The Financial Choice Act is being finalized in Washington and is expected to be enacted in the coming weeks. It allows small banks to escape the debilitating regulations of the Dodd-Frank law. Dodd-Frank imposes such detailed regulations on financial institutions that most small banks were forced out of existence. The new act is said to replace regulation with capitalization. Meaning that if your bank is financially strong enough, you can ignore the regulations that delve into the minutia of your product offerings.
That means small banks won’t have to spend great sums of money just to make sure they are in compliance. It will allow new banks to be established, and existing ones to grow. In essence, whether or not your bank will take advantage of the new law, your competitors will. That means more competition for the finite amount of money in your area.
To take advantage of the new law, existing banks should work toward solidifying their customer base. The most important way is to sell a new product to existing customers, especially those who currently hold only one product. Those second and third products are typically the most profitable for the bank, thereby contributing to raising that Tier One ratio. It currently looks like 10% will be the point at which a bank can opt out of Dodd-Frank.
Bringing in new accounts will likely be more difficult after the law’s passing due to the new competition it is expected to unleash. New banks will be desperate for new business, since they don’t have an existing customer base. That means they will provide stronger reasons for new customers than existing banks are likely to be able to deliver.
My bottom line advice to existing community banks. Cross-Sell and start right now. Don’t wait for the law to do so. The details of the law are just details. The principle is baked in. Before those new competitors are allowed to start, solidify your customer base.