How Dodd Frank is Impacting Community Banks

The Dodd Frank regulations created and adopted after the financial crisis of 2008 have finally started to roll back, thanks to the new reforms approved just this year. With the early feedback that the community banking sector will be most affected by the regulation changes, we talked with Roger Shumway, Executive Vice President & Chief Credit Officer for the Bank of Utah, to get the details on how his financial institution is preparing for the latest update on Dodd Frank.

TIP #1: IT’S STILL ESSENTIAL TO MAINTAIN A LARGE COMPLIANCE DEPARTMENT.

We literally had to increase our compliance department from two employees up to eight employees to comply behind the scenes and try to free-up the lending side so they could still fulfill loans. With the Bank Secrecy Act (BSA) and Anti Money Laundering Regulations, the government has put more and more on the banks to be their eyes and ears for policing the world of where deposits come from and where they go. We spend a huge amount of time documenting those kinds of things — and we will continue to do so.

TIP #2: TRAINING AND EDUCATION ARE KEY.

We took a vested interest in training our people, particularly with the big changes. Before, financial institutions all read the rules differently, creating their own rules, patterns, and processes. With the new regulations, you don’t have any soft numbers — your team can’t just estimate the numbers to get their 15% down. From an underwriting standpoint, we all have to maintain the same numbers now since the regulations are more defined. It requires more training, but it also keeps us on track throughout the year.

“You can never stop learning and networking is key - if you don't, you won't be able to keep up." - Roger Shumway, Executive Vice President & Chief Credit Officer, Bank of Utah

TIP #3: SUPPLEMENT YOUR WORKFLOW WITH OUTSOURCING AND BUILT-IN AIDES.

There are a lot of things that can help banks offload some of that regulatory burden: appraisal review and management can be very helpful. For community banks, even owning trust companies can help because they have trust powers, or purchasing a consumer area, can be an asset. There’s a lot of things that banks can do if they are willing to embrace the regulations and supplement with new tactics — and there will be more people willing as the present generations move on and the new generation takes over.

TIP #4: FIND YOUR PEOPLE — AND CREATE A PLATFORM FOR LEARNING.

A lot of by-products of being with other organizations and services is that you get a network, and you stay with that network throughout changes. You’ll learn about the changes, and you’ll also ultimately understand why they made the decision. It’s extremely helpful to have other people throughout the country who are skilled that you can call and talk to, to find out how they handled each situation. For the most part, you’re left to run your business. But what you want is to be prepared for when the regulators come in. You’re going to want to have already fought through the issues and have a sound business plan in mind — that’s how you maintain control.

TIP #5: ALWAYS LOOK TO THE FUTURE.

There is one thing that will dramatically change the environment and regulation: technology. Most community and large banks have old mainframe computer applications written in cobalt. I think the next generation of standard mainframe core application will be on a database. And when that happens for banks, it will make a huge difference in compliance, data mining, and customer intelligence. It will provide banks with a huge opportunity.

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