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The Examiner

"Every day, there are American families who pray for the sound of a familiar voice when the phone rings. For the sound of a loved one's letter or email arriving. More than one million times in our history, it didn't come. And, instead, a car pulled up to the house. And there was a knock on the door. And the sound of Taps floated through a cemetery's trees."
President Barack Obama, Memorial Day 2016

South Dakota's Afdahl Elected CSBS Chairman

This week, CSBS announced the election of Bret Afdahl, director of banking in the South Dakota Division of Banking, as the new chairman of the CSBS Board of Directors. The election took place during the organization’s annual membership meeting in San Antonio, Tex., where new officers were also elected for 2019-2020. CSBS also announced new committee chair appointments.   

Newly installed officers, who comprise the CSBS Executive Committee, include:

  • Chair: Bret Afdahl, director of banking, South Dakota Division of Banking
  • Chair-Elect: Kevin Hagler, commissioner, Georgia Department of Banking and Finance
  • Vice Chair: Melanie Hall, commissioner, Montana Division of Banking and Financial Institutions
  • Treasurer: Tom Fite, director, Indiana Department of Financial Institutions
  • Secretary: Robin Wiessmann, secretary, Pennsylvania Department of Banking and Securities
  • Immediate Past Chair: Charlotte Corley, commissioner, Mississippi Department of Banking and Consumer Finance

At-Large Board members are:

  • Lise Kruse, commissioner, North Dakota Department of Financial Institutions
  • Mike Hill, superintendent of banks, Alabama State Banking Department 

Committee and Board chairs of the CSBS Board of Directors include:

  • Legislative Committee: Lee Keith, commissioner, Missouri Division of Finance 
  • Non-Depository Supervisory Committee: Charlie Clark, director, Washington Department of Financial Institutions
  • Regulatory Committee: Karen Lawson, director of banking, Department of Insurance and Financial Services
  • State Supervisory Processes Committee: Chris Dietz, deputy director, Indiana Department of Financial Institutions
  • State Regulatory Registry: John Ducrest, commissioner, Louisiana Office of Financial Institutions
  • CSBS Education Foundation Board of Trustees Chair: Charles Vice, commissioner, Kentucky Department of Financial Institutions 
  • Bankers Advisory Board Industry Co-Chair: Andy Anderson, Bank of Anguilla, Mississippi

Chairs Emeritus, who serve as ex-officio members of the CSBS Board, include:

  • Albert Forkner, commissioner, Wyoming Division of Banking *
  • Charles G. Cooper, commissioner, Texas Department of Banking *
  • Candace Franks, commissioner, Arkansas State Bank Department *
  • Charles Vice, commissioner, Kentucky Department of Financial Institutions *
  • Greg Gonzales, commissioner, Tennessee Department of Financial Institutions *
  • John Ducrest, commissioner, Louisiana Office of Financial Institutions *
  • Jeffrey Vogel, director, Wyoming Department of Audit *
  • E. Joseph Face, Jr., commissioner, Virginia Bureau of Financial Institutions *
  • Mick Thompson, commissioner, Oklahoma State Banking Department *
  • G. Edward Leary, commissioner, Utah Department of Financial Institutions *

* Denotes non-voting member

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Juniata College Students Win CSBS Community Bank Competition

This week, CSBS named Juniata College students as winners of the 2019 Community Bank Case Study Competition. The Pennsylvania team advanced through three rounds of judging by banking professionals and overcame a pool of 58 student teams representing 44 colleges and universities. 

“This was an intense year of competition, and the quality of the submissions was truly incredible,” said CSBS Senior Executive Vice President Michael L. Stevens. “Our winner this year, Juniata College, demonstrated excellent analytical skills and creativity to produce a high-quality product.”

The annual competition is open to undergraduate students in all fields of study as an opportunity to gain valuable first-hand knowledge of the banking industry. This year’s case studies examined how the Economic Growth, Regulatory Relief and Consumer Protection Act has helped community banks foster economic growth. 

The winning Juniata College student team members are David Hibner, Katherine Migatulski, Wyatt Page and Matthew Schaeffer. Sinéad Gallagher served as faculty advisor and Kish Bank, based in Belleville, Pa., was the team’s community bank partner. 

