Suntell CEO Corner
S. 2155 – Economic Growth, Regulatory Relief, and Consumer Protection Act
S. 2155 was signed into law earlier this year. Most of the provisions are effective immediately while others require agency rule making before they go into effect. The regulatory relief includes simplified capital rules and relief from Basel III, mortgage lending red tape, less intrusive reporting and examination, and other regulatory relief. ICBA worked hard on this new law and fighting for relief from burdensome regulation. A detail of this new law can be found on www.icba.org.
Top Bank Risks in 2018
The ABA Banking Journal in December 2017 published its “Top 5 Bank Risks in 2018”. Included in this list
were Security and Cyber Risk, Third-party Risk, Regulatory Uncertainty, Talent Management, and Lending Risks, which is back on deck for renewed attention. Since this article was issued, per the S. 2155 law, regulatory uncertainty has been tackled to some degree. The banking risk that caught my attention was the listing and supporting narrative around ‘Lending Risks’. If you have followed me over the years, I focus on lending and credit risk and the systems used to manage such risks. The following is an excerpt of the ABA Banking Journal article written by Julie Knutson on lending risks and the need for renewed attention.
Lending risks on deck for renewed attention
With the industry now nearly a decade beyond the last financial crisis, Rossi sees real risk at the intersection of product and process. If the economy gets a boost from regulatory reforms and other actions, he says, “We could very well see an expansion in financial services where new products start to be developed.” That’s where the connection point between process, quality and product development becomes an important risk area. “As we saw in the last crisis, the infrastructure used to develop, originate and service those loans was, in many cases, not up to the task of controlling the risk that those assets had associated with them,” Rossi explains.
Though other areas will continue to vie for banks’ attention, Rossi says now is the time to invest in improving the infrastructure needed to manufacture and produce loans. “A lot happens when we’re in an environment where business is starting to take off,” he says. The effects of poor lending decisions may not come home to roost until years later, in the form of higher credit losses, but between streamlining processes and working through new technology deployments, Rossi says it’s “very important to keep an eye out as the business cycle starts to go in an upward direction.”
Our Suntell customers and users of the Square 1 Credit Suite understand the need to invest in lending infrastructure to improve lending decisions, manage portfolio credit risk, and improve efficiency. Using the Square 1 Credit Suite they are able to streamline front line loan production in concert with back office credit and loan administration. They are well positioned for the next downturn and evolving lending environment. Because we talk to community banks and financial institutions with commercial and agricultural lending portfolios across the entire US on a daily basis, we have a strong feel for the universe of institutions and how they are positioned. I am saddened to state that a vast majority of the community banks are not very well positioned on their internal lending infrastructure.
Over the last 22 years since I founded Suntell, I have learned that commercial lending is an area treated as a ‘Sacred Cow’. Webster defines a ‘Sacred Cow’ as one that is unreasonably immune from criticism or opposition. Why is that the case? Your guess is as good as mine, however, in most cases it really boils down to fear of change: things are fine the way they are, our internal spreadsheets work just fine, it costs too much, we don’t’ have any problem loans; the reasons go on. All are relevant, on the surface; however, they miss the point. It is about preparing for the future and competing with Fintech firms and the bigger banks that deploy systems to attract lending business by focusing on the customer experience.
The number of banking boards and/or executive management teams across the community banking universe that continue to treat their lending process as the ‘sacred cow’ in their institutions, are not doing their institution any favors. It is a singular focus on the past success with no emphasis on the future and what will be needed to maintain those past successes. The processes remain unchanged since I was a loan officer in the mid 90’s. It would be strange to walk into an office of the 80’s or 90’s to see the office machines and systems used during that time. Yet for some reason, it doesn’t seem strange for banks to continue to use the same processes as they did in that era.
At Suntell, we will continue to fight daily toward the mission and cause of helping the community bank and credit union improve their internal lending infrastructure in order to drive down costs, improve credit risk management, and improve their competitive position in the market to attract new business loans.