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Industry Insights

Featuring thoughts and analysis from some of the brightest minds in the banking world and beyond, Industry Insights is a collection of short, easy-to-digest articles touching on some of the most pressing strategic issues facing your institution.

November 18, 2019
Simple Is Not Always Better: The Community Bank Leverage Ratio Playbook
By: Adam Mustafa, CEO – Invictus Group

In September, the Federal Deposit Insurance Corporation finalized the Community Bank Leverage Ratio (“CBLR”). Community banks with less than $10 billion in assets can opt into the new capital framework and forgo risk-based capital rules as long as they maintain at least a 9% Tier 1 leverage ratio. The rule is a byproduct of S.2155, adopted in 2018 to roll back much of the Dodd-Frank Act. The bill called for regulators to create a new simpler capital framework for community banks, with a CBLR between 8% and 10%. Predictably, the regulators settled on the midpoint of that range. The CBLR is on track to go into effect on January 1, 2020. Since banks will use their Call Reports to report their capital levels, the framework will first be available on March 31, 2020.

November 4, 2019
You Know Your Customer Better Than Most Banks - You Just Don't Know It
By: Rob Ashbaugh, Executive Risk Management Consultant – Abrigo

Community banks are faced with many regulatory and competitive challenges today, but a byproduct of addressing those challenges is the focus on data. By understanding the benefits of their data and not the challenges, institutions can accurately address both regulatory and competitive challenges.

Community institutions are currently in the process of transitioning to the new current expected credit loss (CECL) standard, a data-intensive exercise. A typical loan has at least 60 data points on a core system, meaning an institution with 7,000 loans can have 420,000 data points each month and more than 5 million annually, assuming no loan growth. Assuming a four-year remaining life, that is more than 20 million data points that could be used to just do a CECL calculation and then report on the calculation.

October 7, 2019
Assessing Your Financial Institution's Culture
By: Scott Baranowski, Principal and Director of Internal Audit Services – Wolf & Company

Financial institutions are constantly searching for ways to increase the success of their business, whether by trying to increase profits and return on capital or simply pushing into uncharted territory. To accomplish this and ensure that there are no surprises, traditional audits usually focus on areas such as asset-liability management (ALM), Bank Secrecy Act (BSA) compliance and information technology general controls (ITGC). However, a bank or credit union’s corporate culture is a factor that is often overlooked and, if evaluated, could prove to be a useful tool in the journey to success.

September 23, 2019
Balance Sheet Optimization
By: Alla Gil, Founder and CEO – Straterix

Balance sheet optimization has been the Holy Grail of companies’ management for many years now. But to quote Fintekminds on the topic, “A lot has been tried and written on the subject, but very few have been able to achieve meaningful results.”

There were attempts to treat institutions’ (and corporate) balance sheets as portfolios of assets, with balance sheet optimization reduced to traditional investment portfolio optimization in a Markowitz mean-variance framework. It works by finding the best expected return (mean) on portfolio assets for each level of risk (defined as portfolio variance).

September 9, 2019
The Importance of Portfolio Duration
By Robert Segal, CEO, Atlantic Capital Strategies, Inc.

Following a recent meeting in Washington, the Federal Reserve lowered the target range for the Fed Funds rate to 2% to 2.25%. The central bank also stopped reducing the size of its balance sheet two months earlier than expected.

August 26, 2019
Applying Profitability Through Cube Analysis
By Ben Braun, Associate Director of Finance, Associated Bank

Vendors and institutions alike talk about the value that profitability analysis can bring to an organization. Generally, this comes with a price tag associated with implementing proper costing techniques, funds transfer pricing assumptions and other reporting needs. But what an institution really needs to know prior to committing is:

What are some creative ways the organization can utilize the information to add value?

August 12, 2019
Breaking Down the Silos in Managing Risk
By Michael Berman, Founder and CEO, Ncontracts

There’s a difference between risk management that starts at the top and risk management that trickles up.

When risk management starts at the top it is thorough and unified. Risk tolerances and risk appetite drive strategic decisions – all decisions. Everyone is following the same approach. In contrast, when risk management trickles up, it’s anyone’s guess what’s really happening. Each business line, department or area does what it wants, how it wants, with no regard for the big picture. It’s a huge waste of resources that creates redundancies, inefficiencies and discrepancies.


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Mark Loehrke
Editor and Director, Publications and Research
Direct: 312-630-3421
Email: mloehrke@FMSinc.org