As first place winner, each student will receive a $1,000 scholarship. The team will be invited to present at the CSBS-Federal Reserve Community Banking-FDIC in the 21st Century Research and Policy Conference in October and published in the CSBS Journal of Community Bank Case Studies. 

A team from Eastern Kentucky University placed second. The students are Coby Cumbow, Kassidy Easterling, Madison Pergrem, Randa Morris and Scott Winter. Maggie Abney served as faculty advisors, and Kentucky Bank was the bank partner.

Both the University of Tennessee at Martin and Utah Valley University tied for third place. 

The University of Tennessee students are Breanna Boggs, Molly Carpenter, Samantha Sanders, Ty Smith and Matthew Taylor. Ross Dickens served as faculty advisor, and First Bank was the bank partner.

The Utah Valley University students are Mark Brown, Carson Gilbert, Cameron Rope and Nate Terry. Mark Howell served as faculty advisor, and People's Intermountain Bank was the bank partner.

Students on the second-place team each will receive a $500 CSBS scholarship, and those on the third-place team each will receive a $250 CSBS scholarship. All three teams will have their works published in the Journal of Community Bank Case Studies.

CSBS announced the winners at its annual meeting in San Antonio.

For more information on the 2019 Community Bank Case Study Competition, visit 

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CSBS Chairman Bret Afdahl: Embracing Change

By Bret Afdahl
Chairman, Conference of State Bank Supervisors
Commissioner, South Dakota Division of Banking
2019 State-Federal Supervisory Forum, San Antonio, Texas, May 22, 2019

Thank you, Charlotte, for that introduction. And thank you for being such a great leader, mentor, diplomat and friend over the past year, and for your many years of service to the State of Mississippi, the state banking system and CSBS. Hopefully Charlotte shared enough Southern Charm over the past year to make up for what I lack in that area. 

I am looking forward to chairing CSBS during such an exciting year. We have so much to do in the next 12 months before we meet again next year in Seattle, and I know that we will be successful. That is because state regulators work together and adapt to changes as needed to ensure safety and soundness, consumer protections and economic growth in our communities.

My hope is that in the next year, we go a little further to reflect on not just what we regulate but how we regulate. I want to see us pushing outside of our comfort zone to become a stronger state system. We are already on the brink of adopting many changes and are advancing on a number of Vision 2020 initiatives. At the same time, I think we can do more in both the banking and nonbanking space. That is my ask this year – for both my fellow state supervisors and our federal counterparts – to embrace change.

Before I speak to that in detail, I want you to know a little more about my state, the Great State of South Dakota. We are a big state with a small population. We are the seventeenth largest state in the Union, and agriculture is the economic engine of our state. In fact, we lead the nation in having the most cattle per person. That is because we have 3.7 million cattle but have fewer than 900,000 residents. For those doing the math, that means about four head of cattle per person in my state. 

For perspective, the city we are in right now, San Antonio, has a population of more than 2.5 million – human, that is - and the state of Texas has more than 29 million residents. So, Texas Banking Commissioner Charles Cooper and I oversee very different state financial systems. But we face many of the same challenges and see many of the same opportunities as we look to the future.

In South Dakota, we have 45 state-charted banks, soon to be 44. About half are less than $100 million in assets, with several under $50 million. Our state-charted banks have a strong presence in agriculture. Because of this, I see a very different state financial system from Illinois Secretary Debbie Hagan, who oversees a state with a lot of agriculture but also has Chicago, the third most populous city in the nation. However, we have many of the same challenges and see many of the same opportunities to advance the state system.

On the nonbank side, the South Dakota money services businesses market handled $3.74 billion last year. That is one quarter of one percent of the roughly $1.4 trillion total handled by the state-licensed system. In fact, more money is moved in California in eight days than is moved in South Dakota all year. So again, what I oversee is very different than what my counterpart in California supervises. Yet we face the same challenges and see many of the same opportunities. 

What kinds of issues does a rural state run into? Here’s an example. Our rural community banks have struggled to keep up with the growth in the size of their customers engaged in agriculture. In response, we put in place a process to allow our smaller ag banks to provide more operating funds to a handful of their best customers.

