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BSA Risk Assessment

Risk assessment is the BSA key

Written by admin on . Posted in Blog, BSA & AML, Compliance & Regulations.

By William J. Showalter, CRCM; senior consultant, Young & Associates

Your bank has an opportunity to frame your next Bank Secrecy Act/Anti-Money Laundering/Countering the Financing of Terrorism (BSA/AML/CFT) examination – much as you do your Community Reinvestment Act (CRA) exam by preparing a summary of the “performance context” within which you operate.

The agencies state that a well-developed BSA/AML/CFT risk assessment assists the bank in identifying money laundering, terrorist financing, and other illicit financial activity risks and in developing appropriate internal controls – policies, procedures, and processes. Understanding its risk profile enables the bank to better apply appropriate risk management processes to the BSA/AML/CFT compliance program to mitigate and manage risk and comply with BSA regulatory requirements. The BSA/AML/CFT risk assessment process also enables the bank to better identify and mitigate any gaps in controls.

Risk-focused exam process

The interagency examination procedures provide that the extent of BSA/AML/CFT examination activities necessary to assess the bank generally depends on the bank’s risk profile and the quality of risk management processes to identify, measure, monitor, and control risks, as well as to report potential money laundering, terrorist financing, and other illicit financial activity. Given that banks vary in size, complexity, and organizational structure, the agencies acknowledge that each bank has a unique risk profile, and the scope of a BSA/AML/CFT examination varies by bank.

The first step in a BSA/AML/CFT examination is a scoping and planning process. At this preliminary stage of the activity, examiners analyze existing information about the bank – off-site monitoring information, previous examination reports and workpapers, BSA-reporting databases, other communications with the bank, and independent reviews or audits. Examiners also scrutinize request letter items completed by bank management and, perhaps most important in some ways, the bank’s BSA/AML/CFT risk assessment.

BSA examiners are charged to determine the BSA/AML/CFT risk profile of the bank as a part of the scoping and planning process. The preferred method for accomplishing this goal centers on a review of the bank’s risk assessment. While banks are not required to perform such an assessment, it is central to ensuring that a BSA/AML/CFT program is appropriate for the bank, given its product and customer mix, as well as location risk factors. The agencies consider that an effective risk assessment should be a composite of multiple factors, and depending on the circumstances, certain factors may be weighed more heavily than others.

The information contained in the BSA/AML/CFT risk assessment assists examiners in developing an understanding of the bank’s risk profile, risk-focusing the examination scope, and assessing the adequacy of the bank’s overall BSA/AML/CFT compliance program and its compliance with BSA regulatory requirements.

Examiners are directed to focus, when evaluating the bank’s BSA/AML/CFT risk assessment, on whether the bank has effective processes resulting in a well-developed risk assessment. They are not to take any single indicator as determinative of the existence of a lower- or higher-risk profile for the bank. Any assessment of risk factors is bank-specific, and a conclusion regarding the bank’s risk profile is to be based on a consideration of all pertinent information.

Examiners are to assess whether the bank has developed a BSA/AML/CFT risk assessment that identifies its money laundering, terrorist financing, and other illicit financial activity risks. Examiners are also to assess whether the bank has considered all its products, services, customers, and geographic locations in its assessment, and whether the bank analyzed the information relative to those risk categories.

If a bank has not prepared a BSA/AML/CFT risk assessment, or if its assessment is deemed inadequate, the examiner is directed to discuss this fact with management, as well as prepare their own risk assessment. The reason for this emphasis on a bank-prepared risk assessment is that the bank’s BSA/AML/CFT program should be tailored to the risks it faces, and the agencies see an assessment as an important tool to assist the bank in effectively managing BSA risks and critical in developing appropriate internal controls.

Using your risk assessment

An appropriate BSA risk assessment provides the bank with a foundation on which to build a successful compliance program addressing this area. This risk assessment is not a static document. You will have to monitor changes in the bank’s product offerings (e.g., virtual currency-related services), business environment, regulatory changes, bank personnel, and so forth – and make appropriate changes to policy and procedure – to ensure that the foundation remains strong under the bank’s BSA/AML/CFT compliance program.

The agencies expect that the bank will structure its BSA/AML/CFT compliance program to address its risk profile, based on the bank’s assessment of risks, as well as to comply with BSA regulatory requirements. Specifically, the bank should develop appropriate policies, procedures, and processes to monitor and control its money laundering, terrorist financing, and other illicit financial activity risks.

For example, the bank’s monitoring system to identify, research, and report suspicious activity should be risk-based to incorporate any necessary additional screening for higher-risk products, services, customers, and geographic locations as identified by the bank’s BSA/AML/CFT risk assessment.

Also, independent testing (audit) should review the bank’s BSA/AML/CFT risk assessment, including how it is used to develop the BSA/AML compliance program.

Banks that choose to implement a consolidated or partially consolidated BSA/AML/CFT compliance program should assess risk within business lines and across activities and legal entities.

Consolidating money laundering, terrorist financing, and other illicit financial activity risks for larger or more complex banking organizations may assist senior management and the board of directors in identifying, understanding, and appropriately mitigating risks within and across the banking organization.

To understand money laundering, terrorist financing, and other illicit financial activity risk exposures, the banking organization should communicate across all business lines, activities, and legal entities. Identifying a vulnerability in one aspect of the banking organization may indicate vulnerabilities elsewhere.

Conclusion

The importance of a BSA/AML/CFT risk assessment cannot be overstated. A bank-prepared assessment can establish the direction a bank’s BSA/AML/CFT program will take, as well as guiding BSA exams and other reviews/audits. Just as with a CRA performance context, preparing your own BSA/AML/CFT risk assessment can provide the roadmap to guide your compliance – and examiners’ evaluation of your program. And the agencies have given you a roadmap to guide your risk assessment – the BSA/AML/CFT examination procedures. Use it, if you have not already, before the examiners come for their next visit.

Financial Education

Why banks should invest in financial education for their lenders

Written by admin on . Posted in Advice, Blog.

By Ollie Sutherin, chief financial officer, Young & Associates

Ask a small business owner to name their loan officer, and you’ll usually get one of two answers: a name they remember fondly, or a shrug. The difference often comes down to what happened after the loan closed.

Too often, the relationship ends at funding. The borrower takes the money, and the loan officer goes quiet until another lending opportunity arises or the deal starts to sour. That pattern is so common in our industry that many bankers don’t even recognize it as a problem. But it is a problem, and it’s also a missed opportunity. The loan officer can be far more valuable than a point of contact for money. They can be a source of knowledge and a trusted reference for the small businesses they serve.

The knowledge gap nobody talks about

Community banks live and die by small-business lending, and small businesses are usually run by people who are exceptional at what they do. The contractor knows construction. The restaurateur knows food. The machine shop owner can tell you the tolerances on every part that leaves the floor. What they often do not know, and were never trained to know, are the nuances of bookkeeping, accounting, and tax treatment.

