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Start a Bank: Banks in Planning Stage

The Supervisory Process and Regulatory Relations


A positive relationship between a bank and its regulator is a valuable asset. A bank will have close interaction with regulators in every stage of its development and will be subject to the regulator's scrutiny in examinations and certain applications for consent or approval.  Bankers that follow a mission to serve underserved communities, low and moderate income neighborhoods, and markets that have historically lagged behind the general economy should not underestimate the importance of close interaction with regulators.  Even if there are no  applications to discuss, there may be a variety of community development programs, business growth plans, and other opportunities that may involve regulators.

Regulator Perspective

From the regulator's perspective, the relationship with a bank should be free-flowing and should involve two-way communication. Bank representatives are encouraged to share their views and opinions.

Regulators also expect bank representatives to provide a consistent message to all stakeholders regarding a particular issue. When regulators request information from banks, banks are expected to provide prompt and accurate responses. In addition, regulators want early communication from banks on issues or areas of emerging risk. Recognizing risk early can help to keep the bank stable and maintain a safe and sound banking system. These perspectives not only apply to minority banks, but are actually fundamental to all banks.

Bankers' Perspective

Bankers in the industry have also shared their perspective. Bankers want regulators to be consistent and fair in applying regulations. Bankers want the opportunity to provide input during the formation of regulatory policy. Bankers also want regulators to follow a burden-sensitive approach to regulatory decisions, so that the requirements imposed on the bank actually consider the level of burden involved.

These perspectives, although expressed by many minority bankers, are common among community bankers around the country. In fact, most bankers have high expectations of regulators and are eager to meet with them to discuss areas of contention. Regulators should be willing to meet with bankers to discuss these issues and should be able to adequately explain their positions.

For more serious disputes, some banks use their bank associations to engage regulators in order to maintain their anonymity. Some bankers have observed that minority banks have a smaller bank association network, making it easier to "identify" the specific bank that may disagree with a regulatory decision. Some bankers have expressed concern that once a bank is identified, there could be regulatory retaliation for voicing disagreement. Actually, regulators are concerned with making sure the appropriate information gets to the bank that needs it, not with the identity of a particular bank. Regulators encourage banks to meet with them directly, particularly when important issues are at stake. Regulators also benefit from discussing contentious issues with bankers and by learning more about the bankers' perspective and the challenges they face. Bankers, however, can choose to address their concerns directly or indirectly using associations.

Recommended Practices

To maintain an effective regulatory relationship, follow these several recommendations:

  1. For de novo banks, schedule an introductory meeting between bank directors and the regulator as soon as possible regarding the bank application.
  2. Establish primary contacts within the regulator's bank supervision and regulation unit. It is extremely important to start understanding regulatory requirements early in order to help position the bank to grow and succeed within supervisory parameters.
  3. Discuss regulatory expectations and the role of the directors periodically with the regulator.
  4. Stay "current" in understanding the regulatory issues and areas of focus raised by the regulator. This may require extra reading and participation in bank training courses.
  5. Attend programs and conferences hosted by regulators when possible.
  6. Discuss concerns and problems with regulators as soon as possible. The general objective of bank regulators is to help banks remain safe and sound. In addition, pay close attention to the report of examinations for constructive recommendations from the regulators.
  7. Establish contact with the Partnership For Progress coordinator for your district.  These coordinators can provide you with insight into many areas of bank operations.

Maintaining a positive relationship with regulators at all times is critical, but a positive relationship is most beneficial during times when a bank is in distress. A strong, positive relationship may significantly help maintain bank stability and avoid distress.