CPG's July/August 2011 Wire Newsletter

2012 Plan: The Branch Channel Checklist

1. Increase the amount of time loan officers have to devote to business development and relationship management. Loan officers are often unduly burdened with administrative and monitoring responsibilities as a consequence of the poor credit environment or efforts to reduce administrative expenses. Banks should remove and centralize any aspect of the loan officer’s job that adds no value to the customer. These responsibilities should be placed in specialized units or assigned to a portfolio maintenance and monitoring assistant.
2. Institute differentiated underwriting and approval processes according to credit relationship exposure. Common sense tells us that loans that represent small credit exposure (and smaller contributions to profitability) should be easier to apply for and should be decisioned more quickly than loans that represent more material credit exposures. Banks must establish consensus on what constitutes material loss on an individual loan and then institute expedited processes for loans that fall below this threshold.
3. Develop more robust methodologies for assigning asset quality ratings. Significant deficiencies exist in the typical single-factor asset quality rating framework utilized by many banks, and it is limited for gauging risks in commercial lending. To obtain a comprehensive view of portfolio risk and understand how it changes over time, the industry needs to embrace a dual (two factor) risk rating framework (DRR) focusing on probability of default and loss given default. The industry must also apply the DRR to all types of loans making up the portfolio.
4. Establish performance metrics and service standards throughout the process. Crimps in the process are easier to pinpoint and rectify when basic performance metrics are established and tracked. At a minimum, banks should track application volumes, fallout rates, and closings. They should also monitor average turnaround times for each major process step (e.g., application to approval, approval to closing, etc). In addition to turnaround times, back office processes must be monitored for efficiency and productivity based on simple metrics such as loans booked per operations FTE. The standards should consider the competitive environment and align with the bank’s value proposition.

CPG's Retail Banking Colloquium 2011 Recap

• Redesigning deposit product suites
• Educating the frontline on new products
• Shifting the focus of the frontline towards relationship building
• Increasing new customer acquisition
• Strategies for increasing and leveraging customer and employee referrals          
• Improving customer onboarding
• Leveraging customer information to increase cross-sales
• Designing cash management products for small businesses      
• Transitioning to and improving the universal associate model
• Branch design changes and incentives for customers to come into the branch
• The future of branches and banking Gen Y
• Partnering with financial technology companies
• Engaging customers via social media

Bank Stock Performance Year-to-Date

• Large cap bank stocks, represented by the KBW Bank Index which is heavily weighted towards the nation’s largest banks, have taken the largest hit this year, decreasing by 31.97%.
• Mid cap bank stocks have fared relatively better (though still quite poorly), decreasing 27.99% YTD while small cap bank stocks have fared somewhat better, decreasing 22.18% YTD.
• Much of the decrease among large cap bank stocks can be attributed to continuing uncertainty regarding future capital requirements for systemically important financial institutions, ongoing litigation exposure from the financial crisis, the European debt crisis, and continuing pressure on revenues from new regulations (although this last point certainly is affecting mid cap and small cap banks as well).

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