This isn’t a criticism of business owners. It’s simply the reality of how small businesses are built. The owner’s expertise is in their industry, not in debits and credits. Yet their ability to access capital depends almost entirely on how well their financial condition is documented and presented.

That is where the loan officer comes in. The loan officer sits at the bridge between business operations and financial condition. No one else in the borrower’s orbit occupies that position. The CPA sees the books once a year.

The bookkeeper, if there is one, may be a family member doing their best with QuickBooks on weekends. The loan officer, on the other hand, sees the financials in the context of what the business is actually trying to accomplish: growth, equipment, real estate, and working capital. With that vantage point comes not just an opportunity, but an obligation, to assist and educate.

A real-world example

Consider a borrower whose business is genuinely healthy: strong sales, good margins, loyal customers. But when their P&L comes across your desk, you notice they have expensed the principal portion of their loan payments. Their reported income is understated, their balance sheet does not tie, and now your credit department has to spend time untangling something that should have been clean from the start.

A loan officer with solid accounting fundamentals catches that immediately and, more importantly, can explain it to the borrower in plain terms: principal reduces a liability on the balance sheet; only the interest belongs on the income statement. That five-minute conversation does two things. It makes the borrower’s bookkeeping easier going forward, and it makes their true borrowing capacity clearer to the bank. Clearer financials mean faster underwriting, and faster underwriting helps businesses access capital sooner. Everybody wins.

But that conversation only happens if the loan officer knows enough accounting to have it.

The case for investing in training

This is where bank management comes in. Community banks should be making deliberate, ongoing investments in accounting and finance training for their loan officers. Not a one-time orientation, but real education that equips lenders to read, understand, and explain financial statements with confidence. The return on that investment shows up in at least three places.

  • First, better deals reach the credit department. A loan officer who truly understands financial condition knows when a deal is right and when it is not. Requests that should have been declined at the first meeting get declined at the first meeting, instead of consuming hours of analyst time before arriving at the same conclusion. Credit departments at community banks are stretched thin as it is. Lenders who can screen effectively at the point of contact take real strain off the back of the house.
  • Second, complex borrowers get represented accurately. As community banks compete for borrowers closer to the middle market, the financials get more complicated and the questions get harder. Deferred revenue, related-party transactions, owner add-backs, and percentage-of-completion accounting come up constantly with larger borrowers, and credit and loan committees will ask about them. A loan officer who can grasp the financial condition firsthand, ask the right questions of the borrower, and convey the answers clearly to committee is worth their weight in approvals. A loan officer who cannot becomes a relay station for confusion.
  • Third, smaller borrowers get the help they actually need. Many of them are not looking for a sales pitch. They’re looking for assistance, education, and good references. Often a borrower’s financial condition is fundamentally sound; it’s the presentation that’s broken. The lender who can fix that, or point the borrower to someone who can, earns a kind of loyalty that no rate sheet can buy.

Know the tools, share the preferences

Part of being a genuine resource is knowing the resources. Most people in banking can glance at a P&L and recognize which software produced it, and experienced lenders usually have preferences born from years of seeing what comes out clean and what comes out messy. Those preferences should not stay locked in anyone’s head. If a particular accounting platform consistently produces financials that are easy for the borrower to maintain and easy for credit to analyze, say so. Recommend it. Maintain a short list of reputable local bookkeepers and CPAs and hand it out freely.

This costs the bank nothing and makes everyone’s life easier, from the borrower keeping the books to the analyst spreading them.

The payoff

None of this is charity. A borrower who keeps clean books is a borrower whose loan requests move faster, whose covenants are easier to monitor, and whose problems surface earlier, while there is still time to work through them. A loan officer who is a trusted advisor rather than an occasional caller retains relationships through rate cycles and competitive pressure. And a bank known in its community as the place where lenders actually help you understand your business attracts the kind of word-of-mouth referrals that no marketing budget can replicate.

The math is simple. Invest in your loan officers’ financial education, and they will invest it right back into your borrowers. The credit department gets cleaner deals, management gets better profitability, and small businesses get the partner they have been missing. That is community banking at its best.

Checking Account

The “gateway” strategy: Turn a checking account into a long-term customer relationship

Written by admin on . Posted in Advice, Blog.

By Joseph Ciccolini, content marketing associate, Young & Associates

Marketing often takes a back seat at financial institutions. While many recognize its potential to drive new accounts and attract customers, institutions frequently underemphasize its role as a revenue-generating function. In many cases, the solution already exists but needs to be positioned more effectively: cross-selling, particularly through the “gateway” product that establishes a primary relationship.

For financial institutions, profitability is not just about volume growth but also depth in relationships. Checking accounts provide a natural starting point for building stronger customer engagement, increasing retention, and expanding cross-sell potential.

A 2025 Jack Henry Strategy Benchmark identified top priorities for bank and credit union CEOs, including improving efficiency, driving deposit and loan growth, acquiring new accountholders, and expanding solutions for small and medium-sized businesses. Checking account acquisition directly supports each of these priorities by establishing a primary customer relationship that enables deeper engagement, stronger retention, and increased opportunities for cross-selling.

Consumers typically define their primary financial institution as the one where they hold their primary checking account. That account serves as the gateway to cross-selling opportunities and deeper customer relationships. Primary financial institution relationships are remarkably stable, with customers staying with the bank for an average of eight to 10 years and using five to six products and services per household. Without it, customers are less likely to view the institution as their primary provider. Instead, the relationship resembles the financial equivalent of a secondary streaming service — used occasionally, but not the go-to.

What strategies can institutions use to encourage customers to open a checking account and become primary accountholders? One effective approach is a drip campaign.

Checking Account Stats

What are drip campaigns?

Drip campaigns are a form of email marketing that deliver targeted messages over time to encourage engagement and keep your institution top of mind with customers and prospects. By providing relevant, valuable information, these campaigns guide customers toward action through continuous communication. This approach helps institutions nurture leads and build strong, long-term relationships.

In this context, a drip campaign supports the goal of securing the “gateway” cross-sell in the form of a checking account. Once a customer opens a checking account, the likelihood of becoming a primary accountholder increases significantly, along with opportunities to expand the relationship.

Cross-selling differs from upselling by focusing on complementary products that enhance the customer relationship and increase overall value. The checking account serves as the entry point for this strategy. Once established, institutions can introduce additional products — such as debit cards or certificates of deposit — in a way that aligns with customer needs and behaviors.

Why drip campaigns can outperform cash incentives

Some institutions may already rely on cash incentives to encourage checking account acquisition. However, a 2025 ProSight industry outlook found that only 27 percent of consumers who recently switched institutions cited a cash incentive as the primary reason. Instead, institutions should identify customer needs, understand the challenges they can solve, and promote those solutions effectively.

Drip campaigns play a key role in this strategy by delivering relevant, timely messaging directly to customers. These campaigns help move prospects from consideration to conversion while setting the stage for meaningful interactions.

