A collection of observations, ruminations, predictions and random thoughts from Cornerstone Advisors.

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April 28, 2016 by Ryan Myers Ryan Myers

Managing Bank Regulations: Are You a Dodo or a Cockroach?

Remember the toy, Spirograph? You probably had one when you were a kid.

If you used the Spirograph toy on the following chart—which depicts the U.S. financial regulatory environment—you wouldn’t be making the chart any more complex and confusing than it already is.


The amount of regulation in the financial industry is staggering and has understandably been top of mind for most CEOs. According to Cornerstone Advisors research, roughly six in 10 community bank and credit union CEOs are concerned with the regulatory burden. That’s down slightly from the 2015 level, but still one of CEOs’ top three concerns overall. Obviously there are significant burdens and future changes to be concerned about, but so what?

My colleagues (shout out to Vincent Hui and Kaleb Seymour) and I conducted a study for the credit union industry to determine the impact of regulation. Some loyal GonzoBankers were participants and I’ll reiterate my thanks for the painstaking work it took to collect the data. We are hopeful that community banks will also pursue efforts to communicate the real cost of regulatory burden to our friends in Washington.

After absorbing the results we accrued over several months of research, the lesson that stood out the most was that a great portion of the financial burden is self-inflicted. Being an advocate of policy change is great, but banks should simultaneously find ways to minimize the obstacles internally. Voicing the need for better regulatory balance without adapting to the current environment is going the way of the dodo bird.

The number of financial institutions has decreased nearly 30% in the last 10 years, and consolidation continues. While we’re a far cry from community bank extinction, there’s a surprising number of “Dodo Banks” that belong on the endangered species list. Our regulatory study found that a typical financial institution with $1 billion in assets may be spending more than peers on regulatory related costs to the tune of $1 million to $2 million per year.

What banks are setting the benchmark of success? Cockroaches. They aren’t necessarily sexy or cool, but cockroaches are extremely efficient and manage to thrive even in harsh environments. The best banks aren’t just compliant with new regulations. They evolve their operations to find the optimal workflow and supporting processes to overcome every new obstacle.

To help your bank avoid extinction, I devised a very scientific (yet to be independently validated) Dodo Bank Test. For each of the 10 regulatory impacts below, compare your implementation with the two approaches and rate your implementation on a scale of 1 – 5 (1 = Dodo Approach, 5 = Cockroach Approach).

RegulationCockroach Approach (5)Dodo Approach (1)Score
Overdraft RequirementsConsent is seamlessly incorporated into paper and online applications with enrollments automatically applied to core via system integration.We discontinued ODP because it wasn’t worth the hassle.
CIP/BSA/AML/SAR /CTRSystemic tracking of activities across channels and branches, auto-filled forms, integrated risk ranking and easily accessible reporting.BBQ/JK/LOL/IDK/???...we just deal with acronyms as they come.
Training RequirementsCalendar of training across the organization supported by virtual delivery and electronically captured confirmation.It’s December 31! Everyone go search “BSA” on Google!
Mortgage OriginationsAn integrated point of sale for online applications and origination systems supporting a digital loan file with built-in compliance checks, interfaces to vendors (e.g., appraisal management) and reporting.We buy lighter paper so our loan files aren’t so heavy with the additional disclosures.
TCPA (Cell Phone Dialer Consent)Consent verbiage incorporated into applications and online banking when accepting phone numbers as well as a central source to store explicit permission to use automated dialing.We’re friendly bankers who offer a great customer experience so I’m sure our clients consent.
Call Center RecordingAny call can be recorded, stored and reviewed without manual steps from call center agents. Bonus points for querying and analytical capabilities.Jeanine the manager listens in on phone calls occasionally to make sure staff is being nice to people.
ReportingFinancial system integrated with core bank data to produce required reporting (e.g., Call Report) accurately and with minimal analyst manipulation.Querying data from different sources and throwing them into hundreds of spreadsheets provides us the flexibility to choose the results we like more.
Vendor ManagementPushing past required vendor risk management to vendor performance management. Due diligence calendars and risk ratings are minimal effort while business lines are frequently working with vendors to optimize system utilization, SLAs, campaign management, etc.Our sales rep reaffirms his commitment to our core values every time we auto-renew a contract and get that free round of golf.
Complaint ManagementTreating customer feedback through any channel similar to formal complaints to the CFPB. Manage a system with the ability for employees to submit complaints that are reviewed by management and analyzed to identify trends and opportunities across the organization.Outlook reminds us to check for regulatory complaints and all other feedback is collected through randomly sent, seldom completed NPS surveys.
InterchangeMake up for lost revenue with a robust payments plan to drive card penetration and activity, push signature rather than PIN transactions, and approach contract negotiations armed with competitive pricing information.Interchange is going away slice by slice and we just can’t bank on that income anymore.

