In a turbulent sea of increased compliance, the Federal Deposit Insurance Corp. is throwing small banks a lifeline.
In rules finalized at the close of 2016, the FDIC is expanding the number of banks and savings associations qualifying for an extended examination cycle, moving exams to 18 months apart from every 12 months.
While a six-month extension might not seem like a big change, local bankers say it will add up in staff time.
“(It) decreased time and expense associated with pre-exam preparation and the on-site exam,” said Robin Robeson, chief operating officer for Guaranty Bank, via email. “Previously, within a three-year period of time, we would have had three exams. Under the current rule, we will have two exams every three years.”
The FDIC rolled out the change in a set of interim rules released Feb. 29, 2016, and Robeson said Guaranty Bank recently completed its first exam under the new cycle.
The original directive for change came from an unlikely place: a transportation bill passed by Congress in late 2015.
According to the U.S. Department of Transportation Federal Highway Administration, the Fixing America’s Surface Transportation Act – known as the FAST Act – was the first federal law in over a decade to provide long-term funding certainty for surface transportation infrastructure planning and investment. It authorized $305 billion over fiscal years 2016 through 2020.
In a moment of potential crisis, Congress also tacked on a couple of financial industry changes, the largest of which was the reauthorization of the Export-Import Bank of the United States through 2019.
Under new rules “qualifying well-capitalized and well-managed banks and savings associations” with less than $1 billion in total assets are eligible for the extended cycle. According to the most recent data from the FDIC, as of June 30, 2016, Guaranty Bank had $681 million in total assets. That put it with more than 600 new qualifying banks, taking the total to roughly 4,800 under the new rule nationwide.
Previously, only firms with less than $500 million in total assets were eligible for the extended cycle, such as First Home Bank with its $220 million in total assets.
“We’ve been on the cycle for a couple years and it really has reduced the amount of time we’ve had to spend doing prep work,” said Joe James, executive vice president and senior lending officer at First Home. “There is some direct correlation to cost, but it would be hard to pinpoint those numbers. Mostly, it comes in staff time not having to keep tabs on so many items.”
Guaranty’s Robeson said decreased staff time, however, does not equate to less manpower needed for compliance by the bank and the exams are not a separate budgeted expense.
“While manpower needed for compliance is driven by regulatory requirements, an exam and the necessary compliance manpower are for the most part unrelated,” she said. “Preparation for an exam is additional duties for staff. It is to be completed in addition to all other required duties for the staff involved.”
The FDIC Safety and Soundness Examinations are just one ship in the compliance sea. Springfield First Community Bank Chief Financial Officer Kirk Bossert said other exams come from the Missouri Division of Finance – also on an 18-month cycle – and a consumer compliance exam every three years, as well as other independent reviews such as audits.
“From a bank point of view, these exams are labor intensive. They give you a laundry list of things to prepare for, the bank has about 30 days to comply and they are on-site for two or three weeks,” he said. “That starts the process at about 10 months, not a year. Well, not a lot has changed in 10 months. The 18-month cycle gives us breathing room.”
Springfield First’s most recent assets, according to the FDIC, totaled $481 million, making it eligible under the old rule. However, because the bank was formed in 2008, it fell under a separate set of rules requiring annual examination of new banks for the first seven years. Bossert said the upcoming exam series would be its first on the 18-month cycle. Bossert was unable to pinpoint cost savings for the bank, but said the move is a boon to the industry overall.
“Now, you’ve got about 80 percent of banks on this cycle,” he said. “That’s easier for us, it’s easier for the FDIC and it can let us concentrate more on banking.”
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