Since the financial crisis, banks have had to navigate a more complex regulatory environment than ever before. The sweeping Dodd-Frank Wall Street Reform and Consumer Protection Act was designed to prevent another such collapse, and in the process added many more compliance statutes banks have had to meet. Additionally, in 2009 the Federal Reserve began issuing its Supervisory Capital Assessment Program, and the subsequent annual Comprehensive Capital Assessment Review tests, commonly known as “stress tests.” The stress tests — the aim of which is for banks to show they have sufficient capital to continue to lend to households and businesses even under severely adverse conditions — were initially for the nation’s largest 19 banks, but have since been opened up to any bank with assets of more than $10 billion. Throw in international regulatory guidelines such as the Basel III accord, and regulatory compliance has never been a more daunting task than it is for banks right now.
This increased regulatory burden has necessitated increased investment, both in technology to handle the greater compliance workload and in personnel in these areas. But over the past several years some best practices have emerged, and banks have learned some valuable lessons. Here are three ways banks can survive and thrive in the new regulatory environment, and how they might continue to do so going forward.
Invest In Technology That Multitasks
It’s often painted as an either-or scenario for banks: Investing in compliance technology means fewer resources are devoted to innovation and growing the business. But it doesn’t always have to be that way. Through smart investment, BancorpSouth, a bank holding company with $12.9 billion in total assets based in Tupelo, Miss., has been able to meet new compliance standards while also improving business processes.
“It can be a challenge trying to check all the regulatory compliance boxes while also developing systems that allow you to evaluate strategic initiatives,” acknowledges Ty Lambert, first VP for BancorpSouth.
But BancorpSouth has been doing just that. The key, says Lambert, is using technology that serves multiple functions, including regulatory compliance. For example, the bank has spent money and dedicated internal resources to ramping up its risk management practices to meet new regulatory standards, but at the same time these new risk management capabilities also can be used to inform some of the bank’s other initiatives, whether making capital deployment decisions or looking at potential M&A opportunities, Lambert notes.
Also, as an institution in the $10 billion- to $50 billion-asset range, BancorpSouth was subjected to the Fed stress tests for the first time this past year. The holding company partnered with SunGard to build a new stress-testing platform using SunGard’s Ambit Risk and Performance Management suite. The platform is designed to help banks generate a complete picture of their balance sheets to aid capital allocation. Lambert says the suite not only will help meet stress-testing requirements, but also provide a long-term framework to fulfill wider risk management and regulatory objectives and help to turn the practice of compliance into a competitive advantage.
“Having this in place will really help us to evaluate our capital and allow the board to make better business decisions; it’s not just about the stress tests,” says Lambert.