It’s no surprise that banking professionals are concerned about their future. From security scandals to regulatory and compliance concerns to heated debates about cloud technology, there are a variety of hot topics being analyzed, disputed and deliberated among bank executives and outside experts. So, what issues are significant enough to keep them up at night?
Recently, I had the opportunity to teach a class of approximately 160 professionals at the Graduate School of Banking at Colorado, most of whom were bankers, with a fourth representing institutions with more than $1 billion in assets. There were also about 20 regulators from agencies including the FDIC and FFIEC. Clearly, I was surrounded by a knowledgeable group with insights from many different vantage points. The curriculum covered a myriad of topics, from managing risk to loan portfolio procedures.
Getting these professionals out of their day-to-day roles and into a group setting prompted insightful conversations about the future of banking. The discussions also revealed a series of worrisome trends. In fact, when asked who was apprehensive about the future of banking, every single hand in the room shot into the air. Here are the top three concerns I heard expressed:
Stringent regulations still plaguing us. Before the financial crisis of 2008, regulations were indisputably relaxed, especially compared to current standards. Since the recession, our regulatory environment has become paralyzing; banks are unable to allocate their resources efficiently because of the extra effort and funds that must now go toward compliance. The federal government’s one-size-fits-all approach to banking has also cost banks enormously in fines when they can’t meet these newly heightened expectations. Even with the massive amount of regulation already weighing heavily on the industry, there are more still being developed. According to Davis Polk & Wardwell, a law firm that has tracked the Dodd-Frank rule-making progress since the law was enacted in 2010, a fifth of the rules required under the 850-page law have yet to even be proposed.
This massive amount of regulation, though hurting all institutions, is especially burdensome on smaller banks. Community financial institutions are being forced to use their limited resources to remain compliant with often cumbersome regulatory standards instead of spending time and money on much-needed technology updates or increased staff focused on serving customers and growing the bank’s revenue. As a result, mergers are running rampant and community banks are slowly disappearing.
However, bankers are not without hope. Many are optimistic that the industry is about to peak in terms of regulation and then the amount of regulation will begin to subside. These individuals hope that because the pendulum has swung from the lackadaisical end of the regulatory spectrum all the way to the opposite extreme, over the next few years that pendulum will return closer to the center and a happy medium for all stakeholders.
Young talent leaving the industry. Industry experts have noticed a disturbing trend in young talent either not being interested in, or not continuing with, a banking career. This is largely due to banks’ complicated legacy systems that are detrimental to productivity and digital innovation. When young professionals enter the banks, they don’t understand how these outdated systems operate. This generation is coming from an environment where easy-to-learn user interfaces make processes quick and efficient; they’ve never had to use spreadsheets, paper files or fax machines to painstakingly complete manual tasks. Because these systems and processes are so foreign to young professionals, they quickly become frustrated and often leave the industry altogether.
Banks can offer competitive compensation, great benefits and a spectacular culture, but if the technology is antiquated, they risk losing talented people. Today’s upcoming professionals want to experience cutting-edge technology and the next big innovation, not outdated legacy systems that hinder mobile and digital advancements and reduce flexibility. It is imperative that banks attract, and maintain, young talent and having the right tools and latest technology in place can go a long way toward keeping these promising professionals happy and engaged.
Regulatory agencies turning to the cloud. The cloud is a topic that continues to divide the industry. Those skeptical about the cloud are largely concerned about security; however, some cloud-based solutions utilize security mechanisms that exceed even regulatory standards. Those who are pro-cloud cite these advanced security protections, as well as cost advantages, scalability and efficiency benefits.
Regulatory agencies like the FDIC are beginning to look into a way to manage their paperwork in the cloud, and even conduct regulatory exams remotely. Some banking professionals are worried about security and privacy concerns associated with this, but there are an overwhelming number of positives with such a transition. Regulatory audits take an abundance of bank resources, both in terms of preparation and the audits themselves. Virtual paperless audits would remove the inconvenience of auditors occupying banks for a number of days, digging through large amounts of paperwork. Cloud-based audits could reduce paper, increase efficiency, cut compliance costs and make the regulator/bank relationship more strategic. Nonetheless, some banker skepticism still lingers.
Facilitating these discussions, hearing these concerns and witnessing the conversations between bank executives and examiners first-hand reinforced to me where strategic thought, manpower and monetary resources are currently focused.
So, what are you going to do about the things that keep you awake at night?
Dr. Rowe is director research and marketing at Wilmington, N.C.-based nCino. He can be reached at [email protected].
The Community Reinvestment Act (CRA) was designed to encourage commercial banks and savings associations to help meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods. Recently, a final rule was announced that updates...