Gallup’s 2021 retail banking study found that high-quality conversations significantly improve sales conversion rates. When customers initiate the conversation, conversions are 1.6 times more likely compared with low-quality interactions. When employees initiate high-quality conversations, conversions are 4.2 times more likely. Drip campaigns can help prompt these conversations by engaging customers before direct interaction occurs.

Conclusion

Financial institutions should treat checking account acquisition as a critical step in attracting and retaining customers. According to the J.D. Power 2026 U.S. Retail Banking Satisfaction Study, key engagement metrics are beginning to decline as customers increasingly open accounts with multiple institutions. This shift creates a clear opportunity to attract new customers and strengthen relationships through effective cross-selling.

All of this can start with a checking account. Financial institutions should move beyond traditional go-to-market approaches and adopt a marketing-led strategy that prioritizes engagement, not just acquisition. By using tools like drip campaigns to convert and deepen relationships, institutions can turn checking accounts into a foundation for long-term growth and differentiation.

Healthy Bank Portfolio

Why your “healthy” portfolio might be a time bomb

Written by admin on . Posted in Blog, Risk Management.

By Jerry Sutherin, CEO at Young & Associates

A community development financial institution (CDFI), a mission-driven lender that uses public and private capital to serve underserved communities, can appear healthy on the surface, with steady interest income and consistent growth. Because CDFIs often lend in distressed markets and to borrowers outside the traditional financial system, their portfolios carry unique and sometimes less visible risks. Interest income can mask a weakening foundation of documentation and systemic exposure. Financial history is filled with institutions that appeared stable until hidden vulnerabilities triggered catastrophic deterioration. The difference between sustainable CDFIs and those that fail is not luck. It is the rigor of their internal credit administration.

While front-end underwriting controls risk at origination, institutions must shift to active risk management once a loan is booked. This is where the loan review, an essential but frequently misunderstood strategic tool, serves as your early warning system. It identifies internal weaknesses and “invisible leaks” before they become irreversible financial losses.

Strategic oversight vs. detailed loan file review

In CDFI management, it is critical to distinguish between a high-level portfolio overview and a detailed loan-level audit. While a portfolio review assesses the “big picture,” focusing on geographic, borrower, or other risk concentrations, it cannot replace the granular insights of a loan review.

This assessment is anchored to a specific date, which establishes a clear snapshot of loan quality and ensures findings remain objective. A high-level trend analysis will miss the granular policy deviations that only an individual file examination can reveal.

An independent loan review performs the following functions:

  • Evaluates individual loans and repayment risk.
  • Verifies adherence to internal lending policies and procedures.
  • Identifies gaps in loan file documentation.
  • Communicates high-priority credit risk findings.
  • Recommends actionable improvements to policies and practices.
  • Validates the accuracy of internally assigned risk ratings.

The power of the independent eye

For a loan review to provide strategic value, it must be conducted with objectivity. This requires a strict “independent eye.” Individuals involved in the lending process, including members of the credit committee, should not participate in the review.

Familiarity creates blind spots. Lending staff may overlook a missing document or a policy breach because they “know” the borrower.

Independence also serves as a key control against internal fraud and theft — risks that directly affect a CDFI’s bottom line. Whether utilizing external consultants or internal staff outside the lending function, the goal is to provide the board of directors with objective, unfiltered data on loan quality.

Why paperwork errors are principal risks

CDFI managers often dismiss administrative lapses as routine paperwork. These are technical and legal failures that expose the institution to civil money penalties or the total loss of principal.

A high-priority finding often involves insurance documentation. There is a critical legal distinction between being listed as an “additional insured” versus a “mortgagee.” Missing this distinction means the CDFI is unprotected if the collateral is destroyed.

Other common deficiencies include:

  • Incorrect naming of the CDFI’s role on insurance certificates.
  • Missing documentation of physical inspections of the business or collateral.
  • Failure to implement post-closing follow-up to ensure receipt of all required loan documentation.
  • Having a robust internal exception tracking system where results can be easily conveyed to the board of directors.

These are not just errors— they signal systemic weakness. Additionally, all financial institutions must track the migration of risk ratings as they change. Risk rating changes of 10 percent or more during a loan review indicates systemic issues and warrants a closer review of the Bank’s Allowance for Credit Losses (ACL), their primary safety net.

Judgment and analytical failures: realism vs. optimism

Loan review also addresses lender optimism that can cloud internal analysis. Two common areas of analytical weakness include income projections and collateral valuation.

Income projections

Lenders often rely on projected net income rather than historical performance. While quality projections are useful during the analysis process, they need to be realistic, achievable and used alongside historical results to provide a comprehensive analysis of a company’s ability to satisfy its debt obligations. A rigorous loan review identifies this issue and prioritizes analysis based on future expectations and demonstrated results, a more reliable indicator of repayment capacity.

Collateral valuation

Many CDFIs rely on market value; however, a strategic loan review emphasizes liquidation value. Market value reflects ideal conditions, while liquidation value provides a more realistic assessment of recoverable collateral in the event of default. It clarifies what the institution can expect to recover if it must seize and sell an asset. Building a culture of sustainable credit risk management.

The final output of this process is a hierarchy of findings that allows a Board to prioritize its response:

  • High Priority: Policy violations that risk loss of principal or legal penalties.
  • Moderate Priority: Issues that deviate from the institution’s own internal practices.
  • Low Priority: Suggestions for adopting industry-wide best practices.

The Board should be actively involved in determining the scope and frequency of internal or external loan reviews. Regular reviews — annually for most, or semi-annually for larger, more complex financial institutions — are essential to catch systemic weaknesses before they become terminal. The scope should focus on the inherent risk of the portfolio as determined by the Board and the Bank’s adopted policy.

Addressing these issues early transforms risk management from a reactive chore into a proactive strategy for long-term impact. Institutions should evaluate whether their risk management framework serves as a true preventive control or simply responds to failures after losses occur.

Learn more about our loan review services here. 

Digital Marketing Strategy

Is your marketing engine a well-oiled machine? Or just a collection of shiny parts?

Written by admin on . Posted in Advice, Blog.

By Nicole Conrad, director of marketing, Young & Associates

In the current landscape of financial services, community bank marketing leaders are often distracted by the latest “shiny new toys.” From generative AI and complex CRM suites to automated social media engines, the promise of a technological silver bullet is everywhere. Yet, despite these investments, many community institutions still struggle to compete with national banks.

The success of AI tools and digital marketing depends on the strength of the strategy behind them. To compete effectively, you must focus on the fundamentals before layering on advanced technology. Technology can only accelerate the direction you are already headed; if your foundation is weak, technology can exacerbate existing issues and contribute to more severe organizational failures.

A high-performing marketing engine is not a collection of disconnected parts. It is a unified system built to achieve the only goal that matters: long-term, profitable customer loyalty.

