Goldilocks Conundrum: Banks today have to try out different options before they know what size is just right, writes Frank Sorrentino, the chairman and chief executive of ConnectOne Bank in Englewood Cliffs, N.J. Large banks are pulling out of unprofitable markets and selling off business units, while smaller banks are consolidating to cope with expensive regulatory requirements and keep pace with technology. With bank size in a state of constant fluctuation, Sorrentino suggests it would make more sense to regulate financial institutions by their complexity. That idea was panned by reader "djmerkel," who writes, "Most failures happen because of asset-liability mismatches, and next is taking too much credit risk. Regulate those strictly." But the pitch resonated with the American Bankers Association's Wayne Abernathy. Regulation that allows for fluidity and restructuring would create "a banking industry that meets the purposes for which banks are chartered," he writes.
Man versus Machine: In the age of high-tech underwriting techniques, how much is subjective human data analysis really worth? Plenty, according to a study by doctoral economics student James Wang. He arrived at this conclusion after examining the loan and repayment information of 32,000 borrowers at a Chinese lender between 2010 and 2013. The study compared the performance of loans reviewed by loan officers against the decisions that a computer algorithm would have made using only hard data. The result: "The average loan officer contributes three times his or her annual pay in additional profits each year."
Also on the blog: Alternative online lenders are growing fast, but they'll have to clear a number of hurdles to sustain themselves, writes Kenneth A. Posner, chief of strategic planning and investor relations at Capital Bank Financial Corp. and a former Wall Street analyst.
Customers often blame banks for data breaches even when retailers are the ones at fault, writes Kevin Tynan, senior vice president of marketing at Liberty Bank in Chicago. That's why banks need to have a marketing strategy in place that will help them do damage control when hackers strike.
When banks treat cybersecurity compliance as a check-the-box exercise, they leave themselves wide-open to trouble, according to technology risk consultant Ryan Elmer. One big issue: many banks carry insurance policies that fail to protect them if corporate account takeovers occur on a customer's network.
BankThink contributors have a few suggestions for lawmakers now that a new Congress is in session. Jay Brinkmann, former chief economist with the Mortgage Bankers Association, recommends that Congress break the daunting task of reforming Fannie Mae and Freddie Mac into more sizable goals. Eric Grover, a principal at Intrepid Ventures, says lawmakers should start curbing the powers of the Consumer Financial Protection Bureau.
Security researcher Cameron Camp warns that EMV cards are hardly a foolproof way to block hackers and thieves. And Nick Bergiadis, chief executive of online mortgage origination firm Listoda, suggests that the mortgage industry embrace green energy and start letting homeowners finance the purchase of rooftop solar systems into their mortgages.
Got an informed opinion on the business of banking? Submit to BankThink. Full submissions guidelines are available here.
