Академический Документы
Профессиональный Документы
Культура Документы
2 0 1 8 B A LT I M O R E B U S I N E S S R E V I E W 9
1.5%
0.6%
1.2%
0.3% Non-Community
0.9%
0.0%
0.6%
-0.3%
Community
0.3%
-0.6%
0.0%
-0.9%
1994 1998 2002 2006 2010 2014
-0.3%
Community
-0.6%
-0.9%
1994 1998 2002 2006 2010 2014
regulatory environments highlighted above. In Figure 1, Figure 2: Historical Series of Loans per Employee
we see that banks in Maryland experienced a long stable
period of profitability that ended with the Great Recession. $6
From the depth of the crisis, profitability has steadily risen
though it remains inferior to the pre-crisis period. While $5
community banks experienced a strong recovery in their
profitability, their performance lags that of non-community $4
$6
banks more than before the crisis. This is the first evidence Non-Community
that regulatory costs may exert greater pressure on smaller $5
$3
institutions.
Community
$4
Figure 1: Historical Series of Pretax ROA $2 Non-Community
$3
1.5% $1
1994 1998 2002 2006 Community
2010 2014
1.2% $2
Non-Community
In all three new regulation periods, we observe a spike in
0.9%
employee growth. This is particularly sharp for the FDICIA
$1
0.6% and the USA PATRIOT
1994 1998 periods.
2002 While
2006the spike
2010in Employee
2014
0.3%
Growth is less pronounced for the Dodd-Frank period, there
is a clear increase in Average Salary. Taken in combination,
0.0%
it appears that banks have been substituting compliance
-0.3% positions for lending positions.
200%
Community
-0.6% Non-Community
Figure 3: Historical Series of Employee Growth
-0.9% 150%
1994 1998 2002 2006 2010 2014
200%
100%
Community
Non-Community
Figure 2 reveals that banks’ productivity has been on an
150%
upward swing since the early 1990’s. While an employee 50%
generated $2 million in loans in 1991, an employee in 2014
generates more than twice that amount. This stems from 100%
0% Community
$6
a combination of ever-increasing credit availability and
improvement in credit-scoring technology. Whereas the 50%
-50%
trends
$5 for community and non-community banks aligned for 1994 1998 2002 2006 2010 2014
most of the period, community banks are currently not able 0%
to match
$4 the recent improvement of non-community banks.
For the first time in 20 years,Non-Community
community banks’ employees -50%
generate significantly fewer loans than their non-community 1994 1998 2002 2006 2010 2014
$3
banks counterparts do. If fewer employees are involved in Figure 5 sheds further light on this trend and presents the
Community
profit
$2
center activities (lending) and more employee time history of Salaries to Assets. Here, the costs of accumulated
is dedicated to cost center activities (compliance), this can new regulations are particularly striking for community
explain the difference in profitability as seen in Figure 1. banks. Up until 2003, both community and non-community
$1
1994 1998 2002 2006 2010 2014 banks dedicated slightly over one and a half percent of assets
Figures 3 and 4 compare Employee Growth and Average
for salaries. Today, while non-community banks spend less
Salary for the two groups. Employee Growth has been steady
than in 2003, community banks pay upwards of 2.5% of
over the past 20 years. On average, banks today have 2.5
assets in salaries. This agrees with the idea of a changing
employees for each one they had in 1991. This results from
composition of the workforce with higher skilled and higher
the increase in the industry’s complexity with the multipli-
paid compliance and technological employees accounting
cation of products and services and the continued trend
for a higher proportion of banks’ personnel.
of consolidation whereby we have fewer but larger banks.
200%
Non-Community
10 2 0 1 8 B A LT I M O R E B U S I N E S S R E V I E W
150%
2.5%
2.0%
Community
Non-Community
1.5%
1.0%
1994 1998 2002 2006 2010 2014
Figure
$100 4: Historical Series of Average Salary Figure 6: Historical Series of References:
Expenditures to Assets
1
http://www2.fdic.gov/hsob
Non-Community
2
https://www.dllr.state.md.us/finance/
$100 finregannrep2016.pdf
$80 0.8%
Community 3
The number of community banks in
Non-Community Maryland is shrinking, by Carrie Wells,
$80 0.7% The Baltimore Sun, October 16, 2015.
$60 Community
Community 4
Compliance costs crushing commu-
nity banks, by Ted Carter, Mississippi
0.6%
$60 Business Journal, May 10, 2012.
$40 5
Smaller banks eye way forward, by
0.5% Chris Fleisher, Pittsburgh Tribune
Review, June 4, 2014.
$40
$20 6
Md. banks keep an eye on potential
1994 1998 2002 2006 2010 2014 0.4%
Non-Community Dodd-Frank changes, by Tim Curtis,
The Daily Record (Baltimore, MD),
$20 June 18, 2017.
1994 1998 2002 2006 2010 2014 0.3%
1994 1998 2002 2006 2010 2014 7
Ken Cyree, 2016, The Effects of
Regulatory Compliance for Small
Figure 5: Historical Series of Salaries to Assets Banks around Crisis-Based Regulation,
Conclusion The Journal of Financial Research,
On balance, our investigation uncovers some noticeable 39 (3), 215-245.
3.0%
changes in banks’ behavior following the implementa-
tion of the Dodd-Frank Act. Smaller community banks in
3.0%
2.5% Maryland are: 1) not recovering profitability as fast as non-
community banks, 2) not increasing productivity as fast as
2.5% non-community banks, 3) dedicating more employees and
2.0%
a higher budget to compliance functions and 4) not invest-
Community
Non-Community ing into technology as they have in the past. A picture of
2.0%
1.5%
impaired competitiveness emerges, reflected in the sector’s
Community
stock performance lagging the overall market’s post-crisis
Non-Community
recovery prior to the recent election bank rally. In light of
1.5%
1.0% these facts, the industry is looking at continued consolidation
1994 1998 2002 2006 2010 2014
to remain competitive which would continue to decrease
Finally,
1.0%
Figure 6 shows that since the introduction of the its presence in the Maryland marketplace. While pre-crisis
Dodd-Frank 1994 Act, both community
1998 2002 2006 and non-commu-
2010 2014 in 2008 Maryland State Chartered banks accounted for
nity banks have dedicated a lower percentage of assets 43% of all bank branches in Maryland, they recently only
to expenditures, including for technological assets. This represented 30% (500 out of 1,679 in 2015) of all branches.
represents a missed opportunity for banks. Under a con- In this environment, the industry is looking with anticipa-
0.8%
strained budget, with more resources shifting to answer tion at potential changes in the regulation. In particular, the
the new regulatory demands, banks are under-investing Financial CHOICE Act aims to amend some of the rules
0.7%
0.8%
in their technological future. This is a risk at a time they enacted under Dodd-Frank. Kathleen Murphy stated, “the
Community
face increasing competition from non-traditional lenders Choice Act, while not perfect from our perspective because
0.6%
that tend to rely on technological advances to connect with
0.7% it sets certain reserve requirements that we don’t completely
potential clients, to manage their lending risks and their
Community support, contains components that we support, particularly
overall
0.5%
0.6% costs. Any diversion from remaining competitive for community banks.”
on this front will hurt the future profitability of the more
heavily
0.4%
0.5% regulated institutions.
Non-Community
0.3%
0.4%
1994 1998 2002 2006 Non-Community
2010 2014
0.3%
1994 1998 2002 2006 2010 2014
2 0 1 8 B A LT I M O R E B U S I N E S S R E V I E W 11