ABA Banking Journal - July/August 2015 - (Page 36)

FEATURE > RISK MANAGEMENT That Will Shape Banking's Future Five Risks Change is inevitable, and banks that prepare for what is to come will set themselves up for success. BY CHARLoTTE BIRCH A LITTLE paranoia is a good thing as far as Richard Parsons is concerned. The 31-year veteran of Bank of America and author of Broke: America's Banking System, shares former Intel chairman Andy Grove's belief that only the paranoid survive "10x forces"-degrees of change that reshape an industry. Judging from the number of banks that have folded or been acquired in the last 30 years-the industry has shrunk from 18,000 banks in 1984 to 6,500 in 2014-paranoia has perhaps been in short supply. But Parsons, who spoke at the ABA Risk Management Forum in April, has studied the industry's past and present, and he has identified five key trends- or 10x forces-that banks would do well to obsess over. A war for talent It is easy to overlook the impact that past bank failures can have on today's talent pool. Parsons noted that the frenetic merger activity of the 1990s, when healthy banks were 36 ABA BANKING JOURNAL | JULY/AUGUST 2015 busy absorbing failing ones, led to overstaffing, which in turn inhibited hiring on college campuses and put bank training programs on the back burner. Combine banks' underdeveloped talent pipeline with the impending retirement of the baby boom generation and you have a talent shortfall that will challenge most banks, if it hasn't already. This is especially true when it comes to commercial lenders. "As I travel around the country, this is the job we cannot find enough people for-the people who book the loans that we can make money off of long-term," Parsons says. To illustrate the potential impact a commercial lender talent shortage can have, Parsons notes that when four commercial lenders left a Raleigh, N.C., bank following its announcement that it was selling itself, the acquiring bank was able to negotiate a better exchange ratio. Parsons, who monitors the expense structure of the industry, added that 52 to 56 percent of a typical bank's noninterest expense today is in personnel-a line that is growing 6 percent annually at some of the largest banks as they seek to retain talent. Shifting public policy Parsons believes that banking entered the "public utility era" in 2008 when former Federal Reserve Chairman Alan Greenspan acknowledged a flaw in his free-market regulatory ideology. The Dodd-Frank Act soon followed, and the result has been the micro-supervision of banking, where examiners treat small decisions as significant and small banks as if they are large. Less supervision is more, Parsons says, cautioning that policymakers should "major in the majors" and focus on asset growth rates and asset concentration. But there are three macro-prudential policy outcomes from Dodd-Frank that Parsons doesn't regret-and which he thinks will serve the industry in the long run: the new Financial Stability Oversight Council, which provides a formal way for federal regulators to talk through common issues; stress testing, which he strongly advocates all banks conduct in some form; and the increase in bank capital levels, which some politicians calling for more changes tend to overlook.

Table of Contents for the Digital Edition of ABA Banking Journal - July/August 2015

CHAIRMAN'S VIEW
UPFRONT
OPERATIONS
ECONOMIC OUTLOOK
PICTURE THIS
BANKING’S APPALLING REGULATORY STRUCTURE
HOW BANK CULTURE DRIVES SUCCESS
KEY CONSIDERATIONS FOR CREATING SUCCESSFUL BOARDS
VENDOR RISK MANAGEMENT
FIVE RISKS THAT WILL SHAPE BANKING’S FUTURE
CEO SYMPOSIUM
MOBILE BANKING
PAYMENTS
ABA COMPLIANCE CENTER INBOX
INVESTOR PERSPECTIVE
COMMUNICATIONS
REAL ESTATE LENDING
LEGAL BRIEFS
FROM THE STATES
BANKER RECOMMENDED READING
INNOVATIONS IN SOCIAL RESPONSIBILITY
INDEX OF ADVERTISERS

ABA Banking Journal - July/August 2015

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