On Thursday and Friday, I had the privilege of attending the Texas Bankers Hall of Fame Gala and the 20th Annual Bank Executives’ & Directors’ Seminar hosted by the Smith-Hutson Endowed Chair of Banking at Sam Houston State. First, I’d like to thank Sam Houston State (including Pam Thaler and my grandfather, Dr. Jim Bexley) for hosting these great events. Second, I want to congratulate the new inductees into the Texas Bankers Hall of Fame: Charlie Cheever, Bookman Peters, Stretch Smith, and Terry Tuggle. I don’t know them personally, but their introductions made clear that they have had a tremendous impact on the banking industry and their communities. I also want to congratulate my grandfather, Dr. Bexley, on his receipt of the first ever Texas Bankers Association Lifetime Achievement Award in honor of his contributions to community banking and in particular to educating future bankers. Lastly, I want to recap some of the interesting and useful information that we learned from a panel of regulators who graciously took the time to come answer questions.
The Bank Executives’ & Directors’ Seminar featured a regulatory panel with representatives from each of the prudential regulators and the CFPB:
- Charles Cooper, Commissioner of the Texas Department of Banking
- Serena Owens, Deputy Regional Director at the FDIC
- Gil Barker, Deputy Comptroller at the OCC
- Robert Triplett, Senior Vice President of the Federal Reserve Bank of Dallas
- Jim Carley, Director of Regional Examining at the CFPB
The panel was moderated by Sam Golden, himself a former regulator with a wealth of knowledge and experience, now at Alvarez & Marsal.
The regulators each identified some of the hot issues they are seeing and then took questions from the audience of community bankers. The questions were aimed disproportionately at the CFPB representative, which is not surprising given the angst and uncertainty surrounding Dodd-Frank and the CFPB. The following are some of the interesting takeaways:
- Commissioner Cooper of the Texas Department of Banking noted the impact of oil and gas prices on the financial stability of the Texas banking industry, which most of the prudential regulators echoed. Although the falling prices have certainly had an impact, most of the regulators noted that banks in Texas are generally still healthy and weathering the storm well. However, as Sam Golden cautioned, banks need to remain vigilant even when they are financially stable and healthy. On this point, Mr. Golden noted that communication with the regulators is key.
- Serena Owens from the FDIC pointed out the importance of cybersecurity protections and urged all banks to take advantage of the FFIEC Cybersecurity Assessment Tool (or some other tool) to assess their cybersecurity risk. Jim Carley from the CFPB also mentioned cybersecurity risk and emphasized the importance of closely monitoring third party vendors’ access to customer information. (See my post last month for a list of tips for managing vendor data security risks).
- Mr. Carley sought to ease the audience’s concerns about the breadth of the CFPB’s power. He first pointed out that only 17% of the CFPB’s enforcement actions have been brought under the far-reaching unfair, deceptive, or abusive acts or practices (UDAAP) provision of Dodd-Frank. He also explained that the CFPB very rarely examines or takes action against community banks.
- In response to a question about the CFPB’s recent statement identifying small business lending as one of its priorities, Mr. Carley stated that this was aimed primarily at ECOA and fair lending enforcement.
- With respect to mortgage lending, Mr. Carley noted that the emphasis for community banks should be on writing good loans that are well-underwritten and less on technical QM compliance. He noted that the intent of the QM rules was not to require technical compliance or discourage lending but to provide a baseline. As one banker sitting at my table noted, however, the practical effect of the QM rules has been to discourage mortgage lending that is not technically compliant.
- Mr. Carley explained that the CFPB is less concerned with minor regulatory violations than it is with the compliance management process and what a bank is doing to address violations that arise and prevent violations in the future.
- There was significant debate among the panel and members of the audience about the cost of compliance under Dodd-Frank. Dr. Bexley (Chair of the banking program at Sam Houston State) stated that his own study found a 43% increase in the soft costs of compliance since Dodd-Frank was implemented. Mr. Carley downplayed the costs of Dodd-Frank compliance, but the prudential regulators seemed to agree more with Dr. Bexley. Ms. Williams explained that the FDIC is monitoring compliance costs closely, while Gil Barker of the OCC stated his personal belief that compliance costs are killing small banks.
This seminar offered excellent insight into current regulatory trends and priorities. It also featured panels on other topics of interest to community bankers, including insurance, accounting, and marketing. I highly recommend next year’s program to all Texas bankers, and I thank those who put the program on and those who participated on the panel.