To balance this opportunity against safety and soundness concerns, this additional lending authority is application-based and must be renewed annually. The bank must be in strong condition, and the same goes for the bank’s customer. This program has been very successful in helping our banks better serve their customers, and we have not had safety and soundness issues arise at our banks as a result. That said, there will be difficult conversations ahead if conditions in agriculture continue to deteriorate and balance sheets continue to weaken.

At this point, you may be asking, what do I, being from a rural state, bring to the entire state financial system? The answer is quite simple. 

Like all state regulators, I understand it is not only the size or the types of institutions our states oversee that matter. It is also the unique regional issues that our financial institutions face. Charles and Charlotte must contend with hurricanes in Texas and Mississippi. In South Dakota, we have blizzards that can last for days; we have tornadoes, flooding, hail, and lots and lots of wind. Occasionally, Mother Nature combines the high wind with hail, which leaves a trail of destruction, especially for wheat, soybean, and corn fields.

But while we have these different state-specific situations, we find solutions to make sure our state financial system works nationwide. And while these state and regional challenges differ across the nation, the business of banking and nonbanking financial services remains the same, no matter how big the numbers or varied the circumstances. 

The local knowledge a state regulator brings to the table is one of our key values, especially as we work with our federal counterparts. This is our part of the dual banking system. Federal regulators have another role, but our partnership together strengthens the system. Together we conduct examinations, oversee technology service providers and conduct research on community banking through our annual research conference.

I want to find more ways to work together, state by state, and with our federal counterparts, to make this a stronger system that embraces change and innovation. It might not be comfortable for all of us, but it is important. We must evolve. The risk is staying with the status quo.

We are already on our way. Just look at the strides we’ve made with CSBS Vision 2020, our initiatives designed to bring greater harmonization to the multistate licensing and supervision of nonbank financial services. Now, some of you may think that we are supposed to reach an endpoint in 2020. Not so. Vision 2020 is not just a set of initiatives. It is also a regulatory mindset – a clear vision of how the states will work together to advance nonbank licensing and supervision. 

That vision is becoming a reality, especially as we begin implementing recommendations made by the Fintech Industry Advisory Panel earlier this year. These recommendations are intended to smooth the licensing and supervision of nonbanks across the nation while still maintaining strong consumer protections and local accountability – mostly forging common definitions and practices, increasing transparency and expanding the use of common technology. 

A model state law, designed to bring greater consistency to the state-licensed money transmitter space, is a critical recommendation. My goal is to deliver that model to the states in my term as CSBS chairman. It won’t be easy for everyone. And I recognize we may not be able to do all of this in one year – the first priority is to do it right. 

In the next year, CSBS will also launch the State Examination System pilot – the first nationwide system to bring both regulators and companies into the same technology space that will foster greater transparency throughout supervisory processes. SES will improve collaboration while reducing redundancy and burden. I’d like to get this operational in the next year, and I believe that we can. 

We are moving forward with our One Company, One Exam pilot to streamline the multistate exam process and develop resources and tools for navigating state licensing and regulatory requirements. We will have to trust each other and focus on efficiency, effectiveness and higher standards. This is one facet of a larger effort to make multistate MSB exams more efficient across the state system by taking a nationwide perspective in scheduling and staffing these exams. 

We have other state-led initiatives, like the pilot projects to streamline MSB licensing. Washington State is leading this effort, which the CSBS board yesterday agreed to take on as a CSBS initiative. If one of these signatory states reviews key elements of state licensing for a money transmitter, other participating states agree to accept the findings. I think we should strive for full adoption from every state financial agency and urge your state to sign on. So far 23 states have –including South Dakota.

It wasn’t easy for me – we had to pass legislation to clear the path – but I recognized that some of the things we do every day are duplicated in every state. This is part of the self-evaluation we need to be doing to ensure a smoother process. 

As state regulators, I think it is important to look at changing landscapes. A few years ago, CSBS began looking into the shift in mortgage origination and servicing from banks to nonbanks. This shift is still occurring, and we need prudential standards for those nonbanks to address capital and liquidity more consistently. We need to ask: As state regulators, have we done everything we can to address this enormous market shift? Do we have an appropriate structure in place? I believe there is more to do in this area.

