Washington, D.C. – Community banks face competitive pressures to remain viable in today’s economic and regulatory environment. But while some bankers have turned to mergers as a means to achieve economies of scale, state bank regulators are favorably responding to an alternative to consolidation called shared services arrangements.
A new white paper released today by the Conference of State Bank Supervisors (CSBS) describes the benefits of collaboration among community banks by pooling human, technological, or compliance resources in order to reduce costs, increase operational efficiencies, and leverage specialized expertise.
The white paper, “Shared Resource Arrangements: An Alternative to Consolidation,” identifies a number of ways two or more financial institutions have successfully shared resources to either improve compliance, increase efficiency, or both.
Share Resource Arrangement Examples
· A bank partners with a smaller bank to share Information Technology services for a fee
· Multiple community banks partner together to share ownership of a data processing provider
· Rural community banks partner to share the costs of a compliance team
· Multiple community banks looking to share the benefits of a particular software create a separate non-profit that provides the operating systems to member-banks
“As state bank regulators, my colleagues and I have a duty to ensure the broad, safe access to credit within local communities and we encourage innovative solutions,” said Shane Deal, Deputy Commissioner of the Minnesota Department of Commerce. “So where well-structured, mutually beneficial shared services arrangements maintain regulatory compliance and expand customer access to products and services, this is a favored alternative to consolidation.”
The white paper also explains risks and restrictions to shared resource arrangements within current regulation.
“There are inherent operational and reputational risks that come with engaging in shared services arrangements that banks should consider. There are also state and federal employment law concerns that may serve as a barrier to these types of arrangements. So banks should clearly map out each banks’ legal obligations before entering into a shared resource arrangement,” said Deal.
Download the “Shared Resource Arrangements: An Alternative to Consolidation” white paper here.