Communication is key to every successful relationship. It's also key in dealing with your bank regulator. During the last session at Bank Director's annual Bank Chairman/CEO Peer Exchange in Chicago, the message from the panel of regulators was resounding: Please talk to us. Moderated by Paul Aguggia, partner at Kilpatrick Townsend & Stockton LLP, the session’s panelists included Bert Otto, deputy comptroller, central district at the Office of the Comptroller of the Currency, and Anthony Lowe, representing the Federal Deposit Insurance Corp. as regional director, division of supervision and consumer protection.
Aguggia set the stage for the discussion by painting a scenario of tension among the regulators and the banking industry. After a day and a half of in-depth discussions, bankers had reiterated that feeling of being in a constant state of fighting–fighting to reinstate good relations with regulators, fighting to get applications approved where there was no issue before, and fighting for the freedom to fix their own problems. Meanwhile, regulators are feeling the pressure from the public to protect the system and punish those who corrupted it.
Let’s Talk About It
In the eyes of both the OCC’s and the FDIC’s representatives, maintaining open and ongoing communication is the solution for ending the underlying tension between the two groups. Otto admitted that the regulators had not done a good job communicating with the industry before the economic fallout, but shared the government’s plans for reaching out more and listening to the bank’s concerns. It's all about relationship building, if anyone expects the system to get fixed. Lowe echoed that sentiment by requesting that bankers maintain that dialogue throughout the year, rather than just before their examination. By keeping the lines of communication open, banks have more credibility in the eyes of the regulators and thus help to further cement the relationship.
During the session, a few attendees took the opportunity to test the communication theory and vented to the panelists about some challenges they were having with their examiners. Both Otto and Lowe suggested they take their concerns to the top, and not just let renegade examiners off the hook. They also warned that the regulators were going to be tougher during their exams, and that they were going to look long and hard at an institution’s high risk areas.
Handling the New Normal
Although examiners are taking closer looks at several areas, a few stood out: Interest rate risk and bank management. Does the bank have people with the right skills to handle environment changes? Will this institution be able to deal with the new normal?
Risk management processes are also high on their radar, as regulators look for good systems that allow banks to identify risks. After hearing some banks had no idea what examiners are looking for in terms of good risk management output, Otto explained that it’s about representing a level of commitment. What do the staffing levels look like for the audit and loan review teams? What is the long term strategic plan?
Signs of Improvement
However, a bit of good news from the regulators: There is a decline in the number of banks failing, the capital markets are loosening up, and there is stabilization in the real estate market. The FDIC has been releasing some institutions from formal threat and there are signs of overall improvements. Both Otto and Lowe acknowledged that the community banks are stressed by all the new regulations, but said that community banks are still important to this country, and there will be a market in which to successfully compete. The session ended on an optimistic note. And at least some communication had opened up between the regulators and the regulated.