Thursday, April 29, 2021

Squared Away- How It Happened

March 11, 2020: The World Health Organization declared a global pandemic. I attended the Pennsylvania Bankers' Association Women in Banking Conference the next day. And I wouldn't attend another for a year and three months. I will be attending the Financial Managers Society FMS Forum this upcoming June.  

The first few months were a haze of helping clients navigate the uncertainties in their business, and the uncertainty in our own.


And then we began settling into a routine. When the U.S. tried to open up in the summer, we actually embarked on a 10-day business trip to Texas to work on a project. And then the second wave hit. Back in the work-from-home (WFH) saddle again.

Do you know how much time a traveling consultant recaptures when they no longer travel? Sure, road warriors try to be productive on phone calls and in hotel rooms. But when all travel is paused, you suddenly have much more time to get things done and be productive.

It was with this newfound time that got me thinking in the summer of 2020.... write a book! 

Annually I would review my most read blog posts for the past year and all time. I've been writing since 2010. Some made sense to me. Others surprised me, such as the amount of views expended on board composition, or on deploying bank capital. And I thought, well, readers know what they want. And viola! Idea! Write a book curated by readers of Jeff For Banks. 

So in the summer I drafted a summary, and an introduction chapter, and solicited the usual publishing suspects for business books. The challenge was that it was a book designed for community financial institutions. Very niche. Not a large audience. No worries though, I could build my own publishing house. So I did, building off what I learned when my then 10 year old daughter published a pre-teen book.


Editors Rule

My first hire was an editor. Here I leaned into my connections. I have written many articles for multiple publications. My best editor, as it turned out, was the ababankmarketing.com editor, Kate Young. She tore up my articles to sometimes unrecognizable levels. Yet they were better, much better, than what I submitted. Could I keep my ego in check by submitting myself to so much red ink again? You betcha.

If you want to write a book, have a great editor. Kate was great, and I think the product shows her skills.

While writing we quickly realized we needed permissions to include references and graphics. Since the book includes blog posts in their original form, I had to ensure every graphic was royalty free or I had to substitute with royalty free graphics. Also, if I included slides from conferences and presentations that I attended, I asked the firm if it was ok to use their material. The last permission was a cartoon on page 57 of the paperback and hardcover, the work of a commercial cartoonist. That one required a royalty payment. Most of the tables and graphs in the book were done by me. I gave myself permission.

My theory behind the book is that serving all stakeholders can be the next best version of my readers' financial institutions. While seventy-five percent done with writing, I read Conscious Capitalism by John Mackey of Whole Foods Market and Raj Sisodia. They put hard numbers behind it in their appendix that shows "Firms of Endearment", i.e. those that serve a higher purpose than solely delivering to shareholders, outperform the general market. That was my theory. Stakeholder primacy is not a zero-sum game. You can deliver value to all stakeholders at the detriment to none. It was good to have confirmation in the form of analysis. I do favor spreadsheets. Oftentimes success is measured by them. 


What's In A Name?

I naturally had a few book names knocking around in my head. And I bounced a few off of Kate, my editor. But for this exercise, I leaned on my family. It was January, and my college daughter was home. It was the pandemic, and my LA daughter's family (fiancée and child) were riding the pandemic out with us. Boom! Naming team.


We sat around the kitchen table and knocked out possible titles. We started with banking specific possibilities, until my daughter's fiancée suggested we link other aspects of my life into the title.  That ended up being the last three titles in the accompanying picture (third from the top offered by my daughter because it's what might have come out of my mouth as a result of teenager hijinks). Obviously we started out less serious. But my wife actually came up with the last one and the winner-Squared Away. It's a typical military term that has widespread civilian adoption. If you're squared away, you got your sh*t together. 

The subtitle came from a virtual conference where Jelena McWilliams, the FDIC Chair, said those words. Actually, I did not attend the virtual conference. You know how I heard of what she said? Several tweets from my Twitter friends. My subtitle came from a tweet. You read it here.


Graphic Artists Drool

Once written and edited, now is the time to bring more professionals onboard. First, a typesetter. Publishing houses and international book standards require certain formats. You'll hear more on this below, but do you know there is not supposed to be any blank pages? That is why some books have This Page Intentionally Left Blank. So it's not blank. Publishers do this to manage where the Table of Contents rest, and each chapter starts on the right side of the book, etc. 

Did you also know that the book title with author and publisher must appear immediately prior to the copyright page. Who knew? At any rate, I hired an experienced typesetter that knew all of these things and promptly formatted the interior of the book for Kindle, Paperback, and Hardcover. She was great, and quick. I had minimal changes.

The cover artist was a bit different. And the cover, as it turns out, is very important to book sales. More important for fiction, but still important. So I researched the most experienced in design and found my Nigerian artist via Fiverr. His design was great, in my opinion (see picture). He gave me a couple mock-ups to choose from but I liked the symbolism of the squares. Each different book format required a different cover (Kindle, Paperback, Hardcover). And for paperback and hardcover, I had different publishers (Amazon and Lulu). Amazon does not do hardcovers. 

As great as the graphic artist was in art, he was a bit challenged in delivering book cover formats correctly. The Kindle version went off without a hitch. The paperback had a couple revisions. The hardcover was a challenge, including putting the wrong barcode on the back. Did you know that each format has a different ISBN number and therefore barcode? Also, did you know, that the barcode on the back of printed books needs to have a white background and be in the exact same spot on every book? 