Revisiting your institution’s marketing basics

Digital marketing and AI implementation depend on the strength of your underlying strategy. Investing in marketing software without a clear plan can waste capital and human resources. To diagnose the health of your marketing engine, you should audit your marketing foundation against three questions:

  • Who is our target? Have we identified the specific segments that view us as a primary partner, or are we casting a net so wide it catches nothing?
  • What is our value? Is our value proposition strong enough to overcome the inertia of switching, or are our products too complex for our own staff to explain?
  • Where is the trust? Are we deploying our message through channels the consumer actually engages with and trusts?

Without these answers, technology cannot bridge the gap between a bank and its customers. Marketing only generates ROI when the right message reaches the right person at the right time.

The right person: Humanizing your brand through buyer personas

Understanding your target audience requires stepping outside your role as a banker and seeing the experience from their perspective. Today’s consumer is not just looking for a transaction; they want to feel an authentic human connection and see their own identity reflected in the brands they choose.

This is where buyer personas come in. A buyer persona is a fictionalized version of your ideal account holders based on demographic data and qualitative research into their goals and concerns.

Buyer personas may include:

  • Demographics, such as age and gender, location, economic status, and marital or family status.
  • Qualitative drivers, such as goals, pain points, concerns, and desired outcomes.
  • Behavioral habits and preferences, such as media consumption, banking habits, and technical expectations.

Your buyer personas should evolve with consumer preferences and the digital landscape. When you know exactly who the customer is, you can stop the “shotgun approach” and meet them at the right time with a message that resonates. This allows you to tap into a “consciousness of kind” — that intrinsic understanding that your bank and its customers belong to the same community and share the same values.

For the community bank, humanizing the brand is a competitive advantage. National banks have three times as many customers per branch compared to the average community institution. This density forces them into cold, numbers-driven business models. You have the capacity to treat customers as people, and this is nonnegotiable in today’s market.

According to Salesforce’s State of the Connected Customer report, 84% of customers say being treated like a person, not a number, is very important to winning their business.

By deeply understanding who your customer is, you move from being a commodity to being a neighbor. Knowing the persona helps you predict the right time to connect, meeting the customer where they are in their decision-making journey. If you don’t know who you are talking to, don’t be surprised when no one listens.

The right time: Understanding the buyer’s journey

We are seeing a fundamental shift from outbound, interruptive marketing to inbound, helpful marketing. Inbound marketing focuses on being where the consumer is with the answers they need. The buyer’s journey supports this approach by nurturing the relationship, so the message evolves as the customer moves through each touchpoint.

The buyer’s journey is the process a person goes through before they open an account or sign a loan. It typically consists of three core stages:

  • Awareness: The individual recognizes a financial problem or need.
  • Consideration: The individual researches various solutions and providers.
  • Decision: The individual selects a specific institution.

Mapping this journey is vital because banking is not an impulse purchase. Market data confirms that most banking shoppers begin their research two to three months before they switch institutions. This “invisible” phase is where banks may lose prospects by trying to close the sale too early.

To be successful, you must nurture them through various touchpoints, from helpful blog posts and social media tips to personalized emails and direct mail. The right message will change depending on where they are in this journey; you wouldn’t offer current car loan rates to someone who is just starting to save for their first vehicle.

The right message: Building your messaging matrix

Once you have your personas and their journeys mapped, you can build a strong messaging matrix. This combines your unique value propositions (UVPs) with the specific needs of each persona at each stage of the journey. The primary goal of a messaging matrix is to solve the difficult challenge of getting the right message to the right person at the right time.

Start with a basic messaging guide. Create a grid that crosses your personas with the stages of their journey. For each intersection, determine which UVP best solves that persona’s problem at that specific time.

Example: An “Awareness” message for a first-time homebuyer might focus on “Can I afford a house?” whereas a “Decision” message would focus on your specific loan application tips and competitive rates.

By mapping messages to specific audience needs, the bank provides content that is meaningful to the consumer’s current situation and avoids burdening people with irrelevant content.

Documented messaging provides staff and brand advocates with a custom-made set of points that capture the heart of the brand. This prevents the brand voice from becoming diluted or fragmented across different channels. This guide offers a straightforward approach to educating employees and reinforcing consistent marketing messaging throughout your organization, transforming your workforce into brand advocates.

A high-performing marketing engine is not a marketing task; it is a core organizational strategy. It requires executive buy-in, strong execution in the branches, and a marketing team that knows how to drive traffic to both digital and physical locations.

AI and digital tools have changed the speed of the race, but not the rules. These tools amplify what already exists: a strong strategy becomes stronger, and a fragmented strategy becomes weaker. If your foundation is built on the right message, the right person, and the right time, technology can help you take you to the finish line. If not, no amount of shiny parts will save you.

We would welcome a conversation to discuss your institution’s business and marketing strategy and be happy to help build out your strategy. Learn more about our strategic planning services here. 

Compliance accountability

The key to compliance success – accountability

Written by admin on . Posted in Blog, Compliance & Regulations.

By William J. Showalter, CRCM; senior consultant, Young & Associates

The financial industry recognizes compliance as a high-risk function. Failure to manage it effectively can result in high costs to an institution, as witnessed by many supervisory enforcement actions and fair lending settlements over the years.

Compliance management is an important element of an institution’s overall risk management efforts. It makes sense for line managers—those whose operations generate either compliance or noncompliance—to “own” compliance, just as they do all other elements of the institution’s overall risk. To make compliance management work effectively and efficiently, senior management must give line personnel the tools to succeed at compliance and hold them responsible for their results.

When senior management establishes accountability and all staff believe in it, and when the institution measures compliance performance in a meaningful way, the institution can achieve positive compliance results.

As with other aspects of compliance management, identifying and categorizing levels and types of compliance risks are critical to both efficient operations and effective outcomes in any system of enforcing accountability.

Noncompliance as risk

In recent years, the federal agencies have made a fundamental shift in the way they examine financial institutions for compliance within their overall examination process over a decade ago – to handling it with a risk-based methodology. Examiners design programs to focus attention on areas within financial institutions that may pose the most significant risks, including compliance.

The agencies work to promote a sound risk-management process at each regulated financial institution, one centered on the evaluation and management of risks. The agencies try to help financial institutions implement compliance programs that focus on anticipating, evaluating, managing, and communicating about key compliance risks.

“Compliance risk” means the risk to earnings or capital that arises when institutions violate or fail to conform with laws, rules, regulations, prescribed practices, or ethical standards.

The agencies’ examination procedures provide that compliance risk can damage an institution through any or all of the following consequences:

  • Regulatory or judicial fines and penalties
  • Payments of damages to aggrieved parties
  • Voiding of contracts
  • Diminished reputation
  • Reduced franchise value (due to monetary and reputation losses or penalties)
  • Diminished business opportunities
  • Lessened expansion potential (e.g., when fair lending or Community Reinvestment Act problems delay or disallow corporate changes, mergers, or acquisitions)

The supervisory agencies recognize that an important element in avoiding these risks and their resultant costs is an effective accountability system, where institution staff feel they own their pieces of the overall program.

