8 th Annual Risk Conference Panel 2: Regulatory Policy Moderator - - PowerPoint PPT Presentation

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8 th Annual Risk Conference Panel 2: Regulatory Policy Moderator - - PowerPoint PPT Presentation

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8 th Annual Risk Conference Panel 2: Regulatory Policy Moderator Lamont Black , Assistant Professor of Finance, Driehaus College of Business, DePaul University Panelists Anthony Gibbs , Midwest Regional Director, Consumer Financial

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SLIDE 1

Moderator

  • Lamont Black, Assistant Professor of Finance, Driehaus

College of Business, DePaul University Panelists

  • Anthony Gibbs, Midwest Regional Director, Consumer

Financial Protection Bureau

  • Jame Sloan, Director, Promontory Financial Group
  • Leonard Wiatr, Executive Managing Director & Chief Risk

Officer, PrivateBank

  • Connie Horsley, Assistant Director, Bank Supervision &

Regulations, Board of Governors of the Federal Reserve System

8th Annual Risk Conference Panel 2: Regulatory Policy

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SLIDE 2
  • “Reaffirming Our Foundations:

Risk & Regulation, Culture & Governance”

  • A mix of regulators, consultants, & bankers
  • Major focus in the post-crisis era

– Safety and soundness – Consumer compliance

Panel 2: Regulatory Policy Lamont Black

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SLIDE 3
  • “Reaffirming Our Foundations:

Risk & Regulation, Culture & Governance”

  • A mix of regulators, consultants, & bankers
  • Major focus in the post-crisis era

– Safety and soundness – Consumer compliance

Regulatory Policy

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SLIDE 4

Regulatory Policy

  • 1. Capital

Ratios

  • vs. Stress Tests
  • 2. Consumers Bright Lines vs. Judgment
  • 3. Rules

Simplicity

  • vs. Complexity
  • 4. Bank Size Uniformity vs. Diversity
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SLIDE 5

Re g ula to ry Cha ng e

RE GUL AT ORY CHANGE MANAGE ME NT

Pr e par e d for F e de r al Re se r ve Bank Annual Risk Confe r e nc e

MARCH 31, 2015 L e o na rd Wia tr, Chie f Risk Offic e r

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SLIDE 6

Re g ula to ry Cha ng e

T he Priva te Ba nk a nd T rust Co mpa ny

6

  • $15.6B I

llino is sta te c ha rte re d no n-me mb e r b a nk re g ula te d b y the F e de ra l De po sit I nsura nc e Co rpo ra tio n (F DI C) a nd I llino is De pa rtme nt o f F ina nc ia l a nd Pro fe ssio na l Re g ula tio n (I DF PR)

  • Ho lding c o mpa ny is re g ula te d b y the F

e de ra l Re se rve Ba nk o f Chic a g o

  • Co mme rc ia l Ba nk with 33 stra te g ic a lly lo c a te d o ffic e s prima rily in

the Midwe st se rving the g re a te r Atla nta , Chic a g o , Cle ve la nd, De nve r, De s Mo ine s, De tro it, Gra nd Ra pids, K a nsa s City, Milwa uke e , Minne a po lis a nd St. L

  • uis me tro po lita n a re a s
  • Spe c ia lize d le nding to middle -ma rke t c o mme rc ia l c lie nts with nic he

a re a s inc luding he a lthc a re , se c urity a la rm fina nc e , c o mme rc ia l a nd industria l, a nd a sse t-b a se d le nding

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SLIDE 7

Re g ula to ry Cha ng e

Spe a ke r Bio g ra phy

7

L e n Wia tr jo ine d T he Priva te Ba nk a nd T rust Co mpa ny in 2008. He se rve s a s the Ba nk’ s Chie f Risk Offic e r, o ve rse e ing Co mplia nc e a nd Ope ra tio na l Risk a s we ll a s Cre dit Re vie w. Prio r to jo ining T he Priva te Ba nk, L e n wa s the e xe c utive vic e pre side nt a nd c hie f c o mplia nc e o ffic e r a t L a Sa lle Ba nk Co rpo ra tio n a nd e xe c utive vic e pre side nt a nd de puty c hie f c o mplia nc e o ffic e r a t ABN AMRO No rth Ame ric a .