Now that you’ve no doubt accurately and fairly rated yourself, add the total score and see where it fell on the evolutionary scale.

45 – 50 points: COCKROACH

Able to evolve at an astounding rate, could survive a regulatory nuclear explosion and will never become extinct


40 – 45 points: COYOTE

Adaptive and agile while opportunistically seeking more advantages

35 – 40 points: CAMEL

Comfortable being a survivor, but will never be confused with a thoroughbred

30 – 35 points: PANDA

Endangered species stubbornly sticking to old habits and likely being propped up by local popularity

Less than 30 points: DODO BANK

Eerily reminiscent of a species not seen since 1662 and risking extinction without a major overhaul

Evolving with regulation to avoid extinction is banking Darwinism that boils down to operational excellence. Process design and discipline on the regulatory side creates impact in the millions of dollars. Don’t be a victim of regulation—be a disciplined manager of unavoidable business process requirements. Be a cockroach!



Regulatory burden getting you down?

Through a host of consulting services, Cornerstone Advisors can help financial institutions lighten the heavy load of regulation—while saving potentially millions of dollars in the process.

  • Performance Solutions
    Including performance evaluation, performance metrics, performance improvement, and workflow management
  • Vendor Management Solutions
    Including due diligence, vendor selection, vendor management software, and outsourcing programs
  • Contract Negotiations and Payments Growth
    Including assessment and execution of contracts (telecom, core, Internet banking, bill pay, debit and credit card processing, EFT and ancillary systems), and Payments programs 

Contact us today to learn more.

Filed under: Best Practices, Cards & Payments, Risk Management, Strategy

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March 25, 2016 by Sam Kilmer Sam Kilmer

Two Ways to Get Real Change

“Turn and face the strange. Ch-ch-changes.”
–David Bowie

Ah yes, conference season … that glorious time when executives and board members come back with a honey-do list of big new ideas. You know it. You love it. Especially the “transformation” candy from cheery innovation gurus, caffeinated buzzword generators, and other esteemed members of the disrupterati. Somewhere in that immersion exercise or buried on page 24 of the slide deck, there was a sizzling nugget to take away and implement. But even the pushiest Gonzo bankers found themselves back at their desks in Kalamazoo and Abilene crying into their coffee about who gets it done and how.

OK, sorry to be such a negbomb. Let’s brighten this up with some good news to combat the bad.

Bridging new ideas with harsh industry realities, from the home office in Scottsdale, Ariz., two ways to face the strange and get some real change going:

Change through Portfolio Thinking

Bad news: Let’s face it, the biggest innovation challenges right now aren’t new products, technology, and business models. The big challenges are culture and risk management. Boards and management teams everywhere struggle with this. Clear mission and risk appetite statements are a great start, but we’ve all seen statements saying “go” with actions that say “stop.” In that environment, even practical ideas can run into a buzzsaw. Or, as one candid board member put it in a gutsy public comment: “We don’t know how to test and learn. We don’t even think about anything like that.”

Good news: Most bankers and boards are leaders at portfolio management, the risks vs. rewards of a risk-balanced loan or investment portfolio and the judgement and discipline to build and maintain it. The 2008 meltdown thinned the herd of those who didn’t. That same portfolio management discipline can be applied to potential innovations and other strategic initiatives. One way or another, private equity firms do this. Even some bank IT functions do this. And, really, how many new strategic ideas don’t involve technology anymore anyway?

One exercise is to map out strategic initiatives to force a structured debate in the boardroom about risk and return, the sure things vs. the calculated bets … just like in any loan or investment portfolio conversation. A valuation map for strategic initiatives is one approach. (Hint: If you have no research and development initiatives in the upper left quadrant, you’re probably playing it too safe.)

Change through Addressing the Addressable

Bad news: At conferences and strategic planning sessions, it’s so easy to dwell on large potential threats without an exploration of what is controllable.

