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The Examiner

If nominated, I will not run; if elected, I will not serve.

- William Tecumseh Sherman, born this day in 1820,
when asked to run for President


In this issue...


Bank Structures Change as They Embrace Technology

By Michael L. Stevens
CSBS Senior Executive Vice President

Community banks are making structural changes as they fully embrace technology solutions. As technology solutions have become mission critical, technology-related roles are less likely to be a piece of someone’s job. Instead, they fall under officer titles such as “Innovation Officer” and “Chief Technology Officer.” 

That’s one takeaway from our most recent community bank case study competition. CSBS has sponsored it for four years, asking undergraduate students to partner with a community bank to explore a key issue. The 2018 case study competition focused on banks use of technology, with a record 51 participating teams from 45 academic institutions in 24 states.

The case studies provide valuable insights into how banks are viewing technology in their operations, customer service and retention, new products and disaster recovery. As you would expect, you get the full range from excitement and renewal to frustration and anxiety. But make no mistake, community banks are all in when it comes to technology.

The technology-related positions are rising in the organizational chart with more responsibility and influence in the organization. It is hard to imagine that future community bank CEO’s won’t continue to come from the credit or finance part of the bank, but it probably won’t be long.

Banks are forming cross-functional committees to evaluate technology solutions, select vendors and determine which projects go forward.

Board oversight over the technology strategy and vendor management program has had to increase. Board members with a technology background and experience are a critical voice to have in the board room. 

The core business of banking is the same. The way banks conduct the business and engage with their customers is changing rapidly. Community banks are realizing their staffing, structure and governance must change as well.

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Data Corner: Community Bank Consolidation

Industry consolidation has been a constant theme in the banking sector for more than a decade. The number of community banks decreased from over 8,000 institutions in 2004 to just over 5,000 banks in 2018. However, despite the dwindling number of banks over time, the share of community banks as a percent of total banks in the system jumped up after the great recession and has held fairly constant since then (decreased slightly), a signal that community banks and non-community banks are consolidating at similar paces. The definition of community bank can be found in the FDIC Community Banking Study.

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In the Media

Mergers are back: Several media outlets reported on the mega-merger between BB&T and SunTrust. Why did this happen? "Regional lenders are struggling to compete with big national banks such as JP Morgan Chase and Bank of America," reported the Wall Street Journal. What made this particular deal doable? "Technology was the main impetus for the deal, [the banks'] executives said," again from the Journal. What does this mean for other banks? "The merger...could be the deal that opens the spigot," the Journal concluded. Stay tuned.

Payday lending: The CFPB proposal to rescind an ability to repay rule was widely covered, with news items from NPR, personal finance coverage in the Washington Post, and a full editorial from the Los Angeles Times. As reported by Politico, the proposal drew criticism from House Financial Services Committee chair Maxine Waters.

Pot banking: Next week’s planned House Financial Services Hearing on marijuana business access to banking services garnered press in publications from the American Banker to Rolling Stone. Law enforcement, growers, the California State Treasurer, Credit Union National Association, and The Independent Community Bankers of America will all be represented. 

Fannie and Freddie: Talk of plans to release Fannie Mae and Freddie Mac from government conservatorship made news this week with mixed messages coming from the acting FHFA director. From Bloomberg: Otting “made clear Thursday that it’s the Trump administration’s preference to work with Congress, after he faced a backlash last month for privately hinting the FHFA and Treasury Department might circumvent lawmakers … ‘Our preference would always be a legislative fix.’”

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Upcoming: CSBS Fintech Industry Panel to Announce Recommendations 

As a part of CSBS Vision 2020, the CSBS Fintech Industry Advisory Panel will soon announce its recommendations for streamlining and improving the licensing and supervisory processes of fintechs and other nonbanks. 

About the Fintech Industry Advisory Panel

Formed in the fall 2017, the advisory panel is comprised of 33 fintech companies who have been working to identify pain points in the multistate experience. The focus: lending and payments.

From a state regulator's perspective, they are accountable for ensuring the safety and soundness of the financial system, while protecting consumers from bad actors and big mistakes. But in doing so, state regulators have put an emphasis on better harmonizing the multistate experience for those companies that wish to more quickly enter the market and expand.

This desire, in fact, has been the driving force behind CSBS Vision 2020. And the advisory panel was formed so state regulators could gain industry feedback, gather recommendations, and take action. Learn more about the panel here.

About Vision 2020

Vision 2020 is a series of initiatives from CSBS to modernize state regulation of nonbanks, including financial technology firms. State regulators will adopt an integrated, 50-state licensing and supervisory system, leveraging technology and smart regulatory policy to transform the interaction between industry, regulators and consumers.

Achieving this vision should result in a regulatory system that makes supervision more efficient by recognizing standards across state lines.  These actions will better support start-ups and enable national scale while protecting consumers and the financial system.

Vision 2020 will focus on 6 major initiatives to transform state supervision of nonbank and fintech companies.

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