Smart Ideas for Community Banking's Biggest Challenges
September 29, 2014 6:48 PM
The Federal Reserve and the Conference of State Bank Supervisors recently held their second annual conference dedicated to community bank research . Here are some of the important studies and reform ideas discussed during the two-day event in St. Louis.
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What's Blocking New Charters?
Non-regulatory factors, such as low interest rates, explain 70% to 90% of the decline in new charters in recent years, according to a paper from two Fed researchers. Attendees were eager to discuss this study, with a fair share skeptical about its results.
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Weary Executives
Joshua Siegel at StoneCastle Partners introduced the acronym TIRED to explain the factors that will lead to more bank mergers. Those factors are transition (as in executive-succession planning), interest rates, regulation, expenses and dependence on technology.
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Wary Executives
Mobile banking is gaining in popularity, yet 40% of community banks surveyed recently said they had no plans to introduce new products or services in the next three years. Concerns over compliance and cybersecurity are weighing heavily on those decisions.
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Mobile Crossroads
Banks are more likely to adopt mobile banking if their rivals are doing so . The impact of rivalry adoptions is stronger in more-concentrated markets, the researchers found.
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Rightsizing Supervision
Rebeca Romero Rainey, CEO of Centinel Bank of Taos, introduced the idea of "proportionate regulation" to explain how regulators should fine-tune oversight to match the complexity of financial institutions. Julie Stackhouse, head of supervision at the Federal Reserve Bank of St. Louis, praised the term as an "understandable" concept.
Examiner Discretion Needed
Esther George, president of the Federal Reserve Bank of Kansas City, took the concept a step further, stating that bank examiners need more leeway to determine how -- and when -- to enforce rules. Those views were well received by attendees.
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Spread Income Will Rebound
Low net interest income is not a "new normal" for banks, a group of researchers determined. Net interest income is unlikely to return to early 1990s levels, but it should rebound significantly as the economy improves and monetary policy normalizes.
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Regulators Contributed to Crisis-Era Risk
Researchers found that strict supervisory policies on commercial real estate loans in late 2006, including lending thresholds , encouraged numerous banks to make more residential real estate loans as the housing market was showing signs of weakness.
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SBLF Disappoints
The Small Business Lending Fund did not increase the volume of small-business lending . Researchers found that the biggest SBLF lenders were already quite active in small-business lending. So, overall, SBLF was said not have a material influence on bank behavior.
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Frustrating Appeals Process
Another report recommended reforming the regulatory appeals process so that banks can take their beef about an exam to a more impartial review panel. It also urged clear and rigorous standards of review and public disclosure of appeal decisions. The vast majority of appeals are denied.
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Fixing Rulewriting
The authors of Dodd-Frank Act regulations should use economic analysis to help identify consequences and quantify the impact before adopting a rule, a group of researchers from George Mason University wrote. Longer implementation times are also necessary.
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JOBS Act Helped Small Banks
The JOBS Act had a beneficial effect on community banks that deregistered after the law took effect, researchers said. They also recommended that Congress pass the Holding Company Registration Threshold Equalization Act, introduced last year, to make deregistration threshold for thrifts the same as banks'.
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