2024 Journal of Community Bank Case Studies

2024 COMMUNITY BANK CASE STUDY COMPETITION

allows b1Bank to benefit from rate arbitrage– the borrowing rates that were approximately 60 basis points lower than those available through the FHLB. The rate differential allowed b1Bank to replace $300 million of its FHLB borrowings with cheaper funding from the BTFP. b1Bank repaid the $300 million by March 22, 2024 and gained about $3 million in net income from the interest rate difference in 2023 (Robertson et al, personal interview, 21 Mar 2024). Regulatory risks Regulatory and supervisory changes expected by management post-closures b1Bank anticipates no regulatory changes due to the closures of banks in 2023. However, following the bank failures, discussions with the Louisiana Bankers Association, Louisiana Office of Financial Institutions, and b1Bank revealed that there may be heightened scrutiny on areas such as liquidity management (Laurent; Jolly). Increased scrutiny ensures that banks rigorously adhere to existing guidelines that govern liquidity and other risk management practices.

Representatives from all involved indicate that new regulatory emphasis ensures improved stability through stringent enforcement of current regulations rather than introducing new ones. Regulators advise banks to rigorously review their liquidity management strategies to meet these enhanced regulatory expectations and safeguard against potential financial instabilities similar to those that led to recent bank failures. Challenging past regulatory changes and current proposals under review b1Bank historically found mortgage compliance regulations challenging due to stringent timelines. Robertson said, “At the end of the day, mortgage compliance is part of the reason why a lot of community banks left the space.” He went on to say, “If you apply for a real estate loan to buy a house, there’s a certain amount of documentation disclosures that a banker gives you, which starts a time clock to where certain responses from the bank and the customer are measured and checked by the regulatory bodies. The banker may not hear back from you, which is normal, because you ended up going to another bank with a lower rate. However, if the banker doesn’t turn in a declination notice in their paperwork, with it properly dated within a certain time frame, that’s noncompliance” (personal interview, 21 Mar 2024). Section 1071 of the Dodd-Frank Act requires extensive data collection on loans to small businesses and those owned by women and minorities. The regulatory requirements of the act attempt to verify greater inclusivity and transparency in lending practices. b1Bank

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