Banking Finance Experts Consensus on Compliance in US Bank Holding Companies: An e-Delphi Study

Sophia Velez,Michael Neubert,Daphne Halkias

doi:10.3390/jrfm13020028

Abstract

Compliance measures emphasized in the Dodd-Frank Bill 2010, Section 165 is a response to the 2008 financial crisis, that requires large banks to maintain a minimum capital ratio. The Federal Reserve Bank (Fed) regulates capital of Bank Holding Companies (BHC) through compliance Supervisory Capital Assessment Program (SCAP) 2009 and Comprehensive Capital Adequacy Review (CCAR) 2011 annual stress test of capital. The Fed imposed a minimum capital ratio of 8% that has derailed the risk management objective of capital adequacy, as bank managers are forced to take on more risk to meet the capital ratio. This study concerns senior manager practices that can be effective in meeting compliance requirements posed by the Fed for BHCs. Through a qualitative e-Delphi study, 10 banking finance experts were convened to build consensus on senior manager’s practices that can be effective in meeting compliance requirements. Data were collected from three electronic questionnaires submitted through Qualtrics. Data were analyzed using theoretical triangulation, coding, and thematic analysis. Four important considerations were identified that could bolster compliance measures effectiveness: (a) emphasis placed on understanding regulatory consultant compliance, (b) maintenance of effective and independent compliance align to organizational objectives, (c) clear definition of data source for compliance analytics. These considerations of compliance practices may help senior bank managers reduce risky behaviors and investments that cause significant bank losses.

Highlights

Introduction and BackgroundAn examination of six significant USA Bank Holding Companies’ capital and losses revealed that their operational risk exposure is higher today than it was prior to the 2008 recession, which exposes them to insolvency (Sarin and Summers 2016)
The findings extend Boora (2018) work by drawing attention to important considerations that should accompany compliance measures, including (a) emphasis placed on understanding regulatory compliance, (b) maintenance of effective and independent compliance align to organizational objectives, (c) clear definition of data source for compliance analytics
Compliance measures emphasized in the Dodd-Frank Bill 2010, Section 165 arise as a response to the 2008 financial crisis

Summary

Introduction

Introduction and BackgroundAn examination of six significant USA Bank Holding Companies’ capital and losses revealed that their operational risk exposure is higher today than it was prior to the 2008 recession, which exposes them to insolvency (Sarin and Summers 2016). The government responded to the crisis by offering bailouts to hundreds of banks and passing the broadest set of regulatory reforms since the 1930s (Guynn 2010). Government regulatory reforms such as the Dodd-Frank Bill 2010, Section 165. Compliance measures require large banks $50 billion or more in assets to conduct an annual stress test and file a capital plan, proposing how much dividends they plan to pay out over the nine quarters (Fahey 2016). Fed requires large banks to perform Supervisory Capital Assessment Program (SCAP) 2009 and Comprehensive Capital Adequacy Review (CCAR) 2011 annual stress test of capital

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Conclusion