CSBS must also continue to resist federal preemption of state consumer protections, most notably, in our lawsuit against the OCC’s fintech charter. States are – and should continue to be – the primary regulator of nonbanks. It allows innovation and a level playing field. 

On the banking side, we will work with the federal agencies as they implement provisions from last year’s regulatory relief bill. The community bank leverage ratio is high on our list. Congress mandated that the agencies work with state regulators in creating the CBLR, and we want this effort to bring about meaningful regulatory relief. 

But we need to look at pushing our comfort zone in other areas as well. Take brokered deposits, for example. The growing rural/urban divide in our country is having a huge impact on our rural community banks and their ability to fund their operations through cycles in agriculture. In states like mine, the older population is moving or passing on, and deposits are going with them.

Anecdotally, community bankers in my state tell me they check the paper daily to see which of their customers has passed. And shortly after, somewhere between an hour and a week, the heirs come into the bank, and in many cases take the deceased’s money out of the bank and out of the community entirely.

Yet, the lending needs in these rural communities continue due to the costs of planting, fertilizing and harvesting crops. And these local farmers have a much broader reach - they support the national and international agricultural trade. Brokered deposits are increasingly important because depositors are literally dying off and not being replaced, but at the same time borrowers in these communities have credit needs. 

A solution to this problem means pushing the envelope, and I think that is okay. Innovation is often a buzz word in the nonbanking space. I would like us to take strides to use it more often on the banking side. We already see it with community banks themselves as they push out of their comfort zone and embrace technology, as reported in the most recent CSBS national survey and last year’s case study competition.

We as regulators must allow our dual banking system to evolve in this new age of technology as customer needs and wants are rapidly changing as are population demographics. We need to allow banks and de novos to try new methods of lending, new avenues of funding, new and faster ways of processing payments. 

This freedom to do something new is largely absent from our banking system today especially in the community banking space. We do allow them to partner with a third party, but only after weeks, months, and sometimes years of due diligence, risk assessments, audits, testing, back testing and independent validation.

We are finally starting to see an increase in investors wanting to start new banks. While this is a hopeful sign, the overall numbers are still very low. We have not had a de novo bank in my state for over 20 years. New banks should be allowed to try new things, to try to serve new markets, to try to serve old markets in new ways. Let’s embrace this innovation to the benefit of all our communities.

We have a dual role of protecting safety and soundness but also allowing innovation to better serve our communities. It is a balancing act. The safest system is one that has no risk, but that system would also provide no opportunity. This is analogous to a multipurpose dam system. The flood risk is reduced to almost zero if the dam is kept empty all the time. The tradeoff is that there are no other beneficial uses, and the dam serves no purpose at all in most years. 

The standard cannot be to only charter and insure banks that can guarantee they will not fail. There must be a balance to allow existing banks to innovate and to allow new entrants to the system with new ideas, new business models and new target markets. If we do not, we will continue the current path toward a day when we only have a handful of very large banks, a few regional banks and almost no locally owned community banks. 

I absolutely believe our small community banks are the lifeblood of rural America and the heart and soul of our small businesses, and our small communities. We need to fight to protect their future to protect the future of our country. This is where I believe the true strength of our dual banking system lies, if we allow it to work in the way it was designed.

Is the state system perfect? Heck no. Is it messy at times? Absolutely. But it works and it is moving forward and adapting to the rapid changes in the marketplace. We cannot allow perfect to be the enemy of progress, or our fear of failure to be the enemy of innovation and a bright future. So, let’s push our comfort zone - whether in banking or nonbanking - in the year ahead. Let’s re-examine how we regulate. Let’s innovate. Let’s evolve. 

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Corley: State Regulation Is More Stable, Responsive and Forward Looking

By Charlotte N. Corley
Immediate Past Chair, Conference of State Bank Supervisors
Commissioner, Mississippi Dept. of Banking and Consumer Finance
CSBS State-Federal Supervisory Forum, San Antonio, Texas, May 21, 2019

How do you measure one year? 

  • 365 days 
  • 116 hours on CSBS conference calls
  • 53,766 miles in the air  
  • 17 face to face meetings with CSBS and other regulators
  • 60 days away from my husband and dogs

So how do you measure one year? In my year as CSBS chairman, I have been blessed to meet with so many of you. I have been fortunate to represent you in Washington. And along with staff, I have explored ways CSBS can make the state system more effective. From these interactions, I have come away with a single but powerful impression: the state system of financial regulation is more reliable, responsive and forward looking than it ever has been. 

