Arkansas Banking Commissioner concerned about de novos, cybersecurity risks

Arkansas Bank Commissioner Candace Franks told a roomful of executives that lack of de novo banking growth, IT threats and overregulation are a concern to the industry’s future.

She also said her state agency is deploying technology to absorb the increase in examination resources needed to keep up with several banks that have flipped from national to state charters.

Franks, who has headed the state Bank Department since 2007, is in her third four-year term in the position. She was part of a panel discussion last Thursday at the central Arkansas Risk Management Association meeting held in Little Rock.

The State Bank Department was created by Act 113 of 1913 and is charged with regulating commercial banks with main offices in Arkansas. As of March 31, 2016, the state regulatory agency oversaw 84 banks with assets of $69.3 billion. Franks’ department has an annual budget of just under $15 million.

Talk Business & Politics Roby Brock caught up with Franks after the RMA meeting for a Q&A.

TB&P: You pointed out that there have not been any de novo banks started since the Great Recession in Arkansas. Why is that a concern to you?

Candace Franks: It’s a concern to me because I think that as we see the industry consolidate you need new growth and new opportunity from newcomers to the industry. You get innovation there and you get new players in the market. That’s good for the consumer and it’s good for the economy of an area. So I think it’s very concerning that we haven’t had a healthy crop of interested de novos.

TB&P: What do you think is the main reason for the lack of de novo bank growth?

Franks: I think part of it has been the impact of overregulation. I think it is the increased capital requirements there is now compared to what it used to be. Although I think that everybody tries to raise as much as they can on the front end – and they’ve traditionally done that – but our capital levels, our ask is higher than it used to be and part of that reason is there’s a lot more expense associated with it than there used to be. You can’t anticipate making money over the first two or three years. You generally have losses the first two or three years and you have to have the capital to cover that.

TB&P: A lot of national banks have converted to state charters. What kind of stress does that put on your department, if any?

Franks: I think we’ve been able to absorb those pretty well. We have a few new standards of examination that we’ve been using over the last few months and we have plans to continue to do our development in those areas. We’ve been very, very fortunate to be able to use technology to our benefit. I’ve got three IT people in my office that have done a wonderful job in innovating the way we use technology through our examination process and our examiners have adopted that. It’s been a real benefit for us.

TB&P: You see cybersecurity as one of the biggest threats to the state banking system, as well as national and worldwide players. What do you hope happens to guard against it?

Franks: You not only have to worry about your systems in your bank, but also your vendor systems. That’s always a challenge that the banks have to deal with. I think that it’s just the growth through the technology and those kinds of security incidents is a huge challenge going forward. We’ve all got to be cognizant of that all the way up to the chairman of the board – not just your IT people that are in a back room working on IT all the time. I think your board needs to be just as aware of the potential risk in that area. We’ve tried to focus on making that a board issue and not just an IT issue. We’ve had good success with that. It’s evolving and will continue to be important.