Good news: Addressing the addressable is a powerful change motivator. For example, one of the consistent strategic threats identified by boards and management teams alike is the regulatory environment. It was among the top executive concerns expressed in the recent industry study What’s Going On. Yet, beyond lobbying, what can a bank really do about it? As it turns out, quite a bit. Speaking publicly on the topic, Cornerstone process expert Ryan Myers recently sized the addressable regulatory reduce-or-redirect opportunity at nearly $1 million annually for financial institutions between $500 million and $1 billion in assets. It’s $2 million or more for less efficient organizations.

So, by adopting best practice process changes, the typical bank can redirect or save $1 million of unnecessary regulatory-related costs while still complying with regulations. And that’s just the addressable regulatory piece—not everything else!

While that’s sinking in, consider that the median $1-billion-asset bank (according to the Cornerstone Performance Report) only deploys around $800,000 annually for its entire marketing effort. And that’s at a time when big behemoth banks and fintech upstarts are both marketing heavily and growing market share.

OK, I admit that addressing the addressable almost sounds a little tactical. But, tight margins, competitive threats, and the resources involved now make it strategic (if it ever wasn’t). Maybe more importantly, addressing the addressable motivates our cultures to lead change in concrete ways. In turn, it frees up the resources for the even higher value test-and-learn R&D initiatives that can noticeably improve the lives of our customers, employees, and shareholders.

So, there are a couple of thoughts on getting positive change, but there have to be dozens more ideas out there. Let’s keep the conversation rolling. Best comment wins a GonzoBanker coffee mug. Go!


Epilogue: Live Aid Heroes beamed into an L.A. living room. Suffragette City cranked up by New York cover bands. Changes spinning every day on a London jukebox. We remember. A shout out from the Gonzo band to artists that challenge and inspire us.


For practical approaches to change and innovation, we have speakers on these and related topics:


  • Leading Vendor Management to Fund Innovation
  • Innovation & Justifying Practical Technology Investments
  • Delivery Trends: Channel Convergence and Funding Innovation

Visit Cornerstone’s Speakers page to learn more.


Filed under: Best Practices, Operations, Risk Management, Strategy

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March 9, 2016 by Steve Williams Steve Williams

Building the Agile Bank

Between the dominant national banks in America and the hundreds of fintech startups aimed at disrupting our industry, there lies a group of resilient mid-size financial institutions. At Cornerstone Advisors, we like to call them “troublemakers” because they grow and make money when the industry pundits predicted they shouldn’t exist by now.

Cornerstone Research Director Ron Shevlin calls them “eruptors” because they have brought competitive change from inside their organizations rather than being swallowed up by a national bank or made irrelevant by an innovator. While big banks continue to gain market share and startups continue to bring potential innovations, the mid-size troublemakers have a unique opportunity by becoming the most agile players in our industry.

Recent management literature from folks like McKinsey and IBM has focused on how companies can become more nimble and responsive to changes in their industries. Accenture has urged banks to embrace an “outside-in strategy to reinvent customer experience in the age of digital banking.” These management gurus are encouraging executives to embrace a great paradox in business today: every company has effectively become a technology company, yet people remain the greatest challenge. Companies that get the organization right will perform the best.

Here’s a simple way to visualize where an agile bank could play between fintech startups and behemoth banks:

Fintech DisruptersAgile BanksBehemoth Banks
Start-upNimbleRisk Averse
No BoundariesQuick DecisionsSiloed
Note: Based upon McKinsey and Co. Agility studies


Now ask yourself: how nimble, collaborative and quick to make decisions is my bank today?

Agile banks have the opportunity to gain the scale necessary to stay in the game while building the skills necessary to keep growing the business and remain close to the customer. Since the financial crisis we have seen many agile banks make all kinds of trouble. For example, Signature Bank in New York built an entire organization around the trusted relationship manager and grew assets from $4 billion in 2005 to $33 billion today. First Republic Bank in San Francisco regained its independence in a private buyout from Bank of America in 2010 and has grown from $22 billion to $59 billion while being named the top private wealth manager in the country. There are similar stories at smaller-size players, like Happy State Bank in Texas, which grew from only $400 million to $3 billion in the past decade. All of these growth stories occurred during a very fragile time for the national economy and financial industry.

At the same time, not all mid-size financial institutions are achieving the same levels of competitive agility. In fact, one of the biggest risks that mid-size banks have today is that they recruit so many big bank executives to run the place they end up instituting the artery-clogging practices of organizations 100 times their size. In a really cool study of agile companies across industries, McKinsey identified the top five unique traits that executives of agile companies value:

  • Role clarity
  • Top down innovation
  • Capturing external ideas
  • Process capabilities
  • Operationally disciplined

Most banks today aren’t growing and moving fast enough because they have mongo deficiencies in these five key disciplines.

