Banking Panel: Top Challenges in 2013

Everybody in banking knows this by now. Banks have been hit with an onslaught of new regulations right when low interest rates are continuing to erode profitability. But what will happen in 2013? Experts who will speak at Bank Director’s upcoming April Bank Chairman/CEO Peer Exchange say what they think boards will be dealing with next year.

 “What is the top strategic challenge facing bank CEOs, chairmen and their boards in 2013?”

The greatest challenge to CEOs, chairmen and their boards will be how to generate acceptable returns to shareholders in the face of ever-growing compliance concerns and a continued sluggish economy with high unemployment and historically low interest rates.  Without an administration change, 2013 promises to continue increasing and more stringent banking supervision and additional regulation, including consumer compliance initiatives and aggressive enforcement from the Consumer Financial Protection Bureau and new capital requirements from Basel III.  This will not only impact decisions on day-to-day operations and planning but also shape thinking on mergers and acquisitions  activity and the raising of capital.  Specifically, if new capital rules are adopted, boards will need to explore the availability of capital, and whether capital can be raised at satisfactory pricing levels.

— Scott Brown, Kilpatrick Townsend & Stockton LLP

Talent. There is a shifting environment of constant change that is the new normal for how all businesses operate. Pressure is intensifying—from regulators to creative innovators who are bucking the traditional banking models trying to influence change.  Bottom line, CEOs need to have the right talent in place to lead effectively—not only to confront the current challenges, but to create an organization with a connected culture to be the bank of the future.

— David Boehmer, Heidrick & Struggles

The top challenge is that banks cannot earn their cost of capital in today’s environment.  The combination of higher capital requirements, margin pressure due to extraordinarily low rates, slow economic growth and cost pressures associated with regulation translates into inadequate returns for shareholders.  A CEO’s job is to outperform peers in this environment while making investors realize that these challenges will not last forever.  In the event that a bank can’t operate more effectively than its peers, it is the CEO’s responsibility to his/her board to face that reality and proactively explore exit opportunities.

— Ben A. Plotkin,Stifel, Nicolaus & Company and Stifel Financial Corporation

Notwithstanding the difficult business climate and the continuing economic challenges facing the banking industry today, the regulatory burden is the top strategic challenge facing bank management and boards today. While the reelection of Obama results in some certainty that the barrage of new regulations will continue, there continues to be considerable uncertainty. For example, what will the creation of the CFPB mean for community banks not directly regulated by the CFPB? What will happen with Basell III? Regulatory costs are also a significant factor when considering the optimal asset size to best leverage today’s cost of doing business.  

— Gary Bronstein, Kilpatrick Townsend & Stockton LLP