In an era of financial instability, payment banks provide a potential solution to prevent future bank collapses and create a more secure financial landscape. These digital or mobile banks operate on a technology-driven infrastructure, offering limited services focused on core transactions without engaging in lending activities. By avoiding the risks associated with traditional banks, payment banks reduce exposure to systemic risks and create a more resilient financial model. Additionally, these banks prioritize customer protection by leveraging cutting-edge technology, providing transparency, and employing robust security measures to safeguard customer data. Payment banks also promote financial inclusion by extending basic financial services to underserved populations, empowering individuals and reducing poverty. Furthermore, the rise of payment banks encourages innovation and competition within the banking industry, benefiting customers with improved, user-centric financial products and services. Together, embracing this transformative banking model can prevent future bank collapses and create a more resilient and inclusive financial future.

This blog post highlights the changing dynamics in customer behavior towards locally-owned community banks in the United States since 2022. It emphasizes the importance of personalized service and the ability of these banks to cater to individual needs, providing exceptional customer service. Building trust and relationships is also discussed, with customers gravitating towards these banks due to their transparent operations and dedication to fostering long-term relationships. The post also mentions the surge in customer expectations regarding digital banking capabilities, prompting many locally-owned community banks to upgrade their online and mobile banking platforms. The support for local economies and emphasis on financial education are additional factors that have contributed to the renewed interest in these institutions. Overall, the article emphasizes the importance for locally-owned community banks to adapt to these changing trends to continue thriving and effectively serve their communities.

The recent failure of Silicon Valley Bank has caused major ripple effects in the banking industry, creating significant concerns about potential contagion. The deposit run on the bank was so aggressive that regulators had to step in early to close it down. In the aftermath, another bank, Signature Bank, also failed due to the panic spreading. To prevent further damage, federal banking regulators announced that all deposits of the failed banks would be fully covered, and they introduced an emergency program to provide one-year loans to banks and credit unions across the country. The failure of Silicon Valley Bank was partly attributed to its significant losses from selling bonds, which led to liquidity issues as tech companies it served drew down their deposits.

In a recent blog post, Tod Ellis from PCI Associates highlights the importance of loan reviews in managing credit risk. Loan reviews provide an assessment of the quality of a loan portfolio, including repayment risks, compliance with lending procedures, and lapses in documentation. By conducting loan reviews, banks can identify issues and make modifications to their lending procedures and practices to address those issues. Banks that fail to address problems early are prone to suffering from systemic weaknesses that can lead to a deterioration in portfolio quality.

The loan review process consists of three steps: pre-file review, file review, and post-file review. During the pre-file review, the loan review team reviews loan policies, underwriting guidelines, and key reports to select a representative sample of loans to be reviewed. In the file review, the team meets with the bank's lending staff, reviews underwriting and collateral files, and discusses individual loans with loan officers. Finally, the post-file review involves issuing a formal report summarizing the findings, conclusions, and recommendations of the loan review.

Loan reviews should be conducted by independent teams with lending and credit experience. The length of time spent on a loan review depends on the size of the bank, but the process typically takes between 30-45 days. Ideally, banks should have annual or semiannual loan reviews, but the frequency may be adjusted based on the findings of the review. The most common deficiencies found in loan reviews include inadequate credit initiation and loan structuring, lack of evidence of approval in loan files, and insufficient documentation and monitoring of loans. By addressing these deficiencies, banks can better manage credit risk and improve the quality of their loan portfolios.