In terms of role clarity, banks need to ensure that a strong crew of middle managers are driving performance and adaptation in the organization. It can’t all be done at the executive level, and it’s important that every product, delivery channel and major process in the organization has a formal owner with high accountabilities. In terms of top-down innovation, executive teams need to do a better job of picking the one or two areas of change that will have the greatest impact on future performance and force the organization to work together to achieve these innovations quickly. For instance, when First Republic bank decided it was going to be a national leader in private wealth management, the entire organization mobilized around achieving that strategy.

Think about how much bankers can improve their habits around “capturing external ideas.” This habit is practiced every five minutes in Silicon Valley, yet banks too often move in a plodding fashion because they fail to get out and learn from other bankers and technologists. Banks have huge opportunities to embrace stronger process capabilities and operational discipline. As every volume of the Cornerstone Performance Report has proven, the difference between high performers and median performers in any process is between 30% and 50%.  Strong operational discipline helps banks fund investments in growth and innovation with efficiency gains.

How can bank executives make their organizations more agile? When Cornerstone analyzes what works and what doesn’t within our client base, we find three key areas that drive better execution:

Build internal commitments that are written in blood. Agile banks simply don’t have time to create the political environments of the big banks. While not everyone needs to agree with each other in an agile bank, it needs to be very clear what “critical commitments” that executives and managers owe to each other. In effect, the organization becomes very transparent when the CIO has a critical commitment to deliver the data warehouse by the first quarter and the chief credit officer will have non-qualified mortgage (QM) products on the street by Q2. In agile banks, every line of business and support area clearly defines “excellence” with key performance indicators (KPIs) visible to the whole organization and clearly defined milestone commitments that they will hit at specified deadlines. As one executive at a high-performing bank once told me, “We’re successful because people know they actually have to do what they say they are going to do around here.”

Learn fast by focusing externally. Agile bankers are smart because they are sooo lazy. They have no interest in reinventing the wheel and instead constantly reach out to peers and experts to figure out how others addressed emerging challenges. Agile bankers are good at building a rolodex of “rebels” in the industry who try stuff early and have a track record of innovation. For instance, a bank payments manager recently avoided a great deal of trouble in rolling out EMV by embracing the lessons learned by three bankers who had done it ahead of him. Want to determine if an executive is “agile”? Ask him or her to name three peer banks that have best practices their organization should embrace. See how much they are really looking outside the four walls of the organization.

Develop “authoritative” knowledge at all levels. To put it bluntly, agile banks are successful because they have a lot of people who know specific stuff.  As credit, payments and funding become commoditized in our industry, wise executives are realizing that deep knowledge around niches, customers, products and processes is the only way to create out-sized shareholder value. Banks can become more agile when they identify who needs to go deep developing knowledge in critical areas. Here’s an example: banks today should be developing towering knowledge in areas such as mobile payments, social media, business analytics and paperless mortgages. Yet how many executive teams feel comfortable with their levels of knowledge in these areas and have a game plan to deepen their brainpower further? It’s time to take knowledge development from accidental to intentional.

To really break out with performance, bank executives have no choice but to replace that friendly and loyal manager who doesn’t actually know much and executes too slowly. Executives who dig into the most successful business lines or support areas in their banks will find lurking managers with deep knowledge who are damn good at balancing the different facets of their jobs.

Over the next decade, mid-size banks have a tremendous opportunity to kick up some real dust in the face of national banks. The key will be to build enough scale and operational excellence to stay in the game while being a smart adaptor of new ideas and offerings from the fintech world. While our industry is full of articles promising that digital technology will bring forth this change, bank executives must realize that their own organizational DNA will be the most important code to crack. Agile banks won’t be bureaucracies or benevolent dictatorships—they will be chock-full of managers who meet their internal commitments, always look outward to learn, and build deep authoritative knowledge in areas that matter. Ask yourself: “Who are our best agile managers and how can we build more?”

Ready to be an Agile Bank?

Any initiative that involves process re-engineering, strategic planning and profitability improvement begins with measurement and peer comparisons.

Cornerstone Advisors’ Performance Solutions can show you how your institution’s people resources, processes and technology infrastructure compare with competitors. 

Contact Cornerstone today to learn more.

Cornerstone Advisors





Filed under: Best Practices, Strategy

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