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 Internal audits are conducted by just a few people, typically, they are reactionary, and they utilize outdated technology, if any technology at all.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

Creating Value: Finding the Right People for the Job

Posted by Wendell Brock on Thu, Apr 02, 2009

Whether you intend to start a new bank or buy an existing one, you’re going to need some help. That help is found in the form of qualified organizers—the entrepreneurial individuals, who pursue the business plan relentlessly and, eventually, create value in the new banking entity.

The organizer’s responsibilities are varied and time-intensive (usually 10-20 hours per month). A de novo or purchased bank project doesn’t get off the ground well unless the team of organizers is focused and unified. This means the organizers must be ready to contribute productively to committee discussions and assist in making informed planning decisions. Those decisions cover a variety of topics, from branding to operations:  

•    Branding: The organizers build the new bank’s brand from the ground up, deciding what the bank’s mission will be, how it will differentiate itself, what the logo will look like, etc.  

•    Human resources: The organizers must recruit and hire a qualified management team.

•    Project management: A branch location must be selected and modified or built to suit the bank’s purposes. IT systems and other support vendors must be priced and selected, etc.

•    Operations: The team must select the products and services the bank will offer and strategize on how those products and services will be distributed and fulfilled.  

•    Bank Policies: The organizers/new board of directors assist management in drafting and approving the bank’s policies and procedures, a very critical part of banking.

Contributing insights and shaping decisions are just the beginning of the organizer’s responsibilities. However, a pivotal part of what the organizer does is raise capital—both by investing his or her own money and by recruiting more investors to the project. The recruitment process begins with the organizer contributing a sizeable list of names of potential investors. Once the capital campaign gets started, the organizers must be willing participate in their share of the weekly meetings to pitch the investment opportunity.  

The ideal organizers and where to find them

Obviously, not everyone is well suited to be a bank organizer. Decisions need to be made, networking needs to be done, and money needs to be raised. These tasks are not easily accomplished by someone who doesn’t have the right characteristics and skill sets. Ideally, your organizers will be:

•    Visible in the community
•    Opportunistic
•    Task-oriented
•    Motivated by challenge
•    Outgoing, enthusiastic
•    Able to juggle several projects at once successfully

Knowing what to look for is half the battle; the other half is knowing where to look to find it. The simplest means of locating potentially suitable organizers is to recruit within professions that typically attract the above qualities; below is a short list of professions:

•    B2C service providers: Contractors, plumbers, dry cleaners, car dealers, insurance agents, general contractors, financial planners, doctors, dentists, real estate agents

•    B2B service providers: CPAs, marketing consultants, real estate brokers, pharmaceutical account representatives, office supply representatives  

•    Niche business owners: franchise owners, hotel operators, ethnic market owners, retail store owners, technology providers

Here’s the big picture to remember when seeking out organizers. The organizers you select should operate successful businesses and have access to and represent the segments of the community your bank will serve. In addition, they must be motivated enough to stick with the project for the long-haul. And finally, it takes the right person to understand that starting a bank, or re-branding a purchased bank, is an enormously challenging, but ultimately rewarding endeavor.

Topics: Buy a bank, organizers, Start a bank, finding organizers, business owners, qualified organizers

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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