  • Mr. Wia tr b e g a n his b a nking c a re e r in 1969 a s a na tio na l b a nk e xa mine r with the

Co mptro lle r o f the Curre nc y. He le ft the re g ula to ry a g e nc y in 1981 to jo in the fo rme r F irst Na tio na l Ba nk, Chic a g o (no w JP Mo rg a n Cha se ) a s se nio r le nding

  • ffic e r fo r L

a tin Ame ric a re spo nsib le fo r ma na g ing the Ba nk's L a tin Ame ric a n lo a n po rtfo lio . Mr. Wia tr re turne d to the Co mptro lle rs o ffic e in 1984, rising thro ug h the ra nks to b e c o me e xa mine r-in-c ha rg e in the la rg e b a nk supe rvisio n divisio n. He le ft in 2004 to jo in L a Sa lle .

  • Mr. Wia tr e a rne d his B.S. in b usine ss a nd a dministra tio n fro m St. Jo se ph's Co lle g e . He

is a lso a g ra dua te o f the Gra dua te Sc ho o l o f Ba nking , Unive rsity o f Wisc o nsin, Ma diso n.

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SLIDE 8

Re g ula to ry Cha ng e

Re g ula to ry Cha ng e : Sta te o f Pla y

Ke y Disc ussion Points

  • Re g ula to ry Driving F

a c to rs

  • Ma na g ing Cha ng e
  • Do dd F

ra nk I mple me nta tio n

  • Cha lle ng e s
  • Be st Pra c tic e s

8

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SLIDE 9

Re g ula to ry Cha ng e

Histo ry o f Re g ula to ry Cha ng e

9

1920s – Gr e at De pr e ssion

1980s- 1990s –

Savings & L

  • an

Cr isis Se pte mbe r 11, 2001 2007- 2011 – F inanc ial Re c e ssion

Ba nking re g ula tio ns te nd to fo llo w, in a re a c tive fa shio n, so c io -e c o no mic e ve nts a nd o fte n e nsue pe rio ds o f de -re g ula tio n a nd/ o r funda me nta l shifts in ma rke t disc ipline a t b o th the institutio na l a nd inve sto r le ve ls.

  • Gla ss-Ste a g a ll Ac t
  • Cre a tio n o f

F e de ra l De po sit Insura nc e Co rpo ra tio n (F DIC)

  • F

ina nc ia l Institutio ns Re fo rm, Re c o ve ry a nd E nfo rc e me nt Ac t (F IRRE A)

  • F

e de ra l De po sito ry Insura nc e Co rpo ra tio n Impro ve me nt Ac t (F DICIA)

  • Cre a tio n o f OT

S

  • Unite d a nd

Stre ng the ning Ame ric a b y Pro viding Appro pria te T

  • o ls

Re q uire d to Inte rc e pt a nd Ob struc t T e rro rism (USA PAT RIOT Ac t)

  • Do dd F

ra nk Wa ll Stre e t Re fo rm a nd Co nsume r Pro te c tio n Ac t (~395 rule ma king re q uire me nts; a ppx. 231 fina lize d*)

  • Cre a tio n o f

Co nsume r F ina nc ia l Pro te c tio n Bure a u (CF PB)

*As o f De c e mb e r 31, 2014. So urc e : Da vidPo lk

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SLIDE 10

Re g ula to ry Cha ng e

L a ndsc a pe

10

T

  • da y’ s re g ula to ry c ha ng e s a re no t o nly de sig ne d to pro te c t the sa fe ty a nd

so undne ss o f b a nks a nd the fina nc ia l syste m, b ut a re a lso inte nde d to pro te c t the e nd-use r c o nsume r.

Satisfactory Ratings Capital Asset Management Management Earnings Liquidity Sensitivity to Market Risk Compliance / Consumer Protection Mo rtg a g e L e nd ing & Se rvic ing F a ir L e nd ing (HMDA)/ CRA T IL A / RE SPA T itle VII- De riva tive s(e lig ib ility) BSA / OF AC Stre ss T e sting Ba se l II I / Risk We ig hte d Asse ts Ba se l II I / L CR Bro ke re d De po sit

F DI C, F RB, OCC, SE C, CF T C, CF PB, F inCE N, F I NRA, I RS

Prud e ntia l Sta nd a rd s Inc e ntive Co mp.

