On December 6, 2016, Goodwin’s Financial Industry practice hosted its 5th Annual Banking Symposium, a forum for financial institution CEOs and senior management to discuss critical and emerging issues in the banking industry. This year’s Symposium, with the theme “Unwinding the Road Ahead,” focused on how community banks can successfully unwind the tangled road of politics, regulation and technological change for the benefit of their customers and communities. Specifically, moderators, panelists and over 100 attendees representing over 25 institutions discussed:
- The aftermath of the 2016 presidential election.
- Bank and FinTech partnerships.
- How community banks can use technology to generate revenue and increase profitability.
- The regulatory and compliance issues that are keeping legal and compliance professionals up at night.
- Attendees also heard remarks from the new Massachusetts Commissioner of Banks, the Honorable Terence A. McGinnis.
Key takeaways from the Symposium included:
“Get Used To It; Get Over It; Get On With It.” Keynote speaker David Gergen gave this advice to attendees, emphasizing the need for both parties to move forward after the election for the benefit of the country. Mr. Gergen, currently with CNN, has been a regular commentator on public affairs for more than 30 years. He stated that President-elect Trump’s agenda, consisting of tax reform, deregulation, infrastructure spending, repealing ObamaCare, and immigration and border enforcement, was possibly “the most ambitious agenda we have seen” from an incoming president. According to Mr. Gergen, the success of this agenda could depend on the success of its first three prongs in fostering economic growth.
Understanding How the World Works. “No matter what business you are in, whether it is community banking or some other industry, it is imperative that you understand how the world works,” said Mr. Gergen, who has served as a White House adviser to four U.S. presidents, including both Republican and Democratic administrations and, accordingly, has unique insights into the presidential decision-making process. Mr. Gergen indicated that it is important for President-elect Trump to establish an effective decision-making process in the White House.
Optimism Mixed With Apprehension. President-elect Trump’s agenda of tax reform and regulatory relief, when combined with rising interest rates, could benefit community banks significantly, Mr. Gergen said. Several attendees were quite bullish on community bank stocks as a result of the confluence of these factors, some even going as far as to say that investors should once again view community bank stocks as growth stocks as opposed to the equivalent of dividend-paying public utilities. However, Mr. Gergen noted that Mr. Trump is not an ideologue, and his policy pronouncements to date have appeared, at least to some, to be unpredictable.
Culture Is Critical. “Culture clash is the biggest obstacle for banks to do business with FinTech companies,” said Goodwin partner Veronica McGregor, who spoke on Bank/FinTech partnerships. Ms. McGregor’s observation resonated with the FinTech panelists who discussed “The Convergence of Technology and Traditional Banking,” and how community banks can use technology to generate revenue and increase profitability.
Panelists Mike Butler (President and CEO of Radius Bank), Dawn Gillette (Senior Vice President of Specialty Lending for NBT Bank), Jason Jones (Co-Founder and President of LendIt) and Patrick Boyaggi (Co-Founder and CEO of RateGravity) agreed that community banks wishing to innovate through a partnership with a FinTech company – either by working together to offer products and services or by acquiring innovative companies – would be wise to focus on their culture to the same extent they focus on processes and procedures. A willingness to question what you are doing and why you are doing it is critical to being able to successfully adapt and innovate.
When asked how banks should decide which FinTech companies to partner with, Mr. Butler and Ms. Gillette agreed that “to be innovative, you have to partner with the innovators.” But the culture of the FinTech company is also critical to a successful partnership. In the same way that banks need to ensure that their generally conservative cultures can adapt to better use technology, FinTech companies need to appreciate the regulatory environment in which banks operate. A good FinTech partner understands the regulatory pressures and issues that banks face, especially with their product, and is willing to get over the hurdle of not wanting to deal with regulatory issues.
FinTech Is More Than Marketplace Lending. Because some of the most high-profile partnerships between banks and FinTech companies have been in the marketplace lending space, there is a tendency to think about FinTech solely in terms of marketplace lending. But FinTech is much broader than that. Banks can leverage FinTech companies and technology to attract deposits and non-lending customer relationships.
Mr. Butler discussed Radius Bank’s successful bank/FinTech partnerships, including one with a robo adviser, and other technology-based initiatives. Similarly, Mr. Boyaggi discussed how his company partners with community banks to originate residential mortgage loans, an area in which marketplace lenders have not traditionally participated.
Mr. Jones noted that customers are demanding that banks evolve and partner with FinTech companies as they are demanding a quick and frictionless banking experience, especially when online. Customers expect to be able to complete transactions quickly and securely, even when providing confidential personal information. A quick and frictionless banking experience goes far beyond partnering with marketplace lenders to the totality of the customer experience.
Expectations for Boards of Directors Have Never Been Higher. In a session titled “What’s Keeping You Up At Night: The Regulatory and Compliance Issues Your Peers Think You Need to Address Now,” Joanne Campbell (Executive Vice President of Risk Management for Camden National Bank), Ian Hecker (Senior Vice President and General Counsel of Middlesex Savings Bank) and Steven Scott (Assistant General Counsel and Chief Compliance Officer of Boston Private Bank & Trust) discussed the legal and compliance issues related to fair lending, HMDA, website and mobile application compliance, financing marijuana businesses after legalization in Massachusetts, third-party vendor management, and the repercussions for community banks of the big bank account opening scandal.
Specific takeaways included:
- fair lending enforcement penalties are expensive and carry a large reputational risk;
- the new HMDA rule allows people to self-identify from a wide variety of categories, which may cause inaccurate data or the drawing of unfounded conclusions;
- third-party vendor management remains a hot-button issue for examiners; and
- the CFPB’s recent recommendations on incentive compensation arrangements in response to the big bank account opening controversy may be more burdensome than helpful.
The panelists agreed that expectations for bank directors have never been higher. As a result, boards of directors are placing heightened expectations on senior management to report and provide the board with more information to help them discharge their responsibilities. It is also increasingly important for boards of directors to add board-level expertise in areas of critical importance to the bank, particularly information technology and cybersecurity.
The full agenda for the Symposium as well as information about speakers and moderators can be found at bankingsymposium.com.