My graphic artist struggled with this. And ultimately my daughter's fiancée finished the last five yards of the hardcover design. 


Marketing

I'm now in the book marketing business.

Before release, I noticed that two of my social media contacts that served financial institutions and financial technology companies penned their own tomb: Beyond Good. And I worried that much of their thesis was similar to my own. It is similar in that they encourage capitalism's evolution to be more balanced in serving stakeholders. But it is not as targeted towards micro issues facing community financial institutions, as was mine. Phew! I encourage you to read both!

No matter if you use a publisher or create your own, you are ultimately responsible for book sales. My first move was to order author's copies and send pre-release versions to industry insiders. I did so, but only two weeks prior to release. It wasn't like I gave them tremendous time to read, opine, and help promote. But hey, I'm a newbie. 

This led to me being on the Banking Transformed podcast, and be scheduled for a few more. It was a great conversation with Jim Marous. And I look forward to others.

Before going public I e-mailed all of my banking contacts, letting them know before others that I wrote a book specifically designed to bring value to them. And that really started the ball rolling. That was only two weeks ago, so we'll see how it goes. So far the feedback has been positive. But who calls out the author and says "this is crap!" I worked hard to make it valuable, so I'm hoping nobody feels that way. But ya never know.

My LA daughter is helping me with marketing. She works for a marketing agency that specializes in health care and has been in the marketing agency biz her whole professional career. Knows more than me. But don't tell her I said so. If you see an ad on LinkedIn or Amazon, likely done by her. She also guides me in content and pushing out to the world. 

I wonder if she'll like this blog post?


At any rate, that's how my book came to be. I hope you enjoy it. Order by clicking on the below links or go to wherever you get your books:

Kindle

Paperback

Hardcover

Thank you for your consideration!


~ Jeff



Tuesday, April 06, 2021

Unintended Consequences of Aggressive Regulation

"In case you're looking for some light reading this weekend, FRB-Philadelphia working paper 21-08, Does CFPB Oversight Crimp Credit?" 

~ Robert Morro (@bmorro44)


So went a tweet from one of my Twitter connections. So I listened to him, and dialed up the FRB-Philadelphia WP 21-08. Forty three pages later, with formulas like:


CFPBLoanSharelt = αl + β · Postt + εlt


And a 27 page appendix with subtitles like:


Alternative difference-in-differences model


I got my answer.


Note that the study was limited to Federal Housing Administration (FHA) loans. For the uninitiated, an FHA loan is government-backed mortgage insured by the FHA. It is popular with first-time homebuyers, low to moderate income (LMI) homebuyers, and those with relatively low credit scores... as low as 500. It normally has a low down payment requirement, as low as 3.5%. You can see how it accelerates home ownership, which many economists and policy makers feel is critical to improving net worth.

The study analyzed FHA lenders that were subject to CFPB oversight, which were non-bank FHA lenders and bank FHA lenders with greater than $10 billion in total assets. The period analyzed was immediately prior to the commencement of CFPB oversight in 2011, and afterward. The study also analyzed the impact of the change in oversight intensity brought about by the 2016 election. 


Conclusions

The study revealed intended and unintended consequences. First, the intended consequence was that CFPB oversight is associated with improvement in mortgage servicing practices, leading FHA mortgages from CFPB-supervised banks to become less likely to transition from moderate to serious delinquency. Poor servicing practices were an important driver of the foreclosure crisis during the Great Recession; the study results suggest that tighter regulatory oversight may help reduce inefficient foreclosures during economic downturns. This is good.

There were two unintended consequences. The first was regulator arbitrage, where a bank decides to have an activity regulated by one entity rather than another because of the perception that the chosen regulator will be less risky to them. In this case, bank holding companies (BHC) with mortgage subsidiaries in the holding company had a tendency to put the mortgage sub under the bank where it would be regulated by the bank's primary regulator and not the CFPB so long as the bank was less than $10 billion in assets. If it was in the BHC, it would be a non-bank mortgage lender, and therefore subject to CFPB oversight, even if the bank was under the $10 billion threshold. Meaning: banks chose to avoid CFPB oversight.

The second, and presumably more actionable unintended consequence: Banks subject to CFPB oversight decreased FHA lending and replaced that activity with jumbo mortgage lending. To avoid the reputation and regulatory risk of doing FHA lending, banks chose to do less of it, and therefore reduced the amount of credit advanced to first-time homebuyers and LMI families. Jumbo mortgages are typically for larger homes for wealthier and more credit-established families. There was no conclusive evidence that non-bank FHA lenders and under $10 billion FHA bank lenders increased FHA lending to make up for the shortfall.

Let that sink in a bit.

Further, after the 2016 election, banks subject to CFPB oversight began anew with FHA mortgage lending. They must have perceived lower reputation and regulatory risk in doing so, and therefore came back into the market. 

This is actionable information for both lawmakers and regulators. Particularly given the aggressive rhetoric coming out of the new-teeth CFPB.


Maybe they should read the study. And modify their approach. One can hope. But as Red from Shawshank Redemption said:

"Let me tell you something my friend. Hope is a dangerous thing. Hope can drive a man insane."


Add FRB-Philadelphia WP 21-08 to your night time reading list!


~ Jeff