Brian Ware, senior vice president of compliance at First National Community Bank ($1.5 billion in assets and based in Dunmore, Pa., not far from Scranton where the show The Office takes place), sees the Dodd-Frank Wall Street Reform and Consumer Protection Act, which President Obama is due to sign today, as having a huge effect on community banks and the way they handle compliance and IT. It will also provide job security for bank compliance officers, he observes. He spoke with us in an interview yesterday afternoon, and he was sharing his personal views rather thank the bank's view.
BS&T: On a scale of 1 to 10, how concerned are you about the Dodd-Frank bill — 10 being completely freaked out and 1 being a shoulder shrug, it's no big deal?
Ware: Personally I'm at about a 7. I think it's going to be far-reaching, but unfortunately I don't think it addresses a lot of the problems that took place in the sector.
BS&T: What are some things that should have been addressed?
Ware: There should be more focus on mortgage brokers and people like that.
BS&T: Especially nonbanks?
Ware: Yes, as opposed to traditional banks. The popular trend is to look at traditional banks, but we're a pretty heavily regulated industry to begin with. A lot of the rules are on the books, it's just a matter of making sure they're followed.
BS&T: I noticed that the mortgage rule changes in the new law are just a reiteration of changes that were already made to existing law several months ago.
Ware: It's true there have been changes, and one is the licensing requirements for brokers. Real estate brokers in the past were largely unregulated, they didn't have the same strictures and guidelines traditional banks are held to. You can see the result.
BS&T: What provisions of the bill do you think will have the greatest impact in banks like yours?
Ware: I work for a traditional community bank, so the addition of regulations and more oversight will be a burden from an administrative standpoint.
BS&T: Do you think you might end up hiring more compliance staff?
Ware: If there's one thing all this legislation has done, it's create job stability for me and my staff. And down the road the Consumer Financial Protection Bureau will expand it much further. There will be a need for people who have experience with banking laws and regulations and practical banking experience to understand them.
BS&T: How many compliance staff do you have now?
Ware: Right now we have about eight people.
BS&T: Are you doing anything yet to prepare for the new law? I know it will be a while before the regulations are completed and handed down to you.
Ware: A lot of it is taking the language in the regulation, comparing that to where we are currently, and seeing where the gaps are. If there are gaps, we're starting to think about them and plan.
BS&T: Can you think of any gaps off the top of your head?
Ware: The main things will be expanded risk assessments and reporting. The need for more documentation of our compliance program will continue. We'll be assessing current processes and looking at what we need to do, such as possibly increased disclosures to customers. Unfortunately, I think the end result will be a longer line at the bank.
Ware: Yes, for opening accounts and things like that. It will be a burden on online banking as well. Under the new regulations, I think it will take a lot longer to open new accounts.
BS&T: Will that put pressure on banks to automate the account opening process, to make it more efficient?
Ware: I think that's the direction the industry is going. Even community banks have been moving from brick and mortar banking and to e-banking. But accelerating that movement does carry risk.
BS&T: By risk, do you mean of phishing and other fraud?
Ware: Sure. Identity theft, phishing and other scams. Unfortunately a lot of people still fall prey to them. I've seen it a few times in my career.
BS&T: Do you think banks will be required to do more to protect customers?
Ware: That's a dicey thing, I'm a big fan of personal responsibility. You're supposed to watch out for yourself. People need to be more aware of the information they provide to third parties. On the other hand, banks are fiduciaries. Our job is to hold customer funds in trust and look out for them, make sure the bank is operating soundly so their investments and savings accounts aren't lost.
BS&T: To what extent do you think the Dodd-Frank bill will impact IT departments?
Ware: There will be expansion. The community banks will probably be the hardest hit. Most community banks have a mix of automated and manual processes, and the push will be for a more automated process. The larger banks are better positioned to run an expanded IT presence and processes.
BS&T: And so many small banks are struggling to be profitable in this recession.
Ware: It's a difficult time right now. A lot of banks and individuals are taking a wait and see approach right now, waiting to see how things are going to shake out, they're not making any major purchases. Banks are still a little tight on lending side, even though interest rates continue to slide.
BS&T: It's a vicious non-cycle.
Ware: You always hear the phrase you have to spend money to make money. Everybody's holding right now. It doesn't seem like there's any momentum.
BS&T: Are there any other laws/regulations that concern you?
Ware: The most concerning was hearing that Dodd Frank was moving forward. My biggest concern is the new Consumer Financial Protection Bureau. I'm personally concerned that it's a needless expansion of bureaucracy. There are already several regulatory agencies overseeing the banking sector. I'm concerned it will be yet another entity we'll have to report to in some way.
BS&T: Do you think the law will make your bank better off in some way, when all the new regulations have been written and implemented?
Ware: Once everything's in place, I think it will be similar to what's happened all along. People will look for ways to game the system. That's why from a compliance standpoint you're never done with your job. Just when you think you have something figured out, someone figures out a way to get around it. It's all about contingencies. You hope you plan for them all, but you almost never do.