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SLIDE 11

Re g ula to ry Cha ng e

Ma na g ing Cha ng e E ffe c tive ly

11

T he b re a dth a nd sc o pe o f re g ula to ry c ha ng e c a n b e da unting , e spe c ia lly whe n a b a nk is sub je c t to re g ula to ry o ve rsig ht fro m multiple a g e nc ie s. E sta b lishing a nd ma inta ining a n e ffe c tive Co mplia nc e Risk Ma na g e me nt Pro g ra m is impe ra tive to the suc c e ss o f a Ba nk in this re g ula to ry e nviro nme nt:

  • E

sta b lish a nd c o mmunic a te Bo a rd a nd ma na g e me nt r

isk appe tite

  • I

nte g ra te c o mplia nc e into da y-to -da y line o f b usine ss pro c e sse s

  • Assig n c le a r ac c o untability fo r ne w a nd e xisting re g ula tio ns
  • E

sta b lish a nd c o ntinua lly re info rc e c o mplianc e c ultur

e

  • Re so lve c o mplia nc e issue s e ffe c tive ly a nd e xpe ditio usly
  • I

mple me nt a n e ffe c tive c o mplia nc e tra ining pro g ra m to b uild a wa re ne ss

  • E

sta b lish o pe n line o f c o mmunic a tio n with e xa mina tio n te a m

  • Pro vide se nio r ma na g e me nt a nd the Bo a rd with fre q ue nt a nd e ffe c tive

r e po r ting and r isk asse ssme nts

  • Appo int kno wle dg e a b le a nd c o mpe te nt c o mplia nc e pro fe ssio na ls

inde pe nde nt o f the line o f b usine ss a nd pro vide to o ls a nd suppo rt fo r e ffe c tive o ve rsig ht o f re g ula to ry c ha ng e

  • I

mple me nt Inte r

nal Audit a nd Co mplia nc e T

e sting

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SLIDE 12

Re g ula to ry Cha ng e

Ma na g ing Cha ng e E ffe c tive ly

12

  • Ide ntify re g ula to ry c ha ng e impa c ting b usine ss a nd imple me nt ne c e ssa ry c ha ng e s to po lic y,

pro c e dure s a nd c o ntro l

  • Ide ntify, mo nito r, ma na g e a nd mitig a te risks re sulting fro m ne w re g ula tio n
  • Pro mo te c o mplia nc e c ulture a nd e nsure a dhe re nc e thro ug h c o mpe nsa tio n a nd c o nsiste nt

me ssa g ing

F ir st L ine of De fe nse (Busine ss Unit)

  • T

ra c k a nd mo nito r pe nding re g ula to ry c ha ng e s

  • Co o rdina te c ha ng e ma na g e me nt with the b usine ss unit
  • Pro vide te sting to va lida te the e ffe c tive ne ss o f c ha ng e s a nd the susta ina b ility o f

c o mplia nc e initia tive s

  • Ide ntify de fic ie nc ie s a nd wo rk with se nio r ma na g e me nt to mitig a te / re me dia te
  • L

ia iso n with re g ula to ry a g e nc ie s

Se c ond L ine of De fe nse (Complianc e )

  • E

nsure re g ula to ry c ha ng e s ha ve b e e n ide ntifie d a nd inc o rpo ra te d into b usine ss

  • Mo nito r o ng o ing c o mplia nc e

T hir d L ine of De fe nse (Inde pe nde nt Audit)

While a Ba nk’ s Co mplia nc e , Risk, a nd L e g a l de pa rtme nts ma y pla y a c ritic a l ro le in inte rpre ting a nd imple me nting re g ula to ry c ha ng e , a c c o unta b ility fo r c o mplia nc e risk must b e c le a rly a rtic ula te d:

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SLIDE 13

Re g ula to ry Cha ng e

Ba nk’ s Ro le with I mple me nta tio n

13

Ba nks do n’ t just pla y a b a c k-se a t ro le in re g ula to ry c ha ng e . I t is c ritic a lly impo rta nt fo r fina nc ia l institutio ns to no t o nly mo nito r re g ula to ry c ha ng e , b ut a lso to pa rtic ipa te in the de ve lo pme nt a nd re fine me nt o f rule s.

  • Ac tive ly pa rtic ipa te in industry g ro ups
  • Re vie w pro po se d rule s a nd pro vide c o mme nt le tte rs
  • E

ng a g e prude ntia l re g ula to rs

  • Se e k c la rific a tio n thro ug h fo rma l a nd info rma l c ha nne ls
  • Be nc hma rk with o the r fina nc ia l institutio ns
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SLIDE 14

Re g ula to ry Cha ng e

Do dd F ra nk – Co nsume r Pro te c tio n

14

T ruth in L e nding Ac t/ Re al E state Se ttle me nt Proc e dure s Ac t (T IL A/ RE SPA) Inte grate d Disc losure

▪ Co mb ine d multiple e a rly d isc lo sure s into o ne

fo rm a s we ll a s multiple c lo sing d isc lo sure s into

  • ne fo rm

Re gulation E

  • Re mittanc e T

ransfe r

▪ Pre - a nd po st-tra nsa c tio n d isc lo sure

re q uire me nts; e rro r re so lutio n a nd c a nc e lla tio n rig hts

Re gulation Z - Ability to Re pay (AT R) and Qualifie d Mortgage (QM)

