Review and possibly repeal Dodd-Frank. Reinstate Glass-Steagall. Defang the Consumer Financial Protection Bureau. Review, revise and possibly abandon global trade agreements with an eye to retrenching U.S. interests. Since the inauguration, headline after headline has provided clues, hints, insights and speculation as to the Trump Administration’s next move regarding the banking industry. Whatever your political bent, you have to admit the first weeks of 2017 have been a roller coaster for everyone, including banks.
It’s anyone’s guess what will happen next, or how it will affect both the domestic and global economies in the long term, but American community bankers seem to be approaching impending and potential changes with a sense of optimism. This is the vibe coming from the community banking world in 2017 according to a new report from Cornerstone Advisors called, “What’s Going On in Banking 2017: Cornerstone Advisors’ Perspective on Community-Based FIs’ Priorities and Technology Plans” available to you for free from Deluxe.
Deregulation and optimism
Since November, the financial services and banking industries have anticipated a regulation-averse, industry-friendly approach from the Trump Administration. Actions from the White House calling for the review and possible repeal of Dodd-Frank, as well as delaying the implementation of the fiduciary rule, seem to support pro-banking industry assumptions.
A new report from Cornerstone Advisors ties the anticipation of loosening regulations to widespread optimism among the nation’s community bankers. Nearly three-quarters of the 201 community bank and credit union CEOs surveyed by Cornerstone said Trump’s ascension to the White House made them more optimistic about the banking industry’s prospects for 2017.
“My hope is that they go beyond just modifying Dodd-Frank for community banks, and get rid of things like CRA and HMDA requirements,” one CEO told Cornerstone. “This legislation was necessary pre-Internet but is not relevant now.”
Regulations remain a top concern for community banks; after all, both Trump and his Treasury Secretary nominee Steve Mnuchin have publicly stated their openness to revisiting Glass-Steagall. However, anticipating that regulatory changes coming from the White House in 2017 will be more relief than burden, community bank CEOs are turning their attention to addressing internal concerns such as improving efficiencies, reducing costs and boosting credit quality, Cornerstone’s report indicates.
While 69 percent of bank CEOs and 51 percent of credit union CEOs remain concerned about regulatory burdens, a growing number of leaders cite efficiency, non-interest income, non-interest expenses and cost as top concerns. In 2016, 40 percent of bank CEOs cited efficiency, non-interest expenses and costs as a top concern; that number rose to 61 percent in 2017. While just under a quarter of bankers viewed non-interest income as a top concern last year, a third say it’s high on their list of worries for 2017.
Among credit union CEOs, 52 percent view efficiency, NIE or cost as a top concern — up from 35 percent last year. Similarly, the number citing non-interest income as a top concern rose from 28 percent in 2016 to 35 percent in 2017.
Addressing concerns with Trump administration
While it seems likely the Trump Administration will address at least some of the industry’s regulatory concerns, bank and credit union CEOs are looking for ways to manage internal concerns like efficiency and non-interest income. Instilling a performance management culture can help drive progress in both of these critical areas.
Branch-level focus on performance management can create and sustain the levels of cost-reducing efficiency that community banks will need to remain competitive in an ever-changing marketplace. Performance metrics at the branch level should track key growth drivers, including account acquisitions, cross-selling and customer retention. Not every branch will excel equally in all three areas, but identifying a branch’s strength area can help leadership to establish benchmarks and strategies that maximize those strengths. Benchmarks should compare a branch’s performance to other branches in the bank system, others in the industry and its own historical performance.
Cornerstone’s Eric Weikart offers guidance for financial institutions looking to benchmark their performance against the industry’s top players. Weikart cautions banks and credit unions to pay as much attention to high performers as low-performing branches, and to strive to identify what makes them successful.
Data management and effective interpretation of metrics are key to successful benchmarking. However, financial institutions continue to struggle with data management. Weikart urges FIs to avoid overcomplicating data, and instead focus on a handful of metrics per area. “By picking a goal and understanding what is driving the trend, FIs can clarify conversations about process improvement and tighten up management accountability,” Cornerstone’s report advises.
Finally, Weikart’s last bit of advice may end up being the most difficult for financial institutions to follow. He advises making process improvements in measured, digestible pieces, rather than trying to do everything at once. However, community financial institutions trying to keep pace with the rapid-fire regulatory changes coming out of Washington may struggle to refine just what they should focus on first.