A couple of days ago banking’s grand poo bah, Frank Keating, chief executive of the American Bankers Association, appeared on Bloomberg TV to rail against the regulatory burden on banks nationwide.
Keating argued that banks deserve “balanced, nuanced” regulatory compliance that does not upend their economic prospects, particularly for smaller community banks.
What’s missing from Keating’s argument is a call for balanced, nuanced regulatory compliance that is technology-oriented. Let me explain.
The credit crisis taught us that lax regulatory oversight is not necessarily a benefit to banks. However, irrational, wild-eyed regulatory compliance is not either. Consider the Operation Choke Point lawsuit currently in federal court. That lawsuit — filed by Community Financial Services Association of America, a trade group for payday lenders, and Advance America, which is one of the nation’s largest payday lenders — alleges that regulators pressured banks to avoid working with law-abiding payday lenders. No matter what the outcome of the trial, I have little doubt that at least some regulators are guilty as charged.
Yet, calling for regulators to adopt a more reasonable approach rings hollow without the technology bent. It is untenable to argue for a laxer regulatory regime. Regulatory compliance is less onerous on consumers when it is executed in a more efficient manner — and that means by leveraging technology.
Yesterday, Continuity Control received $10 million of funding. The funding round is significant because Continuity specifically provides technology for bank regulatory compliance. Continuity Control a few months back told Phil Ryan, my colleague here at Bank Innovation, that when regulators come to a community bank that utilizes Continuity Control, they are relieved because they know the bank’s regulatory compliance will be undertaken in a competent manner. I cannot vouch for the quality of Continuity Control’s technology, but I can say that for some banks any technology is better than the manual-oriented approach some cling to. And even the most advanced banks should be pushed to improve the technology that allows for sound regulatory compliance. That “10% to 20%” of the operating budget that Keating says goes to regulatory compliance at some banks today could decline as a result. Wouldn’t that be grand.