Quickly:
- The challenges faced by financial institutions today are as numerous as they are nuanced. Be it data security, emerging technology, fraud, crisis management and/or the effectiveness of internal controls, I opened the 12th annual Bank Audit & Risk Committees Conference by laying out a number of key governance, risk and compliance issues and trends.
CHICAGO — While a sophomore at Washington & Lee University, a professor loudly (and unexpectedly) chastised a close friend of mine for stating the obvious. With a wry laugh, he thanked my classmate “for crashing through an open door.” Snark aside, his criticism became a rallying cry for me to pause and dive deeper into apparently simple questions or issues.
I shared this anecdote with some 400 attendees earlier today; indeed, I teed up Bank Director’s annual program by reminding everyone from the main stage that:
- We’re late in the economic cycle;
- Rates are rising; and
- Pressure on lending spreads remains intense.
Given the composition of this year’s audience, I acknowledged the obvious nature of these three points. I did so, however, in order to surface three trends we felt all here should have on their radar. I followed that up with three emerging issues to make note of.
TREND #1:
Big banks continue to roll-out exceptional customer-facing technology.
Wells Fargo has been kicked around a lot in the press this year, but to see how big banks continue to pile up retail banking wins, take a look at Greenhouse by Wells Fargo, their app designed to attract younger customers to banking.
TREND #2:
Traditional core IT providers — Fiserv, Jack Henry & FIS — are under fire.
As traditional players move towards digital businesses, new players continue to emerge to help traditional banks become more nimble, flexible and competitive. Here, FinXact and Nymbus provide two good examples of legitimate challengers to legacy cores.
TREND #3:
Amazon lurks as the game changer.
Community banker’s fear Amazon’s potential entry into this market; according to Promontory Interfinancial Network’s recent business outlook, it is their greatest threat.
In addition to these trends, I surfaced three immediate issues that banks must tackle
ISSUE #1:
Big banks attract new deposits at a much faster pace than banks with less than $1 billion assets.
If small banks can’t easily and efficiently attract deposits, they basically have no future. ‘Nuf said.
ISSUE #2: Bank boards need to know if they want to buy, sell or grow independently.
In a recent newsletter, Tom Brown of Second Curve Capital opined that “if you have less than $5 billion in assets, an efficiency ratio north of 65%, deposit costs above 60 basis points, and earn a return on equity in the single digits, this really is time to give some thought to selling.” As I shared on LinkedIn yesterday, the 3 biggest bank M&A deals of the year took place in May: Fifth Third Bancorp’s $4.6 billion purchase of MB Financial, Cadence Bancorp’s $1.3 billion acquisition of State Bank Financial and Independent Bank Group’s $1 billion agreement to buy Guaranty Bancorp. I don’t see the pace of consolidation slowing any time soon — and know that banks need to ask if they want (and can) be buyers or sellers.
ISSUE #3:
The risk of data breaches across industries continues to increase.
Be it risk management, internal control or third-party security considerations, every aspect of an institution is susceptible to a data breach — and managing these threats and identifying appropriate solutions takes a village that includes the most senior leaders of an organization.
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Just as banks need to develop their audit and risk capabilities, skills and talents, so too do officers and directors have both an opportunity and the responsibility to stay abreast of various trends and topics. Bank Director’s event continues tomorrow with some fascinating presentations. To see what’s been shared already, take a look at Twitter, where I’m tweeting using @aldominick and #BDAudit18.
About That Ratio 