Your 2017 Mid-Year Bank Financial Update

At the start of 2017, we looked at the topics that were of the greatest interest to you in 2016. Issues related to regulatory changes, cyber issues, demographic shifts, and new banking channels and roles for community banks captured our attention—and yours. Not surprisingly, our most popular blogs of 2016 were related to technology risk and complexity, global markets, and regulatory complexity. 

The HORNE Banking team started 2017 with an expectation that many of those issues would remain top of mind. And they have. We continually monitor all the major issues impacting our clients in particular, and community and regional banks in general. As we move into the middle of this turbulent year, we thought we would take the opportunity to check in on the state of these priority topics and to note any others that are shaping day-to-day and future-focused strategies for the banking industry.

Technology

Of all of the priority topics, cybersecurity readiness, in particular, is one area that remains consistent. A Reuters report from May 2017 adroitly noted, “Banks generally have more robust cyber defenses than other sectors, because of the sensitive nature of their industry and to meet regulatory requirements. But aging technology and banks' attractiveness to hackers means they are often targets.” [1] 

The reality of this observation was clear during the May 2017 WannaCry attack. Hundreds of thousands of computers, including those in financial institutions across every major country were hit, disabled, and held for ransom. Only one of many cyber attacks over the past few years, WannaCry is notable for banks in part because of its relative lack of sophistication. It’s raised concerns about copycat hits and because of the lack of consistency in technology security readiness across the industry.

We can’t encourage you strongly enough to build cybersecurity diligence into every department, strategy, product and service introduction, and human capital effort. More than ever, technology risk mitigation efforts should be seen not as a functional or managerial responsibility, but as a whole-bank priority. If you lack the resources to implement these measures, or need an expert third party to help you build a hacker mentality into your organization, call on our team of HORNE Cyber experts.

Global Markets

A 2017 survey of the B2B payments landscape from Strategic Treasurer, Bottomline Technologies, and Bank of America Merrill Lynch reports that nearly a quarter of businesses are doing business in at least ten markets across the globe.  Most operate in North America. Two-thirds say they do business in more than one country. And a third have a presence in more than 20 countries. [2]

Globalization means new opportunities and complexities for businesses, including cross-border payments, compliance, risk mitigation and accounting. For the banking industry, this B2B payments breadth and complexity is an emerging opportunity. The majority of companies doing business on a global scale are originating payments with at least three banks. This trend mirrors what we’ve seen already with consumer banking. For larger business banking client opportunities, it’s less and less important where a bank is located, provided they have the capabilities in place to offer products, services, and support over a multitude of channels.

Regulation

On June 12, 2017, the Trump administration laid out its highly anticipated plan for overhauling bank rules. One of the priority points in the report is the impending change to Dodd-Frank. The plan proposes that banks below $10 billion or $50 billion in assets (depending on the provision) should be exempted from Dodd-Frank stress tests, the Volcker Rule, and a handful of other rules.

"In particular, for illiquid securities, banks should be permitted to focus less on predicting with precision the future demands of clients based on past patterns and should have greater leeway to anticipate changes in markets that could increase demand for such securities. For over-the-counter derivatives, which are less suited to the RENTD framework, regulators should focus more on ensuring that banks appropriately hedge the positions they maintain."

The power of the Consumer Financial Protection Bureau (CFPB) is also included for debate. The proposal is that the "CFPB should issue rules or guidance subject to public notice and comment procedures before bringing enforcement actions in areas in which clear guidance is lacking or the agency’s position departs from the historical interpretation of the law…To create a more stable regulatory environment, the CFPB should adopt regulations that more clearly delineate its interpretation of the UDAAP [Unfair, Deceptive or Abusive Acts and Practices] standard."

You can review the Treasury Department report here.

Demographics

The conversation around bank demographics is interesting largely because of its implications on mobile and omnichannel banking demands, leadership and board composition, and the use of data to personalize services and products. The demographics are getting younger, particularly as mobile banking app use continues its exponential growth trajectory. Community and regional banks set up to respond to the channel demands of high-earning, young customers in a voice that feels familiar, and with products and services that directly respond to their needs will be ever more capable of competing with their large counterparts. [3]

Of course, this is a limited list of top of mind topics. We have closely monitored, reported, and offered counsel about a host of subjects in the past six months—many tied to tax changes and other banking industry implications coming from the new administration. We encourage you to take a moment to browse through our Banking Blog gallery and to subscribe to the blog, so you can stay informed and join the conversation. 

[1] http://www.reuters.com/article/us-cyber-banks-idUSKCN18B2A3

[2] https://strategictreasurer.com/files/2017-b2b-payments-wcm-strategies-survey-infographic.pdf

[3] https://www.forbes.com/sites/forbestechcouncil/2017/05/16/mobile-banking-exploring-trends-for-market-leadership/#5333caf69627