Pub. 5 2015 Issue 1

F ROM DISAPPEARING CASH, BITCOINS AND PAYMENT SYSTEMS TO CONSOLIDATIONS AND MERGERS, THE NEXT COUPLE OF YEARS ARE GOING TO BE IMPORTANT TO THE FUTURE OF BANKING, SAYS PAUL HICKMAN, PRESIDENT AND CEO OF THE ARIZONA BANKERS ASSOCIATION. Next year, a slew of new banking rules are due from an alphabet soup of regulators. Hickman pulled the crystal ball out of his desk, dusted it off and talked with us about what's ahead. What's on top of the list for next year? There are a good chunk of Dodd-Frank (Wall Street Reform and Consumer Protection Act) regulations that are going to be established in 2015, including the Volcker Rule, which prohibits U.S. banks from making speculative investments that do not benefit customers. Simplistically, it’s a ban on proprietary trading by banks. Named for former Federal Reserve Chairman Paul Volcker, these rules were created through a contentious process and are enforced by the Office of the Comptroller of the Currency, Federal Reserve, Federal Deposit Insurance Corp. and the U.S. Securities and Exchange Commission. The rules, which kick in Aprill, prohibit most investments by banks using depositor funds to make the trades. This is going to affect how some banks do business. Community banks are going to push for a change in the law or regulations related to passing the capitalization stress test. The new rules applicable to major banks are trickling down to smaller banks. Basically, community banks are saying that if a bank is demonstrably capitalized under the existing rules, why should it have to spend the money neces- sary to prove the obvious under the new rules? The problem is the standards are generated by the Basel, Switzerland, Committee on Banking Supervision, and are applicable to banks doing extensive international business. Community banks just do not do enough business to justify the costs. They are saying if they have liquidity as proved by the old sys- tem, they should be exempt from the new standards, known as Basel III. Do you see some regulations being repealed with the new Republican ¬majority in Congress? The GOP has the major- ity, but they do not have enough seats to override a veto. I’m seeing Congress nibbling at the margins to make changes to Dodd-Frank, but not making major changes or a wholesale repeal of the law. Real estate is not doing well in Arizona. What do you foresee for mortgages? The Consumer Finance Protection Bureau is imposing most of the rules, and although these are supposed to control large banks, the regulations are trickling down to small banks. The community banks are facing real challenges with the one-size- fits-all approach. What are the technology trends? Security is getting really expensive, especially with breaches being pushed by foreign governments wanting to bring down the system. Banks also are impacted by the Durbin Amendment to Dodd-Frank, which capped “swipe” fees for debit and credit cards. Banks used to take in half those fees to pay security, and that revenue source is drying up. It’s a Catch-22: It’s expensive to prevent data breaches, but it’s also expensive to remediate after one occurs. w 0 50 100 150 200 250 300 December 12, 2014 25 Banks’ market share The top three banks in Arizona control 73 percent of all deposits. Nos. 4 through 7 control 10 percent, leaving all the remaining banks in the market sharing less than 17 percent of Arizona’s $70.1 billion in bank deposits as of June 30. Do you see some regulations being repealed with the new Republican majority in Congress? The GOP has the majority, but they do not have enough seats to override a veto. I’m seeing Congress nibbling at the margins to make changes to Dodd-Frank, but not aking major changes or a wholesale repeal of the law. Real estate is not doing well in Arizona. What do you foresee for mortgages? The Consumer Finance Protection Bureau is imposing most of the rules, and although these are supposed to control large banks, the regulations are trickling down to small banks. The community banks are facing real challenges with the one-size- fits-all approach. What are the technology trends? Security is getting really expensive, especially with breaches being pushed by foreign governme ts wanting to bring down the system. B nks also are impacted by the Durbin Amendment to Dodd-Frank, which ca ped “swipe” fees for debit and credit cards. Banks used to take in half those fees to pay sec rity, and that revenue source is drying up. It’s a Catch-22: It’s expensive to prevent data breaches, but it’s also expensive to remediate after one occurs. Continued FRoM Page 23 Maricopa county’s biggest banks, by nuMber of branches 259 Wells Fargo 50 bmO Harris bank 104 National bank of Arizona 36 Washington Federal 24 National bank of Arizona 193 JPmorgan chase 48 bbVA compass 88 U.S. bank 26 midFirst bank 18 comerica bank Arizona All others: 16.8% Wells Fargo: 26.0% bbVA compass: 3.6% JPmorgan chase: 26.7% arizona’s biggest banks, by deposit Market share SOUrce: FeDerAl DePOSiT iNSUrANce cOrP. Alliance bank of Arizona: 3.6% bank of America: 20.3% bmO Harris bank: 3.0% Cashing in the Crystal Ball Banking Faces Big Challenges Coming in 2015 By ERIC JAY TOLL 19 WINTER 2015