For that, credit goes to all of you. It goes to Albert Forkner, Charles Cooper, Candy Franks and all my predecessors as CSBS chair, including the dean of commissioners, Ed Leary. It goes to the regulators who serve on the Board of Directors and Executive Committee, lead policy committees, and govern the Education Foundation and SRR. And it speaks to the quality of our staff at CSBS.  Outstanding!

Now, what do I mean by reliable, responsive and forward looking? In my time as CSBS chairman and even before, I have seen how state regulators are able to take action more quickly than others…help Washington set its policy direction…and build the foundation for a future system of financial supervision. 

Through it all, we have leveraged strengths that are unique to the state system. And it’s our performance that makes me so optimistic about our future. Let me give you some examples.

Shaping Nonbank Regulation and Supervision

As the nonbank sector has grown and transformed itself with technology, state regulators have taken the lead to modernize the supervisory structure. As the primary regulator of nonbanks, we know how this sector operates better than anyone else. 

Nonbanks now originate two-thirds of all home loans and service almost half of them. Roughly $1.4 trillion are handled by MBSs every year. And technology is propelling new business models and delivery systems. 

So it was only natural that we were the ones to build a plan, Vision 2020, that reimagines how to license and supervise nonbanks, including all the emerging fintechs. 

Our guiding principle: a national system of financial supervision and regulation does not have to be only federal. Our approach: improve supervision by identifying higher-risk cases and spending time on them…harmonize the multistate experience by getting rid of unnecessary pain points and redundancies…and make no change that undermines our ability to protect consumers.

Goodness, we have been busy. We have agreed to act on 14 recommendations from a fintech advisory panel...previewed new features coming to our technology platform that were well received at the NMLS conference...begun to empower state departments with new examination tools and cybersecurity training...piloted a new multistate exam process of one company-one exam...and forged multistate licensing compacts in almost two dozen states.

Looking ahead, we are well positioned to implement our advisory panel recommendations…go live with the State Examination System… enhance MSB oversight through a new accreditation program and model law…and train more than 750 state examiners in cybersecurity. As the year 2020 approaches, all the initiatives we have envisioned are coming into clearer view. 

When it comes to shaping a new system for nonbank supervision and fintech regulation, state regulators have taken action by tapping into our unique knowledge and our agility to respond to industry trends. That’s what I mean by reliable, responsive and forward-looking!

Championing Tailored Regulation for Community Banks

We have also leveraged another unique strength – understanding our individual communities – to help Washington shape bank regulation. Because of our proximity and permanence, we tend to be more in tune with local economies and how regulation affects the ability of local banks to lend.

Case in point: for years, we have witnessed how too many state-chartered banks struggled under the one-size-fits-all regulatory approach adopted after the financial crisis. And so, we put CSBS to work: to help convince federal officials to make tailored regulation the rule rather than the exception.

We built much of our argument around data. The CSBS annual survey of community banks is the most comprehensive survey available. It allows us to quantify compliance costs…make a trendline of this data…promote the results in the New York Times and Wall Street Journal…and share with policymakers.

Credible data on community banking gave our views added weight when Congress put together the new bank regulation law…from adopting our view on qualified mortgage treatment…to including state regulators in developing a new community bank leverage ratio. 

Our research conference with the Federal Reserve has been so successful that, this past year, even the FDIC wanted in. Add to this a new sentiment index of community banking that CSBS created, and we are gathering even more information for policymakers to use.

In bank regulation, we are combining the use of data with our local knowledge to become a reliable source of information for federal policymakers. That’s a big win. Now, that doesn’t mean we will win all the arguments. But it does mean we will have the most credible ones. And over time, facts have a way of prevailing.

Rethinking How We Supervise Larger Banks

As proud as I am of our work on bank regulation, we should recognize that we are more than just community bank regulators. 

In recent years, across 32 states and Puerto Rico the number of larger banks in the state system has increased from 50 to 75. More than 60 percent of the assets within the state system are now held by these larger banks…some with assets in the hundreds of billions of dollars. And these numbers are likely to keep going up.

