Bank Declines

Posted by Don Woodland on Jan 16, 2015 10:37:18 AM


banking declinesWhen a business enterprise goes out of business, the cause is often associated with inefficiency, inability, or unwillingness to serve customers, uncompetitive pricing and other economic and environmental factors.  Are these factors involved in the decline in the number of community banks in the last decade?  Is the decline in community banks associated with their unwillingness to lend to their customers?  Are they guilty of charging exorbitant above-market rates of interest?  Do they lack a willingness to serve their markets?  It is doubtful that any of these conditions have contributed to the decline in the number of community banks.  So why are their numbers declining?

Interviews with a substantial number of community bank CEO’s who are merging their banks in response to questions regarding their plans simply respond “I am tired.  This is not fun anymore.”  Further questioning uncovers the heavy burden of time and costs related to regulations from all agencies.  Because of these regulations the bankers feel unable to serve their customers and to return to their stockholders a satisfactory yield on their investments, and they are tired of trying.

GSBLSU is interested in hearing your experiences and feedback in the comments. 

Graduate School of Banking vs MBA

Tags: Regulatory Laws, Banking Outloook

Why is the Community Lending Enhancement and Regulatory Relief Act (CLEAR Act) of 2013 so important to community banks?

Posted by Don Woodland on Sep 4, 2013 9:58:00 AM

banking regulation and community banksCommunity banks are an integral component of our nation’s economy and of the recovery effort for individuals, communities, and the nation alike.  Community banks serve all ranges of populations and all types of businesses held in these areas, from rural to urban.  It has becomes extremely cumbersome for these community banks to sustain under the immense burden of regulatory, tax, and paperwork requirements handed down in the Dodd-Frank Act.  Community Banks simply do not have the manpower or monetary resources of bigger financial institutions, and these requirements weigh disproportionately heavy on community banks and their managements, pulling vital resources from attraction of more capital or provision of credit to customers.

Community banks are desperate for relief from the regulatory burden felt across all levels of banking, and in an effort to retain autonomy and avoid massive mergers and acquisitions of these community banks, or worse failure, from this over-regulation of the banking industry, both the Senate and the House of Representatives have introduced legislation to assist in decreasing the regulatory burden on community banks.  The Community Lending Enhancement and Regulatory Relief Act aims to keep deposits circulating in these local communities and ultimately add jobs and create a stronger economy.  This bipartisan legislation has huge traction towards establishing breathing room for community banks, and if these bills are passed, a sense of security in the smaller banking institutions may be slightly more evident.

CLEAR House Bill 1750

The Community Lending Enhancement and Regulatory Relief Act (CLEAR Act), H.R. 1750, is a bill introduced by Representative Blaine Luetkemeyer (R – Missouri) designed to relieve regulatory burdens on community banks. The official objective of the bill states, “To enhance the ability of community financial institutions to foster economic growth and serve their communities, boost small businesses, increase individual savings, and for other purposes.”  The bi-partisan bill was introduced on April 25, 2013, and there are 48 co-sponsors in the House of Representatives.

The CLEAR Act, H.R. 1750, is an attempt to:  

  • Help banks with assets of less than $5 Billion to pay a corporate dividend
  • Allow banking institutions, with less than $10 billion in assets, an exemption  from the escrow requirements of Section 129D(c) of  the Truth in Lending Act (TILA)
  • Broaden the Qualified Mortgage safe harbor for institutions with less than $10 billion in assets
  • Exempt institutions that have not changed their privacy practices from annual privacy notice delivery requirements,
  • Necessitate a cost-benefit analysis before changes or new introductions are made to GAAP
  • Exempt institutions with less than $10 billion in assets from Section 404 of the Sarbanes-Oxley Act of 2002,  requiring the annual management assessment of internal controls
  • Direct the Consumer Financial Protection Bureau (CFPB) to allow for exemptions of or provisions for of small servicing mortgage firms (with 20,000 or fewer mortgages) from the regulatory burdens
  • Reduce barriers in receipt of Automated Clearing House (ACH) transactions, provided the originating institution is in compliance with the Office of Foreign Asset Control (OFAC) and that said transaction is not prohibited.

You can read the full CLEAR Act here.  

CLEAR Senate Bill 1349

Similarly, on July 24, 2013, Senators Jerry Moran (R-Kan.), Jon Tester (D-Mont.) and Mark Kirk (R-Ill.), introduced a similar bill, the Community Lending Enhancement and Regulatory Relief Act of 2013, S. 1349, to the Senate, with 4 co-sponsors The official objective of the Senate bill reads, “To enhance the ability of community financial institutions to foster economic growth and serve their communities, boost small businesses, increase individual savings, and for other purposes.”

Senator Moran states in a news release that Senate Bill 1349, would provide regulatory relief to community banks and their customers as well as support the housing recovery. By stripping away outdated or unnecessary regulation, the CLEAR Relief Act would help community banks focus on what they do best: providing loans to their communities and helping small businesses grow.” 

Brief summations of the Senate Bill’s contents are:

  • Exempting banking institutions from Sarbanes-Oxley section 404(b) internal-controls assessment requirement, provided assets are $1 billion or less
  • Requiring revision of the Small Bank Holding Company Policy Statement of the Federal Reserve Bank by increasing the qualifying consolidated asset threshold from $500 million to $5 billion.
  • Exempting any first lien mortgages on consumer’s principal dwelling from any escrow requirements held by a lender with $10 billion or less in total assets
  • Providing “qualified mortgage” status, under the Consumer Financial Protection Bureau’s (CFPB) ability-to-repay rules, for any mortgage originated and held by an institution with less than $10 billion in assets for a minimum of three years.

