Wednesday, June 29, 2016

Banking Regulators Should Major in the Majors

The amount of agida being given to the Current Expected Credit Loss (CECL) standard mandated by the Financial Accounting Standards Board (FASB) reminds me of Chicken Little's claim that the sky is falling. It hammers home my belief that bankers dedicate significant resources, swerving to and fro, conforming to the myriads of standards, regulations, and exam practices that have little to do with their safety and soundness.

Rick Parsons, author of Broke: America's Banking System and Investing in Banks: Strategies and Statistics for Bankers, Directors, and Investors, drove this point home in Broke, stating regulators, directors, and bankers should major in the majors. Namely, focus on those risks that cause banks to fail. Rick recently spoke about CECL and other current banking topics on my firm's June podcast.

I should note that Rick is in favor of CECL, because it would improve loan risk-based pricing and elevate reserve levels. Point taken. When a bank tech vendor asked me about building a CECL platform, I said if it raised the reserve for commercial banks to 1.2% of loans, then bankers would buy it! That's the ALLL levels bankers defaulted to before all of this complexity surrounding loan loss reserve calculations, and now CECL.

Rick was spot on in his major in the majors commentary. We have diluted examiner resources to the point of ineffectiveness. Instead of focusing on what causes banks to fail, namely operational processes that lead to excessive risk taking, especially credit risk, they focus on everything. Meaning they focus on very little. 

Instead of examiners majoring in the majors, bankers spend countless hours responding to regulatory concerns over their search criteria within their Bank Secrecy Act (BSA) programs, and how many errors the bank had in SAR reporting. For the uninitiated reader, BSA was Congress' means to use banks to police their customers to ensure they weren't laundering money or funding terrorists. To my knowledge, there has never been a BSA violation that caused a single bank to fail. But bankers sure spend a lot of time on it. And HMDA reporting? Don't get me started.

One major law that Rick pointed out that has been a total failure was the social engineering pie'ce de resistance, the Community Reinvestment Act (CRA). To ensure banks lent money into communities where they took deposits, banks are required to report, and regulators are required to grade banks' efforts on this ridiculous law that did nothing to help the plight of inner city residents. 

But ample resources are dedicated to it. And banks must at least achieve a "Satisfactory" to be approved for many things, such as mergers. And there is no lawmaker that will propose its demise even though it has been a "Fail" at achieving their social engineering goals. The press might report the lawmaker is "against inner city residents". Stupid.

No bank failed due to having a poor CRA record. And how many communities were adversely impacted by a bank's "needs improvement" CRA rating?

These are the rabbit holes examiners jump into, and require bankers to dedicate human and financial resources to comply and improve them. 

CECL is another ridiculous concept foisted on banks by the FASB that, although at least focused on credit risk but in the name of financial transparency, will do little to nothing to make a bank safer and sounder against failure, in my opinion. 

Yet here we are. Diluting banker resources further. Have we lost our minds?

~ Jeff

Sunday, June 19, 2016

In Banking, Content Is Showing Results

Kevin Tynan, a regular American Banker contributor, recently penned an article: Digital Bank Marketing, It's All About the Content. He cited a recent survey that found content marketing ranks as companies' most significant digital marketing trend for 2016. 

He went on to say that at his bank, Liberty Bank in Chicago, pay-per-click mortgage leads cost $162 per lead, while content-related leads cost just $36. He said that there are even greater differences in lead generation for checking accounts and credit cards.

Content, in my opinion, is moving more from the wish list in the Marketing Department to front and center for bank customer acquisition initiatives. As with most digital marketing concepts, the talk surrounding using content to acquire customers is within the retail realm. See the ad in my Facebook feed today. A local supermarket. Clearly a retail customer acquisition approach.

But what about business customer acquisition? At a recent bank client strategic planning retreat, I pulled up my Twitter feed that had a sponsored tweet from Accenture Banking, directing me to a recent survey. Clearly this was a B2B marketing approach, as Accenture is a B2B consulting firm. If Accenture is working to extend its reach by using promoted tweets directing potential clients to their content, should banks consider it too?

There is friction within banks in considering such an approach. In most strategic planning retreats I moderate, the social media talk, including content, centers on retail. In senior management ranks, I do not think using social media for business client acquisition gets much consideration. But look at the sponsored tweet I just looked up in my Twitter feed?

Google Cloud. So if Accenture, and Google, think social media can promote B2B client acquisition, should your bank?

Read any sales book or go to any sales seminar and you will hear theories on number of touches and conversion rates. In my opinion, commercial bankers consider number of touches as phone calls or in person visits. Not a recent blog post, or information in the client's Facebook stream. 

If, at your bank, it takes seven contacts to turn a business prospect into a client, and reading a blog post or seeing content in their social media streams count, would you be more aggressive in your content efforts? Would this drive down your acquisition costs, as it did for Liberty Bank?

I think it's time to take content and social media marketing seriously for business customer acquisition, even if your "shoe-leather" commercial bankers think it's bunk.

Because what if it's not.

Do you use and have results from content marketing for business customer acquisition?

~ Jeff

Saturday, June 04, 2016

Fiserv: Give Your Clients a Test Bank

Community banks are struggling to build a training curriculum to develop branch bankers of the future. Aside from moving from a transaction to an advice, sales, and service culture, they also struggle with operational training.


The story of declining branch traffic, and the resulting reduction of branch transactions, is reducing the repetition of common and uncommon transactions alike, and therefore the opportunity to improve operational skills of branch employees.

When I was a branch banker over 20 years ago, I went to headquarters, stood at mock-up teller lines with a dozen of my colleagues, and a trainer drilled us on running common transactions with enough repetition to imprint the "how to" in our brains. Well, at least my colleagues brains. I never claimed to be an operational wizard.

Some banks still do this. But with branch turnover down due to a weak job market, and the industry moving to universal banker, these training test beds are on the decline, in my experience. As they should be. No reason to institutionalize what is quickly becoming an outdated model... tellers standing behind the rigid teller line anxiously awaiting for the flood of customers that no longer come.

So how do banks increase proficiency with transaction processing? Most accomplish through on-the-job training (OJT), in my experience. But with common transactions being done less frequently, particularly in smaller or more rural branches, and uncommon ones perhaps happening once per month or less, how are branch bankers getting the reps needed to become proficient?

Some are being deployed to a bank's busiest branch, typically the headquarters office, for some OJT before being deployed into the branch network. This is a natural reaction to get reps, and be productive once sent to their primary branch.

But how can your core processor be helpful?

Those that have been through the painful core processor conversion experience know that the Fiserv's and Jack Henry's of the world establish a "test bank" to get your people proficient at all sorts of interactions with your soon to be deployed core.

My question: Why give this up?

I reviewed all data processing expenses for Southeast banks with assets between $800 million and $1.2 billion in total assets. Community banks. The results of my analysis are in the chart below.

In terms of the Call Report, Data Processing Expense category, these banks spent on average almost $1 million in 2015. And the trend is decidedly up. Not a small sum.

In my firm's profit improvement engagements, we see wild fluctuations in core processing expenses. Telling me: 1) banks buy different services from their core processor, and 2) there should be negotiating flexibility given the dollars involved.

What I suggest is negotiating a "test bank" that remains open for continuous training with your employees. Not just branch employees, but everyone that interacts with the core. This will improve the effectiveness of your OJT program, increase transactional proficiency, and allow your bank to dedicate more resources to higher level employee development. It will also retire "Mickey Mouse" and "Donald Duck" as customers. Bankers know what I'm talking about.

There's enough margin in that Fiserv contract to make this happen. Make it so!

~ Jeff