Information Technology Risk Management

Banking Crisis Hits Home with Community Institutions

Question: How do you define a community bank?

Answer: When the CEO can walk out onto any street, be recognized and asked "What are you doing with my money?"

So, what's a community bank leader to say when the inevitable question is asked -- 'What are you doing with my money?' 

Suddenly, in the wake of recent bank closings, this old scenario leaps to mind, but now it's no joke. All around the U.S. today, banking customers are talking about IndyMac, First National Bank of Nevada, First Heritage Bank, N.A. And they've got an eye out for their local bank presidents, too, just so they can ask them "What are you doing with my money?"

In a lot of ways, it's a tougher job today to be CEO of Main Street Bank USA than it is to be, say, Chairman of CitiBank or Wachovia. The bigger banks are better funded, after all - they've got assets upon assets to fall back upon when customer confidence is jeopardized. And who knows the Chairman of Wachovia by sight? I'm pretty sure he can walk into his coffee shop in anonymity w/o being pelted with questions.

So, what's a community bank leader to say when the inevitable question is asked? And it is being asked now, as consumers see the headlines and wonder which banking institution is next to fail.

The answer, in part, is that the bank failures represent only the tiniest fraction of institutions in the country; that most banking institutions (including your own) are safe and sound; that the regulatory process is working, and that's why these banks are being dealt with so decisively now, before real harm can be done ...

But you've got another opportunity right in front of your eyes. It's called the Identity Theft Red Flags Rule.

Up until now, all the talk has been about the challenge of meeting Red Flags compliance by the Nov. 1 deadline.

But how about the opportunity that this regulation presents?

Not only can banking institutions stand up and say "Here's how we're combating Identity Theft" - which is a pretty good answer to the companion question, 'What are you doing with my information?' Given that customer awareness is a huge component of Red Flags compliance, banking/security leaders can use these awareness programs to reach out to consumers and educate them more on how institutions operate - the security measures, regulatory checks & balances, myriad ways that consumers and their assets (informational as well as financial) are protected.

What started out as a checkbox for institutions to tell their examiners "Yes, we did it" now can be a soapbox for banking leaders to stand upon and tell their customers "Here's what we're doing."

No one in the industry today has all the answers. But for the banker who can stand up and offer that information before it's even demanded?

Well, that's my new definition of community bank. One that understands and reassures its customers.

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