Establishing accountability

A solid design must form the foundation of an effective accountability system. The system needs a few key elements to succeed: management commitment, appropriate training and communication for all staff, regular and independent performance testing, and consistent enforcement of responsibility.

  • Management commitment. Solid support from both the board of directors and senior management is vital to the success of any compliance (or other) management function. It should also be seen as in their best interests since the risks and penalties for noncompliance are tremendous, and the board and management are the ones ultimately responsible for the compliance (and other) performance of the institution. Management and the board need to understand the true importance of compliance – it is not a job to be relegated to one person, or a small group, and ignored by everyone else. “Everyone else” includes the ones who drive the institution’s compliance performance, and they must be given the tools to succeed at it and be held accountable for their results.
  • Training and communication. Training is the foundation for effective compliance, and effective accountability, since employees cannot be expected to comply with the plethora of laws and regulations that impact banking today if they have not been given appropriate instruction as to what is required of them. In structuring a compliance training program, the first step is a needs assessment – types of products and services offered, current level of staff knowledge, problems identified in audits and examinations, and so forth. The goal of the compliance training is to provide line officers and other staff with the information they need to produce positive compliance results in their particular area or job. It is not to be an exercise in information overload. Therefore, the person in charge of training (whether classroom, online, etc.) needs to scope out the proper laws and regulations to be covered, how to tie these rules in to the institution’s functions, what media and tools to use, and so forth. Communication of compliance information on a regular basis is an important complement to the “regular” training. It helps keep staff aware of changes in the compliance rules and expectations, as well as keeping compliance issues on their “radar screens.”
  • Testing. A good compliance internal review program – both periodic audits and ongoing monitoring – can serve several goals. These include giving an early warning of problems, providing a defense against litigation, and meeting regulatory expectations, in addition to furnishing measurements of department/area or individual performance.
  • Enforcement. Without consistent enforcement of accountability for compliance performance, all the other elements are pretty much for naught. If individual line managers and other personnel are “let off the hook” for poor compliance performance because, for example, of high loan production volume, then the system likely will fail.

Making it work

Human nature being what it is, there need to be incentives for good compliance performance and, perhaps more importantly, disincentives for poor results. If management does not hold all staff to the same standards, then any calls for strong results and performance will ring hollow. Employees who the institution continues to hold to proper standards will begin to resist, since management expects them to meet measures that others do not. Such a “program” is unfair and cannot succeed.

Institutions should factor compliance performance elements into job descriptions, performance evaluations, and incentive pay. It needs to be clear that line managers are ultimately responsible and accountable for compliance performance in their areas, and that compliance is an explicit part of everyone’s job.

If there are line managers who cannot or will not take responsibility for their own or their area’s compliance performance and, therefore, expose the institution to risk, the institution should send them packing and replace them with managers who are positive about compliance issues and willing to take on this important obligation.

Otherwise, the institution has to pay for expensive, redundant processes to check the work of that person(s) or area and fix their errors. Running such a “fix-it” shop is not the efficient route to take in managing compliance. When management establishes and enforces accountability, it can achieve the lowest-cost compliance — compliance embedded in normal operations rather than added on after the fact — with everyone working to get it right the first time.

Management can use an accountability matrix as a tool to run an accountability system. Institutions can customize the matrix to fit their specific situation, structure, and needs. The matrix helps management ensure that someone or some area takes responsibility for each compliance rule or issue that affects its lines of business. It should spell out the rules or issues, who is responsible for them, which areas they impact, and so forth.

Conclusion

Accountability for compliance performance – good or bad – is essential for an institution’s success in effectively managing its compliance function. Properly structured and enforced, a strong accountability program helps ensure cost-effective positive compliance results.

The CFPB and other compliance trends

Written by admin on . Posted in Blog, Compliance & Regulations.

By Bill Elliott, CRCM; director of compliance education, Young & Associates

The White House announced in April 2025 that its goal was to reduce the number of employees in the CFPB by about 88 percent, to 207 positions, but that decision was blocked by the courts. The decision also resulted in a lawsuit brought by the CFPB employee’s union, but since the “One Big Beautiful Bill Act” cut the CFPB funding by about half, even if the union prevails, it is unlikely that all employees will return to work.

During the first year of the Trump administration, the CFPB removed approximately 70 pronouncements. Many of those were out of date, archaic, and no longer useful. But some of them were protections that were proposed and finalized during the latter days of the Biden administration. However, they were never actually enforced.

Overdraft fees

One form of relief that consumers lost was a limit on overdraft fees. This has been an ongoing discussion for many years. Between those that believe it was unfair that lower income individuals paid the majority of the overdraft fees vs. others who believe that the culprit is financial mismanagement by consumers. The Biden CFPB finalized the overdraft regulation in 2024 but Congress overturned the regulation last year. This effectively eliminated this discussion for now.

Credit cards

The CFPB also tried to cap the amount of money consumers pay to credit card companies for late charges. The proposed limit for many would have been $10. The regulation was blocked by a federal court last year. The CFPB, under the control of the Trump administration, decided not to fight the matter in court.

Stack of paper complaintsLawsuits

The CFPB also withdrew several lawsuits.

We will mention two examples.

  1. The CFPB sued Capital One in January 2025 for $2 billion. They alleged that Capital One has misrepresented the interest rate paid on its savings accounts to customers. That lawsuit was dismissed.
  2. The CFPB also sued Early Warning Systems, the company that runs the money transfer service Zelle, in December 2024 for $870 million alleging that the EWS and the banks that operate Zelle were negligent in protecting consumers from fraud and scams. That lawsuit was also dismissed last year.

Complaints

There has also been a slowdown in the number of complaints resolved by the CFPB. The CFPB runs its own consumer complaint database, where a consumer can allege wrongdoing by their bank or financial services company and the CFPB will act as intermediary between the consumer and financial company to resolve the complaint. Under the Biden CFPB, roughly half of all consumer complaints were resolved with relief for the consumer, while under the Trump CFPB, that figure has dwindled to less than 5 percent, largely due to the staffing issues discussed above.

Compliance examinations

Following the CFPB lead, the prudential regulators (OCC, Federal Reserve, and FDIC) have all indicated (with some differences) that they are going to be changing the methods for compliance examinations. Future examinations will likely be more risk focused.

Since the regulators are going to be more targeted in their approach, they are essentially relying on banks to police other areas of compliance themselves. The examiner will likely spend more time reviewing your compliance program, and especially your compliance audit program, to assure it is functioning appropriately.

Banks must adjust accordingly, and compliance audit will (at least for some banks) need to be improved. Whether your compliance auditor/reviewer is internal or external, you need to assure that you do not get so relaxed that when the regulators do appear, you pay the price of not being properly prepared.

Time between examinations

The time in between examinations is also likely to increase. For the regulators, this will allow them to review banks using fewer examiners.