▪ Pre sc riptive und e rwriting sta nd a rd s; impo sitio n

  • f c o nsume r fo re c lo sure a nd re c o ve ry rig hts

a nd b a nk pe na ltie s

T e c hno lo g y impa c t, ve nd o r e ng a g e d , inc re a se d c o st fo r c o mplia nc e , d isc lo sure s Re fine d pro d uc t o ffe ring , c ha ng e d und e rwriting pro c e ss, c lie nt impa c t (e xte nsive suppo rt a nd d o c ume nta tio n), HE L OC to HE L O c ha lle ng e s, se c o nd a ry ma rke t re purc ha se risk

I n pro c e ss

T e c hnic a l c a lc ula tio ns, impa c t to to le ra nc e thre sho ld s, re lia nc e o n third -pa rtie s fo r a c c ura te fe e s, re lia nc e o n “b e st e stima te ”

I mple me nte d I mple me nte d

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SLIDE 15

Re g ula to ry Cha ng e

Do dd F ra nk – Co nsume r Pro te c tio n

15

Se rvic ing Ame ndme nts unde r T IL A and RE SPA

▪ Ne w pe rio dic sta te me nt; pre sc riptive no tic e o f

e rro r a nd re q ue st fo r info rma tio n re spo nse time fra me

Appraisal Re quire me nts & Risks

▪ Re g B – impa c ts a ll first lie ns o n sing le fa mily

d we lling s. Re q uire s d isc lo sure a t a pplic a tio n a nd d e live ry o f a ppra isa l pro mptly upo n c o mple tio n.

▪ Re g Z – re q uire s a ppra isa l fo r Hig he r pric e d mo rtg a g e

lo a ns a nd se c o nd a ppra isa l fo r “flippe d ” pro pe rtie s

L

  • an Originator Compe nsation

▪ Ame nd s Mo rtg a g e L

  • a n Orig ina to r (ML

O) c o mpe nsa tio n re stric tio ns; pro hib its pa yme nt b a se d o n te rms o f tra nsa c tio n; re stric ts c o mpe nsa tio n b a se d o n a c tivity

Imple me nte d a s b e st pra c tic e , no twithsta nd ing sma ll se rvic e r e xe mptio n; o ng o ing mo nito ring

  • f po rtfo lio size , c e ntra lize d

wo rkflo w Applie s to c o nsume r and c o mme rc ial lo a ns; d isc lo sure s, a nd a ppra isa l risk pro c e sse s impa c te d Ca n sa y/ c a n’ t sa y tra ining a nd a wa re ne ss, c o mpe nsa tio n impa c t (HR), c ha lle ng e to ma inta in c e ntra l “re la tio nship” mo d e l

I mple me nte d I mple me nte d I mple me nte d

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SLIDE 16

Re g ula to ry Cha ng e

PVT B Appro a c h – Do dd F ra nk

16

  • Do dd F

ra nk Supe rviso ry Pa ne l a nd Cro ss-De pa rtme nta l Co lla b o ra tive Wo rkstre a ms

  • T

hird-pa rty ve ndo r e ng a g e d to fa c ilita te re -de sig n o f pro c e sse s a nd fo rma lizing pro c e dure s to de mo nstra te c o mplia nc e

  • Applic a b ility – Re g ula tio n vs E

xa mina tio n

  • E

ve n whe n re g ula tio ns pro vide te c hnic a l c a rve -o uts o r vo lume -b a se d e xc e ptio ns, it is a b e st pra c tic e to re vie w the re g ula tio n a nd a do pt, to the e xte nt a pplic a b le , c o nsume r pro te c tio ns

  • Pr

e sumptio n o f applic ability

  • E

xa mple s - Re mitta nc e T ra nsfe r a nd Se rvic ing

  • Qua lity Assura nc e
  • Give n so me o f the mo re te c hnic a l c o mpo ne nts o f Do dd F

ra nk a nd imple me nting re g ula tio ns, the Ba nk c re a te d multiple la ye rs o f q ua lity a ssura nc e (1st, 2nd a nd 3rd line s o f de fe nse ) to e nsure susta ina b le a nd

  • ng o ing c o mplia nc e
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SLIDE 17

Re g ula to ry Cha ng e

Cha lle ng e s

17

  • While ma ny tra ditio na l A-Z re g ula tio ns g e ne ra lly a pply e q ua lly a c ro ss

b a nking o rg a niza tio ns, ma ny o f the ne w re g ula tio ns unde r Do dd F ra nk va ry b a se d o n the c o mpo sitio n o f the Ba nk:

  • Co mple xity o f the o rg a niza tio n, pro duc ts a nd se rvic e s,

inte rc o nne c te dne ss, c ritic a lity o f func tio ns

  • Asse t Size
  • Va rie d te rmino lo g y to a pply rule s a nd e xe mptio ns: >$50B, sma ll b a nks

(<$10B), syste mic a lly impo rta nt fina nc ia l institutio n (SI F I ), to o b ig to fa il, c o mmunity b a nking , la rg e b a nk (>$10B), ma rke t ma ke r, e tc .

