2024 Journal of Community Bank Case Studies

SECOND PLACE: University of Illinois Springfield

Regulatory Risk In the aftermath of any crisis or disaster, there are sure to follow laws and regulations designed to protect the public and ensure that said crisis never occurs again. This one will likely be no different, and the INB team has noted that there has been a renewed focus on the deposit side of things since the crisis. Historically, there has been a lot of regulatory attention on loans, but they expect regulations will come out in the coming years that will require them to track and report on the risk rating and composition of liabilities, especially deposits, with the same degree of granularity currently applied to the asset side of the balance sheet, specifically the loan portfolio. The INB team notes that since the 2008 crisis, INB has kept in close contact with their examiners, the OCC. They keep open lines of communication to ascertain what the examiners are focusing on. INB also keeps in contact with peer banks, and as inspections rotate between banks, they can share information between themselves as to what to expect from upcoming examinations. This proactive approach to coming regulations and regulatory attention helps INB mitigate its exposure to regulatory risk. Donovan points out that new regulations will create both a burden and an opportunity for community banks. While the regulatory burden can be proportionally larger on smaller banks that do not have the resources to dedicate to complying with increased regulations, often regulations are lighter on smaller banks due to the lessened risk they present to the macro

environment. This can present opportunities. Donovan gives one example of banks that are “kicking out” customers that may represent volatile or risky deposits. Some of these customers have had accounts closed because they triggered an algorithm designed to prevent fraud. Even after explaining the pattern of withdrawals, the large banks will not override the algorithm (Lieber and Bernard). Community banks, who take the time to get to know their customers, can judge whether these clients truly present a risk. While these customers may also present a risk to a smaller bank, there is an opportunity for smaller banks to serve this niche if they can appropriately price their services according to the risk presented. Part III: Social Media The Role of Social Media in Banking Life in the 21st century has been irrevocably changed by social media’s presence. In the past, people, businesses, and banks had a certain amount of time to wait before learning about what is happening in the world. Today, because of technology and social media, information travels at a faster pace than ever

The INB team notes that since the 2008 crisis, INB has kept in close contact with their examiners, the OCC.

39