While that appears to be a “win” for banks, banks need to be careful. For instance, should you receive a “needs to improve” or “substantial noncompliance” CRA rating, you may have to live with the negative consequences of that rating for longer periods of time.

Conclusion

As you’re reviewing your compliance program, assure that all necessary pieces are in place, including compliance review/audit. It is unlikely that there will be many new regulations in the next few years. This should allow bank to ensure that they are in full compliance with the regulations that exist.

Floor Plan audits

The importance of floor plan audits for lending institutions

Written by admin on . Posted in Blog, Lending & Loan Review.

By Wendy Dancer; consultant, Young & Associates

Auditing your institution’s Floor Plan borrowers can seem like a tedious and time-consuming task. Workload is already heavy, weather is bad and frankly, who has the time to go out and touch hundreds of cars, motorcycles and boats? Your borrower is doing fine… until they are not.

As an example of a cautionary tale, I was personally involved in a Floor Plan audit that “seemed off”. The used car lot dealer was paying off vehicles on the line as expected, when it was discovered that the subject automobiles were still physically on the lot. Then mysteriously, the same autos would get added back to the line a month later. Long story short, the dealer had taken out a 2nd floor plan line with a private finance company. Vehicles were not getting sold; rather, the Floor Plan lines were being treated as a shell game to hide business decline.

This was the red flag that tipped us off on much larger business issues, which sadly ended in the dealership closure and a work-out loan situation for our institution. Below is an overview of why skipping Floor Plan audits is not in your institution’s best interest and a way to avoid the above scenario.

What are floor plan audits?

A Floor Plan audit is a physical verification of financed inventory. Auditors confirm that units pledged as collateral exist, are located where reported, and match lender records in terms of serial numbers, condition, and status (new, used, sold, or in transit). These audits may also include reviews of sales documentation, titles, and payoff activity.

Risk mitigation and collateral protection

Floor Plan lending is essentially asset-based lending. If inventory disappears, is sold out of trust, or is inaccurately reported, the lender’s collateral position is immediately compromised.

Regular audits help:

• Detect missing, sold-out-of-trust, or misrepresented units early
• Verify that financed inventory aligns with borrowing base reports
• Reduce the likelihood of large, undiscovered losses

Early detection is critical. Identifying discrepancies after weeks or months can significantly increase loss severity.

Fraud detection and deterrence

Floor Plan audits act as both a detection mechanism and a deterrent. The knowledge that audits are conducted regularly discourages intentional misreporting, double flooring, or concealment of sales proceeds. Auditors can uncover red flags such as altered VINs, falsified documentation, or repeated delays in payoff—often before fraud escalates.

Portfolio monitoring and credit quality

Audits provide lenders with real-time insight into dealer operations and financial health. Patterns observed during audits—such as chronic shortages, poor recordkeeping, or inventory aging—can signal deeper issues like cash flow stress or operational weakness.

This information allows lenders to:

  • Adjust credit limits or terms proactively
  • Increase monitoring on higher-risk accounts
  • Make informed renewal or exit decisions

In this way, Floor Plan audits serve as an early warning system rather than just a compliance exercise.

Regulatory and policy compliance

Many lending institutions are subject to internal policies, investor requirements, and regulatory expectations related to collateral verification and risk management.

Consistent Floor Plan audits help demonstrate:

  • Sound underwriting and ongoing credit administration
  • Adherence to internal risk management standards
  • Responsible stewardship of depositor or investor funds

Well-documented audits also provide defensible support in the event of disputes, charge-offs, or regulatory reviews.

Strengthening dealer relationships

While audits are often viewed as intrusive, when handled professionally they can strengthen lender-dealer relationships. Clear expectations, consistent audit schedules, and transparent communication help reinforce accountability on both sides. Audits can also surface operational inefficiencies at the dealer level, creating opportunities for corrective action before problems become critical.

Adapting to a changing lending environment

As floorplan portfolios grow more complex—with multi-location dealers, mixed inventory types, and rapid turnover—audits remain one of the few ways to independently validate data. Hybrid and technology-assisted audits now allow lenders to balance thorough oversight with efficiency, making regular verification more practical than ever.

Conclusion

Floor Plan audits are not merely a back-office function. They are a cornerstone of prudent Floor Plan lending. By verifying collateral, deterring fraud, monitoring credit quality, and supporting compliance, audits protect both lenders and their dealer partners. In an environment where inventory values are high and margins can shift quickly, consistent and well-executed floorplan audits are essential to sustainable, profitable lending.

Consistent, independent audits are key to protecting collateral and ensuring sound portfolio management. Young & Associates provides lending process review services to help institutions strengthen oversight and maintain credit confidence. Additionally, Y&A Credit Services provides ABL field exams that give lenders a clear, objective view of collateral strength.

AI

AI technology in the workplace

Written by admin on . Posted in Blog, News, Risk Management.

AI GlassesBy Bill Elliott, CRCM; director of compliance education, Young & Associates

We have recently been made aware of new artificial intelligence (AI) technology that may create additional risk for banks. Apparently, a bank employee had a pair of glasses that doubled as an AI recording device. These glasses were worn to work and were capable of recording private conversations without anyone’s knowledge. It is unclear whether the glasses included video, but that of course is possible. This new technology is being used for a variety of purposes and is continuing to develop.

This is a compliance issue regarding privacy of customer information. If the glasses have a camera and, thus, can “see” and perhaps “record” computer screens of customer information and other bank information, there is potential for substantial increases in your risk under the privacy regulations.

There are also state and federal laws to take into consideration, depending on how the glasses are used. In any case, it is advisable to speak with your bank’s attorney on how to address and handle this new AI technology, as your current human resources (HR) and/or ethics policies likely do not address this issue.

We also recommend that you consider any other changes that may be necessary, as all institutions are going to be facing other manifestations of AI in the not too distant future.

This AI technology may not be in use at your bank yet. However, it is only a matter of time before it will be.

ABL financing

The benefits of asset-based lines of credit for contractors and lenders

Written by admin on . Posted in Advice, Blog, Lending & Loan Review.

By Patrick Lilly; senior consultant, Young & Associates

Asset-Based Loans (ABL)

Asset-Based Loans (ABLs) are usually structured as revolving lines of credit that are secured by the borrower’s current assets. The amount of credit made available is determined by the quality and value of the collateral. Usually accounts receivable, inventory and sometimes equipment and real estate, depending on industry risk.

In this article, we will focus on General Building and Engineering Contractors, Trades Sub-Contractors, and construction-related services providers having current asset concentrations in accounts receivable. These types of businesses typically experience large swings in cash flow while awaiting progress payments or final payments on contracts, goods supplied, and services rendered. The ABL line of credit provides interim working capital to these companies. This helps to smooth out the peaks and valleys of payments received from their customers.

How it Works

Working with a pre-determined loan limit based on actual and projected needs, borrowers can access a percentage of the value of their pledged assets, depending on the current certified value of those pledged assets.

