2019 Journal of Community Bank Case Studies

Eastern Kentucky University

SECOND PLACE:

Core deposits increased $26,290,000 but large time deposits decreased by almost $20,000,000. Investment assets decreased by $15,180,000 from 2017 to 2018. Kentucky Bank held an additional $31,262,000 in fully insured brokered deposits at year-end 2018 over year-end 2017 to offset the difference in loan growth and decrease in deposits. Part II: Regulatory Compliance/ Burden Assessment Like most community banks, Kentucky Bank is burdened by the additional compliance resources required to comply with the new regulations resulting from Dodd Frank. Kentucky Bank created an Infograph that visualizes the impact of all regulations on its bank operations (Figure 1). The infograph shows the complexities of multiple regulators and regulations explaining how small changes within a process require detailed consideration. For Kentucky Bank, the most burdensome Dodd Frank rules were TILA-RESPA Integrated Disclosure Rules (TRID), the Home Mortgage Disclosure Act (HMDA) and customer due diligence (CDD). Kentucky Bank considered these three rules the most challenging when serving customers. During an interview, Kentucky Bank Chief Operations Officer Jim Braden stated that at the end of the day, it comes down to how the customer experience has been impacted (Braden). When discussing bank regulation, Kentucky Bank President Louis Prichard shared concerns that customers have to go through a lot more to conduct business than they have in the past.

“We understand the balance of regulation and customer experience, but I can say that the bottom line customer experience has not been enhanced at all by regulation” (Prichard). A result of sections 1098 and 1100A of the original act, TRID is connected to both Regulation Z and Regulation X, each known respectively as the Truth in Lending Act and the Real Estate Settlement Procedures Act. In essence, TRID is the combination of these two acts. In its integration, the “final rule” was meant to consolidate disclosures required by TILA and RESPA. Prior to Dodd-Frank, these two disclosures were required around closing time of the loan. The loan estimate and closing disclosures were meant to be simplified for both the financial institution and the customer. However, while it combined those disclosures, TRID also required additional disclosures (TILA-RESPA). According to Kentucky Bank, TRID increased the borrowers’ cost of taking out a single-family mortgage loan. Closing time for these loans increased due to the change in disclosures. Kentucky Department of Financial Institutions Commissioner Charles Vice emphasized how TRID affected most community banks in the state. Like Kentucky Bank, most banks were forced to alter forms and processes. “Any kind of change whatsoever, in either statute or regulation, has a ripple effect on banks” (Vice). TRID-a regulation intended to simplify a process—resulted in unintended consequences of requiring more from employees and customers to complete disclosures. It also impacted other aspects of banking. COO Jim

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