Banking

With a historic tax reform in place and an economy that continues to show signs of strength, we have a positive outlook for 2018.  As we reflect on 2017, a truth has become abundantly clear – 2017 will go on record as a time of preparation and 2018 will be the opportunity to act.

Partly because of economic volatility, longer-term brokered CDs have become more competitive in the past few years. In recent regulatory proposals, the competitive environment could get significantly more challenging. Traditional banks should be aware of the regulatory conversations and prepared to take their customers through the process of considering and pursuing these investment vehicles.

For some years now, financial institutions (FIs) of all sizes have been tasked to leverage new technology. In many cases, integrating new solutions has come as part of larger regulatory demands—and often, obligatory ‘updates’ are the most difficult to accept. Nonetheless, those requirements are opportunities to justify spending on technology resources that offer benefits far greater than the assurance of compliance.

At the turn of 2017, the U.S. environment was best described as unsettled and uncertain. With the unexpected election results, President Trump entered Washington with a stance that “excessive rulemaking strangles economic growth” and a promise of change from the political norm.[1] Change is difficult. Many of the plans have been executed more slowly or differently than expected, sustaining the underlying climate of uncertainty. As we approach the close of the year, however, the pace of change seems to be picking up.

Banks had a recent win in Washington. Behind closed doors, President Trump signed a Congressional bill to overturn the Consumer Financial Protection Bureau (CFPB) rule banning mandatory arbitration clauses.[1] As initially written, the CFPB rule would have opened banks and credit unions up to a flood of litigation. The new bill is a sign of support from Washington as banks face looming regulatory changes.

In September, the Consumer Financial Protection Bureau (CFPB) issued its final ruling on an amendment to Regulation B of the Home Mortgage Disclosure Act (HMDA). It also noted its intent to assist with compliance with Regulation C. The amendment, which follows a 2015 congressional update, will go into effect starting January 1, 2018. Ultimately, it is designed to give creditors more flexibility to meet standard government regulations, but banks are generally unprepared for the changes, in part because the standards have been moving targets.

“Regulation is killing community banks.” Treasury Secretary Stephen Mnuchin

In March, regulators announced that they would launch an effort to ease capital rules for smaller institutions. In June, a Treasury report recognized, “community financial institutions’ business models have come under pressure from added compliance costs from new regulations.” It urged regulators to “explore exempting community banks from the risk-based capital regime implementing the Basel III standards.” In the most recent step, which happened on August 22, U.S. bank regulatory agencies put forth a proposal to delay the implementation period for stricter capital rules for smaller banks while they review ways to simplify requirements.

As every football fan knows, the "hurry-up offense" is a staple in many playbooks. (For those of you unfamiliar with the term, in a “hurry-up offense,” the offense tries to execute as many plays as possible—as quickly as possible). It's a style of attack that works well if the opponent is complacent or under-prepared. When successful, the speed of the play exposes weaknesses in the defense quickly. It wears them down, and makes them confused and frustrated, giving the offense the opportunity to capitalize on the defensive breakdown.

As banks navigate through their CECL implementation, many are experiencing challenges and uncertainties along the way. Since last summer when the new standard was announced, we’ve advised banks to get started on their implementation timeline sooner than later. In part, it’s to give time to mitigate the unexpected. In part, the advice comes from our experience with how complex and challenging it can be to implement new models, standards, regulations, and technologies. And finally, it’s because more robust data analysis means more confident decisions and ultimately more profitable loans over the long term.

As the adage says, one of the surest ways to combat fear is to confront it head on. Financial anxiety is one of those fears. For 85% of adults, concerns around unplanned emergencies, medical expenses, insufficient funds for retirement, and school loans rank as the top stressors in their life.[1] For young, Millennial-aged adults, these concerns are even more pressing.

True to its name, an employee stock ownership plan (ESOP) is a type of employee benefit plan, similar in some ways to a profit-sharing setup. The National Center for Employee Ownership (NCEO) estimates that approximately 14 million workers currently participate in an ESOP, making it the most common form of employee ownership in the U.S.

The world around us is in a constant state of change and moving at a pace that has never been seen before. Adaptation is vital to remain relevant in this type of environment. We all know of examples of companies and industries that failed to anticipate and adapt to changing technology and quickly became or are becoming obsolete—Blockbuster, Kodak and the taxi industry to name a few. Whether it was a lack of vision or a lack of belief that change could happen, we certainly do not want to find ourselves on this list.

For organizations of every kind, data breach incidents are "when"—not "if" events. Especially for business entities (like banks) that manage clients’ private information, building vigilance against threat actors, unintentional compromises, and other cyber vulnerabilities is as much a part of risk management as instituting compliance measures. But understanding how to spot weaknesses, build transparency, and engage checks and balances demands a new level of focus and capability for many banks.