These loans require a close level of monitoring. The frequency is determined by the size of the loan and industry risk. This usually entails monthly or quarterly reporting requirements on the company’s financial status. This usually consists of a financial statement, accounts receivable, and accounts payable agings of even date, a certification from the company’s responsible financial officer and a borrowing base certificate (BBC), which sums up the amount of credit available based on the asset values.

Prudent Underwriting Guidelines

Loan Amount:

  • Starting with the requested amount of loan, a thorough analysis of the projected cash flow needs of the borrower should be undertaken. An improper loan limit can spell problems for both the contractor and the financial institution. If too little of a limit is approved, the contractor can run short of necessary working capital. This can create a negative effect on performance. Too much of a limit approved invites spending on fixed assets due to the relative ease in access to the loan proceeds and a sizable unused commitment impairs the financial institution’s overall lending and earnings capacity.
  • Accounts receivable aging reports are an absolute necessity for this type of financing. Carve-outs based on the age and/or nature of a receivable are predetermined as conditions of the eligibility of any particular account receivable. Typical carveouts are the exclusion of any AR over 90 days aged, the elimination of any intra-company or employee receivable and the elimination of receivables that are concentrated with one customer which total more than 15-20 percent of the total amount of receivables.

Reporting Requirements:

  • The borrower is typically required to report on a monthly or quarterly basis. The nature of the reporting should consist of:
    • A current (less than 30 days aged) monthly or quarterly financial statement
    • Accounts receivable detailed aging of even date and balance as indicated on the financial statement.
    • Accounts payable detailed aging of even date and balance as indicated on the financial statement.
    • A BBC supplied on a form approved by the lender that mirrors the information on the agings, subtracts ineligible ARs and taxing authority payables, states the balance on the loan and the amount available to draw on the loan. This form should be completed, signed and dated by the authorized borrower representative.

Audit requirements:

  • On larger and more complex borrowings, the lender needs to impose strict reporting requirements to protect the interests of the lender. This usually consists of:
    • Reviewed quality or better financial statements from the borrower due bank on an annual basis. (Usually no more than 90 days after the prior YE period)
    • Internally prepared and attested financial statement from the borrower on a monthly or quarterly basis. (Due lender no more than 30 days from the prior month or quarter ending period)
    • Depending upon the size, complexity and nature of the borrower, the lender may require a periodic field audit conducted by a qualified third party inspection firm as outlined in the Asset Based Loan Agreement. This audit reconciles the financial statement with the schedule of accounts receivable and payable, inventory activities and the most recent BBC. Such audits are integral to maintaining the integrity of the borrower relationship. They also protect the bank’s investment in the credit and its collateral position.

Other conditions:

  • The lender should consider CAPEX usage restrictions on proceeds of the line.
  • While ABL RLOCs rely on the cash conversion cycle for repayment, minimum pre and post distribution EBITDA DSCR covenants in combination with other standard C&I lending covenants such as minimum working capital or current ratio are prudent.
  • The borrower’s key suppliers should be contacted for credit reference.
  • Governmental contracting can result in extended terms. That may impair the bank’s ability to exercise assignment rights to receive direct payment in a collection action.

ABL financing can lead to a fuller relationship with a borrower. This can be beneficial to both the borrower and the lender. If managed and monitored properly, these types of loans can be valuable and profitable assets to the lender. It can then result in long term and expanding relationships.

SVB lawsuit reinforces the cost of weak model assumptions

Written by admin on . Posted in Blog, Compliance & Regulations, Liquidity Review.

By Michael Gerbick; president, Young & Associates

Last year the FDIC filed a lawsuit against 17 former executives and board directors of Silicon Valley Bank (SVB) for alleged negligence and breach of fiduciary responsibility, which led to the collapse in March 2023. We all know what happened with SVB and the other institutions that failed around this time in 2023.

I reviewed the FDIC’s lawsuit again this year, given the current rate environment. A particular section of the lawsuit sticks out to me on assumption adjustments extending the average life of deposits and resulting EVE at risk after the adjustment.

“As reported in a May 24, 2022, presentation to the Asset Liability Management Committee, SVB’s officers implemented this plan by changing the curtailment assumption from 5.5 to 12 years…. Without any valid justification for the change.”

SVB Graph

Why you need to justify your model assumptions

Many ALM and Liquidity models continue to improve with the integration of institutions’ core systems and considering additional details of your assets and liabilities. The institution’s model assumptions and governance remain critical to the reliability of the model’s forecasts. Model assumptions should be supported, reasonable, and appropriate. Strong governance also includes documentation of model development and validation that is sufficiently detailed to allow parties unfamiliar with a model to understand how the model operates, as well as its limitations and key assumptions. Assumptions reflect our prediction of customer behavior. Because behaviors can change quickly, institutions should review assumptions regularly. A method to identify risk is to stress these assumptions.

Specific to liquidity modeling and deposits, I want to dive into a few assumptions for stress testing. As we have exited the pandemic environment of zero rates and the rapid hike of 550 bps, we learned a considerable amount regarding customer behaviors. First and foremost, assumptions that modelers applied to historic trends may not translate the same way today. The rate increases and available technology created an environment where savvier depositors now demand a higher rate of return on what institutions once viewed as less price-sensitive core deposit categories.

Regarding liquidity, institutions had to provide more competitive pricing on their non-maturities, different products (perhaps CDs with higher rates of return), or experience runoff and leverage wholesale funding at a higher rate than they were accustomed to with the core deposit. Historic customer behavior trends of the past are a key component, but not the only component for developing assumptions to the models.

That rate environment is in the past, but the savvy customer remains in today’s environment. The deposit composition at many institutions changed. Customers are comfortable leveraging technology to move money in and out of an institution to a more favorable situation, no longer assumed to be as loyal as they once were. It is not a conclusion that behaviors experienced in 2020-2023 will remain, but it is prudent to consider the technologies available today and this history in how institutions establish model assumptions and stress testing. The stress tests should reflect the specific institution, risk profile, and hypothetical scenarios.

A set of valuable stress levers for consideration are:

  • Runoff by deposit type and customer (if available). Historic trends may be helpful for a baseline, but the rate environments these trends may be based on could be from 5+ years ago.
    • Regulators encourage institutions to review and stress the rate of runoff. More competitors exist today in local markets with online banks, fintech and brokerages. Consider various product types and how customers may react under various stresses. Scenarios may include only retaining a percentage of CD balances, Money Markets runoff may be different than Savings accounts or Large Uninsured Deposits. If the ability to review customer level behavior focused on movement between accounts, the institution may be able to incorporate insights into the overall stress tests. Strategic plans may follow the insights gained from the stress tests.
    • Leverage the customer level behavior knowledge for strategies to provide more valuable products and services, consider digital marketing efforts (and partners), consider total relationship (deposits) when a new lending relationship develops.
  • Access to Wholesale Funding.
    • Consider haircuts on availability or inability to access line of credits from providers. Consider stress scenarios in which management cannot access brokered deposits they rely on to offset core deposit runoff.
    • Some institutions have agreements in place but do not regularly leverage wholesale funding. Testing these lines (at least) annually helps ensure personnel know how to quickly access the funds, minimizing risk of disruption when it comes time to leverage them.

