Making sense of the many regulatory changes in the current environment can prove a daunting task for any financial professional, but particularly for young professionals. The December 2016 RMA's Young Professionals Audio Conference helped to bring clarity to today's complex
Edward Schreiber, EVP and chief risk officer at Zions Bancorporation, began the audio conference by identifying the various regulatory agencies and the distinguishing factors of each. He explained that the way a bank is chartered determines which regulatory
agency monitors it.
- The Office of the
Comptroller of the Currency regulates and oversees national banks and federal savings associations.
- The Federal Reserve
System is the central bank of the United States. It has responsibility for supervising and regulating banks and other important financial institutions to ensure the safety and soundness of the nation’s banking and financial system. By law, nationally chartered
banks must be members of the Federal Reserve System.
- The FDIC examines and supervises more than 5,000 banks and savings banks for operational safety and soundness. Banks can be chartered by the states or by the federal government.
- The Consumer
Financial Protection Bureau (CFPB) is an independent agency of the United States government responsible for consumer protection in the financial sector. The CFPB supervises banks, credit unions, and other financial companies, and enforces federal consumer financial laws.
- The U.S. Securities
and Exchange Commission (SEC) is an agency of the U.S. federal government. Primarily,
it has responsibility for enforcing federal securities laws, proposing securities rules, and regulating the securities industry, the nation's stock and options
exchanges, and other activities and organizations, including the electronic securities markets in the United States.
- The Financial Industry Regulatory Authority,
Inc. (FINRA) is a private corporation that acts as a self‐regulatory organization (SRO). It is an independent, not‐for‐profit organization authorized by Congress to protect America’s investors by making sure the securities industry operates fairly and honestly.
- The Federal
Financial Institutions Examination Council (FFIEC) is a formal interagency body empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions by the Board of Governors of the FRB, the FDIC, the National
Credit Union Administration (NCUA), the OCC, and the CFPB.
Schreiber then discussed CAMELS, which is the supervisory rating system that the agencies use to classify a bank’s overall condition. Each bank is rated on a scale of 1 to 5 with 5 defined as a bank expected to fail within six months to a year. A rating
of 3 warrants enforcement action placed on the bank to help correct the deficiency. The ratings assigned are based on a ratio analysis of financial statements, combined with on‐site examinations by a designated supervisory regulator. Specifically, CAMELS stands
for the six components of a bank’s performance that are assessed: capital adequacy, assets, management capability, earnings, liquidity (i.e., asset liability management), and sensitivity (i.e., sensitivity to market risk, especially interest rate risk).
Considering the heightened regulatory environment, Schrieber offered current regulatory "hot buttons" for young professionals to keep top of mind. There is increased scrutiny regarding the Bank Secrecy Act and anti-money laundering. Schreiber cited real-life examples of civil money penalties being assessed to
institutions who failed to adhere to policies and failed to correct deficiencies the first time in a prompt, realistic manner.
Regulators have an increased focus and zero tolerance for error regarding the Servicemembers Civil Relief Act (SCRA). Regulators are looking for adequate financial, staffing, and managerial resources to ensure proper administration of the SCRA.
Regulators are also closely monitoring incentive compensation and sales target practices. Recent regulatory actions are spotlighting how employees are incentivized, and whether there is increased risk of fraud resulting from those incentives.
Concentration management is becoming an area of regulatory concern due to a few factors: the economy’s current placement in the credit cycle, past loan losses and impact on profitability, past history of bank failures, and increasing bank exposure to
CRE. Schreiber recommended active ongoing management of specialty portfolios and lines of business, i.e., energy, being watchful of downgrade trends, and keeping open lines of communication with regulators.
Unsurprisingly, cybersecurity will be an area of emphasis among regulators for the foreseeable future. Schreiber recommended an assessment tool from
FFIEC to enhance an institution’s oversight and management of this ongoing threat.
Please visit www.rmahq.org
for upcoming young professional audio conferences.