Collaborate, don’t consolidate, CSBS advises community banks

By J. Preston Carter, J.D., LL.M.

A white paper released by the Conference of State Bank Supervisors (CSBS) describes the benefits of collaboration among community banks by pooling human, technological, or compliance resources in order to reduce costs, increase operational efficiencies, and leverage specialized expertise. The white paper, "Shared Resource Arrangements: An Alternative to Consolidation," states that, by sharing certain resources with comparable institutions, community banks may be able to realize the benefits that come with a larger size and scale, yet preserve their core character, function, and independence.

The white paper states that shared resources often come in the form of contractual agreements, jointly-owned operating subsidiaries, and non-profit entities. Shared resource arrangements may achieve, or exceed, the same regulatory cost savings or economies of scale as consolidation. For example, shared resource arrangements dedicated to Bank Secrecy Act (BSA)/anti-money laundering compliance could provide community banks more latitude to attract and acquire skilled BSA compliance professionals.

Shared resource examples. The paper identifies a number of ways two or more financial institutions have successfully shared resources to either improve compliance, increase efficiency, or both:

• a bank partnered with a smaller community bank without a Chief Information Officer to share information technology services for a fee;
• a group of community banks partnered together to share ownership of a data processing provider;
• rural community banks finding it somewhat difficult to attract compliance expertise partnered to share the costs of a compliance team; and
• multiple community banks looking to share the benefits of a particular software created a separate non-profit that provides the operating systems to member-banks.

The white paper also explains risks and restrictions to shared resource arrangements within current regulation. It concludes by stating that with the proper controls and ongoing oversight, shared resources may be a viable component to a community bank’s overall strategic objectives to remain an independent provider of financial services in the local market.


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