The full Senate Bill 1349 can be read here.

The Graduate School of Banking at LSU believes in staying abreast of current issues and legislation affecting the banking industry.  We hope that this has clarified the proposed bills in front of the senate and the house regarding banking legislation and how it may impact community banks nationwide.  

GSBLSU strives to stay in touch with all of our current, former, and future students.  If you would like to sign up for our blogs and newsletters, we will be happy to email the to you.  All you need to do to stay in the GSBLSU loop is click the image below and complete the form!

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Tags: Community Banking, Regulatory Laws

The New Regulatory Environment

Posted by Don Woodland on Feb 13, 2013 10:47:00 AM

GSBLSU on the new regulatory environmentBanking in the new regulatory environment is a topic making banking executives cringe with anticipatory anxiety.   The financial crisis has ultimately led to the launch of the most encompassing and thorough revisions to banking, particularly concerning the regulatory aspect.  The goals of these regulatory initiatives look to increase the stability of financial sectors, to provide security to investors and consumers and to ease the difficulty of dealing with failing banks.

In May 2010, American Bankers Association President and CEO Ed Yingling wrote a letter of concern to US Treasury Secretary Timothy Geithner as the Senate and the House passed their reform legislations on to President Obama for review.  The sweeping reform packages submitted would add to the existing thousands of pages of banking regulation from before the financial crisis.  The letter detailed 80 new or expanded rules added and that the ludicrous irony of President Obama, the regulatory agencies, and Congress handing down these new burdens whilst still calling on banks to lend more, shows a severe disconnect between what is being asked of and expected from the banking sector.  A copy of this letter may be found here.

As the edicts continued to come down the pipe for banking regulation in 2011 and 2012, most banks held their breath as the waves of regulatory reform continued to crash.  Add to the ever growing laundry list of regulations for which banking executives have to figure out implementation strategies, a stagnant domestic economy and uncertain European climate, and it doesn’t take much scrutiny to observe that the banking industry has taken a path away from (and likely never to return to) historic banking returns of the pre-financial meltdown days.

Areas of Concern for Banking Institutions

The implications of the regulatory changes vary from bank to bank, but many of the problems are universal and far reaching.  Regulatory reform and the narrow window of time allotted for implementation has created a bit of a breaking point whereby the costs of reform outweighs the benefit of financial stability mandated by the new regulations, stemming from decreased lending and tertiary banking services and resulting in a very real and detrimental impact on the macroeconomic level.

Other changes expected for many financial institutions will show up in shifts towards more profitable services and away from the “full service” angle of recent years.  Other strategic maneuvers  may manifest changes and focus towards more basic banking strategies or investments in developing markets in order to capitalize on the higher growth rates.

While an air of contentiousness between banking executives and regulatory agencies can be felt during this very intense time of change and seeming misunderstanding, the very real concerns of the banking industry seems to resonate on:

  • The amount of time management will spend dealing with the implementation of and oversight on the ongoing, sustained regulatory changes at each of their respective institutions
  • The evaluation of the increased costs of the new regulations and the fundamental modifications to entire banking organizations and business structures
  • The speed now required for implementation of the regulatory reform, as forced by market pressures not necessarily from the dates set by the regulatory agencies, and the possible uneven effects on financial institutions as local regulatory agencies hand down enforcements.

For many banks, 2013 and beyond will be focused on implementation of the regulations.  Also in this time frame, banks will lay in planning for maneuvers to grow profitability in winning sectors and decrease floundering portions of their institutions. 

Dealing with the massive costs of the new regulatory environment will lead to scrutinizing assessments of existing business models and likely, innovative and ingenious new methodologies in banking activities.  However, the pain of that potential growth and the undoubted failure of some institutions will highlight the true repercussions of the new regulatory requirements, in that drastic and unprecedented change is going to happen and quickly.

 GSBLSU and Regulatory Changes

One of the truest and most reliable characteristics of a leader is their ability to read a situation and immediately implement an effective counter to manage it.  For most banking leaders, this is not an instinctive skill and is acquired over time, with experience and education.  The opportunity to gain education and real-world utilization of tried and true methods from accomplished faculty and seasoned contemporaries can be found in the strategic learning sessions provided by GSBLSU. 

Each year’s studies provide insights into how the new regulatory changes will impact each student’s institution.  We have highlighted the related courses available at the Graduate School of Banking at LSU, as they pertain to regulatory initiatives.  The full catalog may be viewed here.

First Year

Credit Risk Management

Monetary Economics

Strategic Bank Marketing

Second Year

Bank Regulatory Law

Bank Performance Analysis

Mergers & Acquisitions

Vision, Strategy, and Leadership

Third Year

Managing In The New Regulatory Environment

Bank Management Simulation

Bank Performance Analysis

Interpreting Economic Change

Troubled Asset Resolution

The Graduate School of Banking has compiled a whitepaper comparing GSBLSU and the traditional MBA.  Should you have an interest, it is free, and we will gladly email it to your inbox.  Simply click the abacus link below and fill in the form.  We respect your privacy and will never share your information.  If you'd like to head straight to our application page, simply click here.

Graduate School of Banking vs MBA


Tags: Regulatory Laws