So we have to be razor sharp in how we supervise larger institutions. We are often put  at a disadvantage because, unlike community banks, most state regulators have no more than a few larger banks to learn from in developing supervisory practices. 

Here’s my idea: let’s strengthen our CSBS large bank group by tapping into our cooperative agreements so we can share information about larger banks more freely and learn from each other. Let’s analyze our own data and reach our own conclusions! 

I have reached out to a few commissioners about piloting a large bank peer review. If we can make this work, we will be better equipped to ensure the safety and soundness of a state-banking system filled with more big banks. 

Being A Consistent, Reliable Protector of Consumers

Now let’s talk about consumer protection. This is a core part of our mandate, especially when it comes to nonbank supervision. 

Just look back at the tremendous multistate successes around Ocwen and Equifax. You can also look to individual states who are setting the bar for data privacy and cybersecurity laws and regulations…or to CSBS, which is fending off attempts to preempt our authority to protect consumers from bad actors in fintech and student loan servicing. 

We also protect consumers by tapping into another strength of state regulation: our capacity. We conduct quite a large number of exams. The industry is simply that big. And our presence affects market behavior. To quote Kathy Kraninger of the CFPB, “people act differently when they know a regulator is watching.” 

In the past year, I have focused on strengthening our supervisory capabilities by working with Robin Wiessmann and the Non-Depository Supervisory Committee. For instance, the NDSC adopted an enforcement protocol so that multistate mortgage enforcement actions are elevated to the commissioner level. We leveraged another NDSC initiative, made during Albert’s tenure, to identify a pool of examiners-in-charge for multistate exams.

But our biggest statement is a look to the future: to properly oversee the nonbank sector, how should we change our supervisory practices…how do we move towards comprehensive prudential standards…and how can we create a culture of compliance within the industry? These are just a few big questions that will be addressed in a white paper that CSBS is developing.

Overseeing nonbanks is happening on our watch. We are the accountable party, the prudential regulator.  And we need to be fully engaged and equipped to do our job today and well prepared for the future. 


I deeply, deeply believe that the state system is the crown jewel in financial regulation. 

In Washington, the policy pendulum of a single federal regulator can swing dramatically from one election to another. But we are a system of 55 sovereigns with diverse experiences, opinions and backgrounds. 

Through CSBS, we collaborate and shape our opinions into national policy positions that I truly believe are more reflective of good public policy. That’s what a regulatory system should be: collaborative, stable and reliable.

With our approach, state regulators have made extraordinary progress. While Washington debates its policy direction, you can find state regulators taking action: from protecting consumer privacy and taking down bad actors…to laying the building blocks of a new foundation for nonbank licensing and supervision…to gathering the necessary data that convinces Washington to move towards more tailored regulation for banks.

Each and every one of us is fulfilling the promise and wonder of our regulatory system. And because we are, citizens everywhere have ready, safe access to a financial system to bank, save, invest, and send money to loved ones…through more secure technology environments…with less risk of being taken advantage of. That is the state regulatory system I am proud to be a member of.

CSBS is its own collective…its own family…and for the past year I have been the head of the household. This house is made up of all of us: regulators who see CSBS as the means through which we can improve the quality of state regulation…others who come from our very own banking departments and now work as staff…and still other staff who lend their expertise from outside professions or backgrounds.

I have been honored and humbled to have served the past year as CSBS chairman. I want to thank God for blessing my path with this opportunity, my fellow regulators for believing in me, and ALL of you for supporting me in this role. And if you didn’t already know, CSBS is staffed by some pretty amazing people. 

Speaking of staff, I owe a debt of gratitude to my staff back home, especially Rhoshunda for stepping up and taking on more than her share of the load. And to my husband Aubrey, who sacrificed his time with me so I could pursue this opportunity.

Well, it is time to wrap up my year as CSBS chairman. In comes Bret Afdahl, the savvy outdoorsman from South Dakota. Out goes your Southern Belle whose idea of camping is staying at a Holiday Inn Express. Bret, I wish you the very best as you take over the helm.

To everyone, many thanks for the year we have concluded. I thank you from the bottom of my heart.

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