September 09, 2020

Our regular listeners know I have a long history of working with community banks, including in small towns and rural communities across the country. So it’s a special treat to have today’s guest on the show. She is Rebeca Romero Rainey, President and CEO of the Independent Community Bankers of America.

For our listeners in other countries, you may know that the United States has an unusual banking structure that includes thousands of small banks (and also thousands of credit unions). While large banks hold most of the banking assets in the US, small banks are the backbone of financing in many parts of the country. They draw on a tradition of knowing their customers personally, delivering great face-to-face service and, sometimes, being positioned to take a chance on a customer because they know her or him personally and can do the customized risk assessment that a big bank with high volume usually cannot perform.

Rebeca embodies this proud tradition. She is a third generation community banker -- her grandfather founded Centinel Bank in northern New Mexico, and was succeeded by Rebeca’s father, and then by her, for twenty years. As you will hear in our conversation, I have a home in the mountains near Taos New Mexico, and have been in her bank, and we have some interesting friends in common, including the great artist Ed Sandoval, whose paintings hang in the bank lobby. As Rebeca says banks like these are vital to their communities, not just financially, but in weaving together the social and cultural fabric, the quality of life. As just one example, she notes that small banks provided 60% of the loans extended under the Paycheck Protection Program, the PPP, to rescue small businesses during the COVID pandemic.

These banks are important, and many are struggling today. It’s hard for them to go after customers outside their markets, but it’s easy for outside competitors to reach into their backyards and lure customers away with attractive pricing or newer technology. Many also operate in markets that are growing very slowly, or not at all.

In my view, whether the ICBA succeeds in its mission of enabling these institutions to flourish will depend on one factor above all -- whether the banks can easily adopt better technology. They need great technology to run their business, driving down costs of operations, including the tremendous costs of regulatory compliance. These are disproportionately high for smaller banks, compared to either large institutions that have economies of scale or to small fintechs that have no old legacy technology (see my series of papers from my senior fellowship at Harvard University, on these cost problems).

Community banks have a second burning need for cutting edge technology -- to serve their customers, including the millennials who have become the largest generation ever. People today expect everything we use, including banks, to have great technology and UX. Without better tech, these banks won’t be able to grow.

So, how are we going to make that happen?

For most banks, there is only one answer. Very few can develop cutting edge technology on their own. Instead, they have to work with innovative companies. They need simple easy ways to work with fintech and regtech vendors and partners.

Today, this is a struggle. Most small banks have aging core IT systems that are difficult and expensive to update, to integrate with digital technology, and to tap into to access the bank’s own data. Small banks also struggle with regulators’ third-party risk rules, most of which were written in pre-digital times and make it hard to onboard new tech vendors and partnerships. There is also a steep learning curve.

Rebeca shares how the ICBA is tackling these challenges. She describes the banks’ most urgent tech needs. She talks about how the Covid crisis is accelerating technology adoption, by banks and their customers alike. She talks about the need for communication, to help bankers know what is possible. Rebeca tells us the ICBA has appointed a chief innovation officer, Charles Potts, to launch a strategic focus on supporting innovation efforts for community banks, specifically to move toward a level playing field to ensure that community banks can play by the same rules as their competition. And she explains the ICBA’s partnership with the Venture Center in Arkansas, run by Wayne Miller, which helps find and test new tech solutions for banks.

As an example of the potential, here is a new article by Melissa Koide and me in the Financial Brand, on how community banks can use new high-tech underwriting to grow in place, vertically within their current geographic footprints, by being able to make sound loans to creditworthy consumers and small businesses who today are screened out by traditional risk tools. And please also take a look at AIR’s Regtech Manifesto, which lays out our vision for modernizing the financial regulatory system for the digital age -- something that has to happen, if community banks are going to thrive.

Rebeca says the key to the future is to press the fast-forward button on technology implementation. I know you are going to enjoy my conversation with ICBA CEO Rebeca Romero Rainey.

More on Rebeca

Rebeca Romero Rainey is president and CEO of the Independent Community Bankers of America® (ICBA), the leading advocacy organization representing community banks. A third-generation community banker born and raised in Taos, New Mexico, she is the former Chairman and CEO of Centinel Bank of Taos. Rebeca entered the national stage by serving on committees within ICBA, and she played a key role in the formation of ICBA’s Minority Bank Council and served as its first chairman. She was later nominated to ICBA’s Executive Committee, and in 2016, became ICBA chairman.

Rebeca has also served on the FDIC Advisory Committee on Community Banking and the Kansas City Federal Reserve Community Depository Institution Advisory Council. She has been featured on CSPAN, MSNBC, CNBC, NPR; has testified before Congress; and has delivered speeches before the Federal Reserve, OCC and FDIC.

More for our Listeners

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I am very excited to announce that my upcoming guests include Scott Cook, Founder of Intuit, Renaud Laplanche, Co-founder and CEO of Upgrade, and Linda Lacewell, Superintendent of the New York State Department of Financial Services.

I am excited to see the fall events schedule shape up! I will be speaking at many virtual conferences, including FS Vector RAFT, LendIt Fintech (for a fireside chat with FDIC Chairman Jelena McWilliams), Summit on Making Finance Work for Women, Fintech South 2020 (a different chat with the FDIC Chairman), and A-Team Regtech Summit, as well as the Singapore Fintech Festival and Fintech Abu Dhabi.

The final judging for the G-20 Global Techsprint is underway. I’m serving as a judge on the Digital Regulatory Reporting solution sprint. You can find more information on this here.

If you have not already had a chance, please make sure to comment on our Regtech Manifesto: Redesigning Financial Regulation for the Digital Age. We have already received many thoughtful comments and would love to hear more about what people are thinking. We’ll be feeding the results into a new initiative, the Regulatory Design Project.

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