth and smooth is fast," articulates what's needed to take advantage of the opportunities in the marketplace today. The successful investor group will need to wade through competition from other investors, an increasingly stringent regulatory environment, the due diligence necessary to understand the bank's underlying problems and how much it will cost to fix them and, of course, the present liquidity crunch.

Preparing to purchase a bank under any condition is an effort that takes commitment and concentration. The added complexity created by today's environment is not to be taken lightly; in other words, this isn't the type of deal that can be phoned in. A team must be carefully assembled to provide sufficient levels of experience, talent and drive. The strategy must deliberate and focused. And, finally, the execution must be, above all, efficient.

Topics: Bank Opportunities, Buy a bank, Start a bank, Smarter Banks, Bank Mergers, Bank Sales

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