The CPFB continues to be a hotbed for creating, amending, and proposing rules with crushing operational impact to banks of all sizes. Cyber Security is at the forefront of every institution’s mind, and “stress-testing” thresholds have become a conversation piece at the conference table. 2015 is on track to outpace 2014 for activity in the banking sector. That said, here are five things to keep and eye on in banking and finance in 2015.
1) Focus on strategic acquisition. Despite the regulatory environment, well-rated, mid-size banks are able to enter into the M&A market with a vengeance. Some common denominators? These banks all have high safety and soundness ratings, particularly in Community Reinvestment Act (CRA) and Banking Secrecy Act (BSA).Scalable technology systems are a priority to ensure ongoing compliance. Strategic Planning is a way of life for their senior management, and positive engagement with the community is almost as important to them as ROE. If your institution doesn’t have these keys, consider acquiring an institution that does to get you back in the M&A game.
2) Focus on Cyber Security. In the wake of the MasterCard/Target settlement, businesses are hyper-sensitive to the risks of loss and liability, as is the American Banking Association. Keeping up with the pace of technological advancements is expensive and imperative. Following recommendations to update software is non-negotiable. Establishing a strong internal bank operations department that understands mobile device security, cloud storage and Wi-Fi networks is a wise consideration. Creating procedures to protect internal passwords and requirements for continuing security education is crucial. If your institution doesn’t have these keys, but provides e-banking, online account access and/or debit cards, put your insurance carrier and litigation attorney on speed dial.
3) Focus on Legal Expectations of Bank Board of Directors. Comparing and contrasting the duties of a bank board of directors to the business judgment rule or the duties of general corporate governance has gained momentum over the last year and a half. The oppressive bank regulatory environment has prompted many academics to propose aligning corporate oversight with the financial sector’s regulatory mechanism. Whether or not these ideas will gain traction and force change in the upcoming year is unlikely. However, heightened standards of duty and potential liability should definitely be on your board’s radar.
4) Focus on Regulations. Mortgage lending and servicing has become a labyrinth of proposals and amendments, with no happy ending in sight. There are numerous webinars, charts and summary guides that can make the rules easier to understand. Consumerfinance.gov is a good starting point to review proposed amendments. Consider having your attorney provide an update to your lending team concerning the impacts that these regulations will have on your institution.
5) Focus on Loan Documentation and Security. Understanding what loan documents should say versus what loan documents actually say is absolutely essential for lenders and operational staff. Educating operational staff and lenders about the proper way to take security in assets should be a priority. Encouraging your team to think pro-actively, to ask questions and to point out discrepancies will produce positive results. Not all loans are alike—having team members that are able to identify when it might be time to call your lawyer could save you from having an unsecured loan or a write-off.