“Do you ever walk alone?
Like a drifter in the dark
Seeking out what isn’t there
Looking only for a spark”
Drifter In The Dark
–Gene/Dean Ween
Bank Fuzz, Brother Johnson and I have been pretty tough on you lately. GonzoBankers, the Feds can’t get their act together on how to enforce some new regs meant mainly to protect the public. That chaos has caused a lot of bitter unrest and cost a lot of money at virtually all of our clients, so we had to call the Feds out on that. Had to. The problem has been with that whole “spirit of the law” thing. Bankers aren’t getting direct or consistent enough advice to comply even with the sprit of the law, much less the letter of the law, when it comes to BSA, Anti-Money Laundering, Multifactor Authentication, etc.
But we’re going to put that behind us now. After all, the Feds are trying to enforce laws enacted by fat cat attorneys, most of whom have never stepped into the lobby of a bank, much less gauged an opinion or two from community bankers or board directors. Regulators are going to get their act together; it’s a matter of time. And banks are going to get it right as a result, and the end product will be better security and privacy for consumers, more sensible, actionable data for law enforcement and the regulators, and improved risk management at the banks.
“It’s gonna be alright, baby
It’s gonna be alright, love
And if the mist ever lets the sun through
I’ll just hope I did the right thing for me and you”
It’s Gonna Be (Alright)
–Gene/Dean Ween
Let’s think back a decade-and-a-half or so. Back then, CRA/Fair Lending was the ultimate whipping boy of all regulations. The basic premise was insulting to banks – don’t be jerks, lend to the same people from whom you collect deposits, and don’t make biased lending decisions. You see, banks had a pretty good notion that they were already following those rules, and the vast majority of them were. Now the banks had to jump hurdles to prove it. At first, the Feds (myself included, at the time) had no idea how to make the crucial judgment calls that meant compliance or noncompliance at the banks they supervised. And that compliance or noncompliance call played a starring role in a bank’s ability to merge, acquire and branch. It was a verifiable mess until fairly recently. It still is far from perfect, but at least now both the Feds and the banks are operating from the same general playbook. And you know, some good has come from it.
Here’s an example – Wainwright Bank & Trust Company (NASDAQ: WAIN) of Boston. Wainwright is a walking, talking example of what can happen on the radically positive side of CRA and Fair Lending implementation. By just about any definition you can muster, Wainwright is among the most socially progressive banks in the country, but it’s not what many would refer to as just a “CRA Bank.” It’s a real, breathing bank with checking accounts, CDs, car loans, business loans and probably even a self-important HR director!
However, Wainwright Bank has taken the social responsibility niche to a new level. According to an August 18, 2006 Wainwright press release, “over 40% of the bank’s commercial loan portfolio is dedicated to local social justice initiatives including affordable housing, homeless shelters, HIV/AIDS services, community health centers and environmental protection.” This has amounted to loan commitments of more than $500 million to these types of projects over the past 10 years.
Wainwright’s operating philosophy as defined on its Web site is based on seven basic issues. Here is a list of those issues and a few of the many examples of how this bank has turned pie-in-the-sky philosophy into concrete assets:
Agree with it or not, it’s not too shabby a way of executing on a concept, eh? And these are just a few of the ways that Wainwright has carved out a sustainable niche for itself. A visit to www.wainwrightbank.com will demonstrate that this bank is the recipient of multiple awards for its operating practices and the way it treats its employees, stockholders and the community that it serves.
Strategic planners out there – still searching for a good example of a niche other than “superior customer service”? Take note, commercial lenders complaining about the lack of a C&I market out there. Wainwright lends to its deposit base, and it creatively lends where there is demand in its market. This is the stuff of Marketing 101. It’s also the stuff of CRA/Fair Lending 101. It’s not for everybody and I’m not saying we’re looking at a direct cause and effect relationship, but it sure is a great example of translating regulation into a niche.
I hear you GonzoDoubters already. “Yeah, Wainwright’s ‘progressive,’ but I bet they’re losing their shirt in the process.” Not so. Wainwright has respectable if not stellar performance numbers. Take a quick look at the bank’s 2Q06 performance versus peers:
|
Wainwright Bank |
Commercial Banks |
|
| NIM |
3.79% |
4.28% |
| ROA |
0.84% |
1.21% |
| ROE |
10.37% |
11.83% |
| Charge-offs to Loans |
0.00% |
0.17% |
| Efficiency Ratio |
70% |
58% |
| Assets per Employee |
$4.74 million |
$3.56 million |
| Loans/Deposits |
99% |
87% |
| Total Risk-Based Capital |
11.76% |
13.35% |
| C&I Loans/Assets |
10.76 |
10.78 |
Source: FDIC, June 2006
No, the bank isn’t satisfying the hard core, short-term return junky, but Wainwright is delivering some pretty impressive numbers given that profit is only one of the bank’s two “bottom lines.”
Not every bank can or should want to operate Wainwright’s model. Many of you may not even agree with some of the decidedly lefty tenets of Wainwright’s philosophy. But you have to admit, Wainwright is a shining example of putting “the spirit of the law” into motion.
I find scaled-down versions of thoughtful, community-enriching “CRA projects” at just about every bank I visit. These bankers are proud of what they’re doing and how they’re helping their communities and customers – not just relieved to be getting CRA credit. If you would have asked these same bankers 10 or 12 years ago what they thought about the prospects of CRA and Fair Lending actually helping their bank’s reputation, much less their bottom line, they would have beat you like a rented mule.
My point is that there is hope out there for those of you who just hired your eighth BSA analyst only to be scolded for having an inadequate action plan. If you just cut a six figure check for a double secret triple authentication software package only to get your knuckles crushed for having a shaky risk analysis, keep it together. It’s going to get better, and we’re all going to be better off over time. No one is suggesting a hand-holding belting out of “Kumbayah” at your next Bank Fuzz exit meeting, but it’s going to get better…..
“Ocean man, take me by the hand, lead me to the land
that you understand.”
Ocean Man
–Gene/Dean Ween
And before the emails pour in…No, Wainwright is neither a client nor a prospect of Cornerstone’s. No customer buttsmoochio here (this time). No one here at Cornerstone has invested in Wainwright, and I don’t think we’ve ever even sent them a proposal! Just so you know…
–smh