Joe Wheeler has spent more than two decades in the financial services industry, much of that time helping community banks to craft strategic plans, while at the same time incorporating risk management and regulatory considerations into the strategic equation.
In a recent article on the web site cbinsight.com, Wheeler tosses an interesting ingredient into the risk management cauldron – political risk. Wheeler argues that in the volatility that has marked this election cycle, community banks must consider political risk and regulatory possibilities as they plan strategically for the future. And that planning must be happening now.
It’s important first to define political risk. Wheeler defines it as “the adverse effects that could arise from political or governmental changes, including changes with policy makers, legislators and other elected officials.” He adds, “In such a turbulent election year as this, risk and strategic planning are critical.”
Here are some of Wheeler’s key points:
- Political risk extends beyond an individual regulatory agency, an individual bill, or party affiliation. Government decisions can affect a community bank’s operations and bottom-line performance.
- Successfully navigating the churning waters of political risk requires forward-thinking management strategy that requires building relationships with local, state and national governmental leaders and agencies.
- It’s critical for community banks to identify the risks involved in a given piece of legislation or proposed regulation. Compliance is important to be sure, but it’s also important to influence legislation from inception. Doing this on the front end, Wheeler argues, makes compliance easier on the back end.
- “Mitigating political risk is a marathon, not a sprint,” Wheeler writes and a team effort is critical. Assign someone high up the ladder to take responsibility for this, but engage senior management, the board of directors and we would add all employees. You must communicate clearly how a proposed law, rule or regulation will help or hurt your institution and its ability to serve customers.
- Political risk must be considered when evaluating what Wheeler calls SWOT – strengths, weaknesses, opportunities and threats as they relate to strategic planning. While certain rules or legislation may be seen as a threat, they also can be seen through an opportunity lens, a chance to positively impact the legislation through relationships with decision makers. Government actions must be considered in strategic plans.
A key point: This isn’t simply about politics, Wheeler writes. It’s about “promoting, defending, defining and implementing your strategic plan and mitigating possible risks”. We would also argue that it’s also about defending your institution’s ability to effectively serve your community. Use your state banking association as a starting point and get involved. Mitigating political risk cannot be accomplished with a “Lone Ranger approach.” As Wheeler rightly notes, “There is strength in numbers. Be heard.”
Wheeler closed his thought-provoking piece with a quote from FDIC Chairman Martin J. Gruenberg: “It is important that the narrative about community banks be balanced and positive. The narrative should recognize the critical importance and substantial strengths of community banks in the United States…”
Make sure political decision makers know your bank’s importance and its strengths. As Wheeler said: Be heard.
Read the complete article HERE.
Decision 2016: The candidates and community banks
The hottest watercooler topic from now until November is and will be the race for the White House. BankMarketingCenter.com focuses on exactly that – bank marketing. But with the importance of the election and its potential impact on the financial services industry, it’s important to know the views of each candidate on issues related to banking. We will examine the views on community banking issues of presumptive Democratic nominee Hillary Clinton and the presumptive Republican nominee, Donald Trump. The online site ballotpedia.com, which has exhaustively examined the records and platforms of the candidates, provided thumbnail sketches of the candidates’ positions.
Under criticism from Sanders, the former Secretary of State defended speaking fees that she received from Wall Street firms, pointing out that she also spoke to cardiologists and groups like the American Camping Association. She also contends that she went to financial leaders before the crash and warned of the dangers of subprime mortgages. She also claims that she was an early voice calling for the creation of a consumer protection financial bureau.
Clinton is a defender of Dodd-Frank and defended President Obama’s policies to regulate the financial services industry.
- Large banks will be allowed to fail if a financial crisis hits during a Clinton presidency. In an interview on CBS, Clinton said, “First of all, under Dodd-Frank, that is what will happen because we now have stress tests and I’m going to impose a risk fee on the big banks if they engage in risky behavior, but they have to know, their shareholders have to know that yes, they will fail.”
She added that large banks “may have to be broken up.”
- In an opinion piece last October, for Bloomberg News, Clinton outlined her plan to avoid another financial crisis. She called for greater accountability, simplifying financial institutions and reducing risk and continuing support for Dodd-Frank. She contends this will foster growth on Wall Street.
The New York billionaire called Dodd-Frank “terrible” and called for its repeal.
“Under Dodd-Frank, the regulators are running the banks. The bankers are petrified of the regulators. And the problem is, the banks aren’t loaning money to the people who will create jobs”, Trump said.
- Trump believes the low interest rates set by the Federal Reserve were good for him as a businessman, but he’s concerned that the low rates are creating a bubble.
“From the country’s standpoint, I’m not sure it’s a very good thing,” Trump told Bloomberg News.
- In general, Trump supports the Obama administration’s policies concerning financial institutions in trouble.
“I’m not saying I agree with everything (Obama’s) doing,” Trump said. “I do agree with what they’re doing with the banks. Whether they fund them or nationalize them, it doesn’t matter, but you have to keep the banks going.”
Trump is concerned about what will happen to interest rates and inflation going forward, because of money the government has pumped into the economy.
- Trump called the 2008 bailout of banks “a very sad period of time for this country.” However, he said, “It’s something that has to get done, because your financial system is most likely going to come to a halt if it does not.”
Ballotpedia.org is a non-partisan online encyclopedia of American politics and elections. See more about the candidates and their positions on the issues at www.ballotpedia.org.
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