Jeff Judy

Jeff's Thoughts - December 4, 2013

Survey Shows Shifting Attitude Toward Regulation

I read with interest the results of a recent survey of community banking CEOs conducted by international audit and consulting giant KPMG. (If you haven't seen it, you'll find links to more information and to a downloadable summary below.)

The survey was completed by just over 100 CEOs and senior executives in community banking. In general, expectations were positive. For instance, 85% expected their revenue to increase by the end of next year.

And one of the survey results I found most interesting -- and most positive -- was the attitude of respondents toward regulation and legislation.

In their 2012 survey, when asked about barriers to growth in the next year, 47% pointed to regulatory and legislative pressures as the most significant barrier. And 27% of these executives said that navigating regulatory change would be a top initiative for 2013.

But just a year later, the number of executives that thought navigating changes in the regulatory environment would "consume the most time, energy, and resources" had dropped to 15%. As a barrier to growth, regulatory/legislative factors still ranked high -- 42% of respondents ranked that as the most significant barrier to growth. But that, too, was a decrease from the response a year earlier.

What I make of this is that it is one thing to recognize an obstacle, and another to respond effectively to that obstacle.

Regulatory and legal constraints will always be a challenge for our industry, and there's little doubt that the business of banking would be easier, and more profitable, if those constraints were eased. It makes perfectly good sense to advocate for regulatory change. I wouldn't recommend that any institution or industry group lie down and let the political and regulatory process go unchallenged when it hurts the industry or the institution.

But that's different from blaming the altered regulatory environment for lack of success. The regulatory environment is just a condition of doing business, and you are well aware that unfavorable changes in business conditions happen all the time.

Perhaps a major employer, a factory or ethanol plant or paper mill or big box retailer, leaves your market. You could spend a lot of time complaining about the closure, or trying to change the employer's mind. But a smart bank immediately identifies the ripple effects and prepares to deal with them.

That's what good banks have learned to do in the regulatory arena. That drop in the perceived "time-consuming" impact of regulation on management attention suggests that many banks have accepted that regulatory changes are here to stay, and that dealing with them, just as they would deal with any other change in business conditions, is the best strategy.

You may well believe that many regulator opinions and actions are unfair and unreasonable. At the same time, your best competition is spending less time and energy confronting regulation. They are learning to work within the new environment to build their revenues.

And they will enjoy a significant advantage over rivals who want to live in the past and to return to the way things were. Business conditions of all kinds, including regulation, change, sometimes abruptly and significantly.

Time to deal with it. Indeed, if you are better at coping with the new landscape than are your competitors, the change in business conditions represents not just a challenge, but an opportunity.