The lawsuit above accuses SVB of adjusting its assumptions without justification. I encourage you to review and stress yours. Customer behaviors can change swiftly. Reviewing what customers are doing today at your institution and thinking through the impact those behaviors may have on your liquidity if they remain stable and what risks appear should those behaviors become more severe could provide you with useful information you can use today to protect your bank tomorrow.

I’m interested in how your institution establish assumptions and stress test scenarios. I would welcome any conversation on this topic. You can email me at mgerbick@younginc.com with any thoughts!

Reviewing and stress‑testing your assumptions is key to managing liquidity risk. Young & Associates can help your institution strengthen its liquidity framework and meet evolving regulatory expectations. If we can assist your institution in these areas, contact us today.

Stablecoin Logo

Do I have to be a GENIUS to understand Stablecoin?

Written by admin on . Posted in Advice, Blog, Consultation.

By Michael Gerbick; president, Young & Associates

In July 2025, the GENIUS Act was signed into law. With it came comprehensive regulatory guardrails for stablecoins and stablecoin providers. The law’s passage drew widespread attention from financial institutions. If you find yourself asking, ‘How does stablecoin apply to my community bank?’ You are not alone. Many of our customers are learning how stablecoin might apply to them, while others have already become issuers.

Additional questions being asked include:

  • How does it impact me and my bank?
  • Where is the value for us to enter this space?
  • My customers aren’t transacting internationally. Is this still something I should consider?

Demystifying stablecoin

Cryptocurrency has been around for several years, but it’s still a new concept for many community banks. Institutions are continuing to learn how it fits within their operations and where it might create value for their customers. The goal of a stablecoin is to provide a means of payment within the digital asset ecosystem.

So what exactly is a stablecoin? It is a type of cryptocurrency that pegs its value to a real-world asset, often a traditional fiat currency like the U.S. dollar¹ (USD).

For example, one unit of a stablecoin that’s pegged to the USD should always be worth $1. Because its value is tied to a real-world asset like the USD, a stablecoin is generally less volatile than other cryptocurrencies, whose prices can fluctuate rapidly. See the chart below.

Prices of Bitcoin and USDT. These figures illustrate the fundamentally different price behavior between "traditional" cryptoassets, the largest of which is Bitcoin (top), and stablecoins, the largest of which is USDT (bottom). Source: CoinGecko via Haver.
Prices of Bitcoin and USDT. These figures illustrate the fundamentally different price behavior between “traditional” cryptoassets, the largest of which is Bitcoin (top), and stablecoins, the largest of which is USDT (bottom). Source: CoinGecko via Haver.

Here are a few factors to consider as you explore the potential value of engaging with digital assets at your institution:

  • Fee income from issuing, serving as a custodian and facilitating other related transactions.
  • Lower costs and faster processing for international transactions using stablecoin.
  • Access to new markets.
  • Consider emerging businesses that prefer to leverage stablecoins and other cryptocurrencies. Although still small compared to traditional currency, total stablecoin transaction volume continues to grow, as shown in the chart below.

Stablecoin Daily Volume. The two instances that exceed the chart’s maximum were November 3, 2021 and July 29, 2022, where the daily volume approached $1 trillion dollars (at $938 and $929 billion, respectively). The first is coincident with a then all-time-high price of Bitcoin before its years-long slump (see Figure 2), but the possible causes of the second are less clear. Source: CoinGecko via Haver.
Stablecoin Daily Volume. The two instances that exceed the chart’s maximum were November 3, 2021 and July 29, 2022, where the daily volume approached $1 trillion dollars (at $938 and $929 billion, respectively). The first is coincident with a then all-time-high price of Bitcoin before its years-long slump (see Figure 2), but the possible causes of the second are less clear. Source: CoinGecko via Haver.

A publication from the Department of the U.S. Treasury in April 2025 lists a projection of stablecoin supply reaching $2 trillion in 2028 if velocity remains unchanged.

  • Transaction speed. Stablecoins enable 24/7/365 settlement and near-instant payments, allowing transactions outside typical community banking hours.
  • Reputation and trust. Banks are widely recognized as safe and secure because of their long history in a regulated environment and their transparent reporting practices. That trusted reputation can extend into the digital asset space as customers evaluate stablecoin issuers.

What community banks should consider

Stablecoin Supply ProjectionsOf all the factors noted above, your institution’s reputation may be the most valuable reason to explore digital assets. Community banks are already trusted as being safe and secure with customers’ deposits and loans. Why not extend that trust into the stablecoin space and be seen as the reliable provider your community turns to?

With value comes risk and there are many risks and challenges to consider when pursuing digital assets. Key areas to consider are BSA/AML, Liquidity, Operations and Technology, Evolving Regulatory Guidance, to name a few.

A recent FEDS Notes article discussed how increased stablecoin demand could affect bank deposits. The article explored the potential impact on traditional deposits and their levels, composition and concentration. The article largely focuses on the implications for deposit composition if demand for stablecoin increases substantially and stablecoin issuers continue to maintain their reserve assets as deposits. This could shift the bank concentration from insured retail deposits to uninsured wholesale deposits.

This shift has liquidity risk and funding costs implications. A change in composition would require adjustments to liquidity management and asset-liability matching due to the more volatile deposit base. Management of a new deposit mix may impact credit decisions related to loan size and duration. These challenges and consequences are highlighted to reinforce the potential impact on you and your community bank in the future, even if you choose not to pursue stablecoin. Please continue to monitor stablecoin adoption and consider how it may influence your community bank’s liquidity stress test scenarios, as they relate to deposits.

Final thoughts

As expected, some innovative community banks that are early adopters are issuing stablecoin and leveraging this currency to provide value to the communities they serve. They have a first-mover advantage, along with the implementation and ongoing management costs and risks that come with that advantage.

Ultimately, each community bank should evaluate the digital asset landscape regularly. It may not make sense to become a stablecoin issuer or custodian today — or even in the near future. However, ignoring the shift entirely is not the right move. Be curious. Ask questions of peers and partners. Stay informed.

Your competitors are learning, and so are your customers. From a relationship standpoint, there’s no better place to be than a trusted expert who understands what stablecoin is, its potential value, and how it can be leveraged to support your customers’ growing businesses. You don’t have to be a genius to see the opportunity.

How Y&A can help

With expertise in strategic planning, interest rate risk, liquidity, and capital planning, Michael helps financial institutions strengthen their financial position. Young & Associates can help your team implement proactive asset liability management strategies that not only meet regulatory expectations but also support long-term stability and growth.

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