  • Re g ula to ry Unc e rta inty
  • I

nno va tio n c a n b e stifle d whe n re g ula tio ns a re unc le a r o r a pplie d inc o nsiste ntly

  • Re g ula to r Ma tte rs
  • Pe rso na l Ac c o unta b ility & I

mpa c t o n T a le nt Po o l

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SLIDE 18

Re g ula to ry Cha ng e

Co st o f Co mplia nc e

18

  • Syste m E

xpe nse s

  • Cha ng e s to e xisting syste ms o r re q uire d imple me nta tio n o f a ne w

syste m

  • Da ta ne e ds
  • T

hird Pa rty Risk Ma na g e me nt

  • Applie s to c o nsulta nts a nd ve ndo rs
  • I

nfo rma tio n T e c hno lo g y, c o mpla int ma na g e me nt, c usto me r impa c t

  • He a dc o unt
  • De ve lo pme nt o f ne w/ re vise d po lic ie s a nd pro c e dure s
  • Ong o ing c o mplia nc e re q uire me nts
  • Qua lity a ssura nc e a nd va lida tio n o f ne w c o ntro ls
  • Custo me r/ E

mplo ye e T ra ining a nd Awa re ne ss

  • Custo me r no tific a tio n
  • Re q uire d Re g ula to ry F

iling s

  • L

e g a l E xpe nse

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SLIDE 19

Re g ula to ry Cha ng e

Be st Pra c tic e s

19

Se le c t a n imple me ntation mode l tha t fits yo ur o rg a niza tio n

▪ Who le a ds c ha ng e

ma na g e me nt (c o mplia nc e , b usine ss unit, le g a l, pro je c t ma na g e r, c o nsulta nt)?

▪ Are yo u a n e a rly a do pte r? ▪ Do e s the ne w

c o mplia nc e c o st e ro de o r

  • utwe ig h pro fita b ility?

▪ E

va lua tio n o f he a d c o unt?

▪ Do e s the ne w/ e vo lving

risk impa c t risk a ppe tite ?

E sta b lish auditable proc e ss

▪ Pro c e ss sho uld inc lude

a ppro pria te c o ntro ls, c he c ks a nd b a la nc e s.

▪ E

nsure tra ining a nd a wa re ne ss to impa c te d sta ff.

▪ Upda te po lic ie s,

pro c e dure s a nd pro c e sse s.

▪ Whe re ne c e ssa ry,

e sta b lish ma na g e me nt a nd Bo a rd re po rting .

▪ Upda te risk a sse ssme nts.

Pe rfo rm ongoing monitoring

▪ Whe re a pplic a b le ,

imple me nt Co mplia nc e te sting .

▪ Mo nito r fo r a dviso ry

  • pinio ns, F

IL s, a nd o the r g uida nc e tha t ma y c la rify re g ula to ry c ha ng e .

▪ T

ra c k a nd e va lua te

  • ng o ing c o st o f

c o mplia nc e .

Be pre pa re d to

de monstrate c omplianc e ▪ Inde pe nde nt Audit ▪ Re g ula to ry E

xa mina tio ns

▪ SOX a nd fina nc ia l

re po rting

▪ Bo a rd a nd Se nio r

Ma na g e me nt Re po rting (whe re a pplic a b le )

I n o rde r to a ddre ss c ha lle ng e s a sso c ia te d with re g ula to ry c ha ng e , it is impo rta nt to pro a c tive ly a ddre ss yo ur imple me nta tio n mo de l, a nd e nsure a ppro pria te pa rtie s a re a c c o unta b le fo r unde rsta nding a nd imple me nting the c ha ng e s.

slide-20
SLIDE 20

Re g ula to ry Cha ng e

20

slide-21
SLIDE 21

Regulatory Policy

  • 1. Capital

Ratios

  • vs. Stress Tests
  • 2. Consumers Bright Lines vs. Judgment
  • 3. Rules

Simplicity

  • vs. Complexity
  • 4. Bank Size Uniformity vs. Diversity