Caveat emptor (with a banking spin)

Kelsey, Jake, Mika and Katy outside our D.C. offices
Kelsey, Jake, Mika and Katy outside our D.C. offices

I had the pleasure of welcoming two new members to Bank Director earlier this week… Jake Massey and Katy Prejeant joined our team and both have set up shop in our Nashville offices.  As you can see, we invited them east to spend some time in D.C. with our Associate Publisher (Kelsey Weaver), SVP (Mika Moser) and me.  With the five of us huddled around a table on Monday and Tuesday, my focus was admittedly more internally focused then normal.  What follows, however, are three things I subsequently heard, discussed and find myself thinking about as the week wraps up.

(1) Politico shared the opinions of Chris Dodd (Connecticut’s former senator) and Barney Frank (a former congressman from Massachusetts) in an op-ed entitled “Pulling the Plug on Failed Financial Institutions.” In it, the two contend that their infamous financial reform legislation ends forever the ability of the U.S. government to provide support to failing financial companies.  “The Dodd-Frank Act is clear: Not only is there no legal authority to use public money to keep a failing entity in business, the law forbids it,” they write.  While there are parts of their bill that are potentially helpful, “on the bigger picture – whether too-big-to-fail financial institutions still benefit from implicit government subsidies and a high probability of explicit bailouts,” the former Chief Economist of the IMF respectfully disagrees with duo.  Indeed, on the NY Times Economix blog, Simon Johnson writes he feels this way — and is not alone.  Case-in-point, he highlights a point Fed Chairman Bernanke made in response to recent questioning from Senator Elizabeth Warren.  Essentially, Bernanke “confirmed that credit markets still believed the government stands behind big banks.” A fascinating juxtaposition of perspectives courtesy of Politico and the NY Times on our biggest financial institutions.

(2) Last week, Davis and Henderson (D+H) announced it was buying Harland Financial Solutions.  American Banker subsequently ran an interesting article appropriately named “Your Tech Vendor’s Been Sold — What Do You Do Now?” (*subscription required).  While not so much a blueprint as an overview, take note that “regulators are pressing banks to complete thorough due diligence on third-party vendors. But things can get complicated by consolidation of technology firms.”  I wrote about this after our annual Bank Audit Committee conference; albeit, with an eye towards evaluating your external auditor.  The same principles apply here, and a separate article on AB identifies several key components of IT contracts that need extra attention.  Having worked for an IT company from ’05 to ’10, I do understand the challenges they have as services and tools providers in terms of pricing and structuring mutually beneficial contracts.  I do wonder how thoroughly bank executives consider strategic and risky technology plans.  Sure, the expense side can be calculated.  However, this second piece makes clear that “many smaller banks fail to think about exit strategies when negotiating technology contracts.”  Caveat emptor…

(3) Leaving the Latin, but not learning, aside, my final point goes to a new training program spearheaded by our very talented Editor, Jack Milligan.  Now, its been said that you rarely see a strong board with a weak bank — or a strong bank with a weak board.  So as part of our commitment to building stronger banks by building stronger boards, we introduced the Board Training Program yesterday afternoon.

This is a comprehensive and board-focused educational platform developed by a faculty of industry experts.  Take a look and listen to Jack as he explains how we will cover such important topics as the role of the board, risk management, key audit, compensation and governance issues, and advice on growing the bank. 

Aloha Friday!

Before I pack my bags

DC food trucks got some business...
By staying local, a few DC food trucks picked up extra business this week…

For the first time in nearly two months, I did not leave the friendly confines of Washington, D.C. for work.  Next week, AA gets my business back with a trip to San Francisco — followed by one the following week to Chicago and the next, to New York and Nashville.  Yes, I anticipate sharing a number of stories in the weeks ahead, but these three had me excited to post today.  As always, my #FridayFollow-inspired post on things I heard, learned or discussed that relate to financial organizations.

(1) File this one under “things that make you go hmmm.”  Earlier this week, the American Banker published an interesting piece entitled “Fed Reveals Secret Lessons of Successful Small Banks.”  As I’ve written in multiple M&A-focused posts, many investment banks  predicted a wave of consolidation among community banks after the financial crisis hit while positing that financial institutions need at least $1 billion of assets to compete/remain relevant.  This piece, however, cites recent St. Louis Fed research that shows the asset range with the most “thrivers” — the term the StL Fed used to describe remarkable banks — was $100 million to $300 million.  As the American Banker notes, much of the research stemming from the crisis focused on the mistakes banks had made, so the St. Louis Fed decided to take the opposite approach.  If you have a subscription to AB, their recap is worth a read.

(2) Disruptive technologies were front & center a few weeks ago in New Orleans at our annual Growth Conference.  Yesterday afternoon, McKinsey put out “Disruptive technologies: Advances that will transform life, business, and the global economy.”  While not specific to our industry, the fact that the “mobile internet” placed first should reinforce the conversations taking place in bank boardrooms today.  According to the authors, 4.3 billion people are yet to be connected to the Internet, with many expected to first engage through mobile devices.  Considering the six-fold growth in sales of smartphones and tablets since launch of iPhone in 2007, well, you can see why I’m bullish on banks getting social and enhancing their mobile offerings ASAP.

(3) Finally, for those quants looking for a good, non-Krugman economics piece, look no further than the NY Times’s “Economix” blog.  The most recent post: How a Big-Bank Failure Could Unfold.  In the piece, the authors consider what could happen if there were a hypothetical problem at a major international financial conglomerate such as Deutsche Bank or Citigroup.  As they note, “defenders of big banks are adamant that we have fixed the problem of too big to fail.”  This entry considers the alternative.  So for those with a desire to stay up late during this Memorial Day three-day weekend?  This might be a read for you.

Aloha Friday!

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