Auburn University study finds cyberattacks, regulation among concerns for state’s banks

A recent study by Auburn University’s Raymond J. Harbert College of Business, which looked into Alabama’s banking industry, found that state banks consider “regulatory uncertainty” and the chance of cyberattacks among the biggest threats to their business model.

According to the study, 88 percent of Alabama banks listed “regulatory burden” among their chief concerns, with 78 percent calling “political and regulatory uncertainty” a “major impediment” to the way they do business.

“We had major regulatory action in 2010 with Dodd-Frank and bankers have been bemoaning that ever since,” said John Jahera, Lowder Professor of Finance and one of the study’s authors. “From the bankers’ point of view, it added a lot of cost in terms of regulatory compliance.”

Authors of the study say the industry is still reeling from “a triple whammy: the impacts of the financial crisis on credit, the juggernaut of regulatory reforms and competition in a field that reinvents itself at breathtaking speed.”

Further, 73 percent of respondents cited competition from “non-bank” financial firms, which enjoy less regulations, as their chief competitive threat, while 70 percent said the threat of cyberattacks was a “serious concern.”

Along with examining the apprehension of Alabama banks, the study also looked into the performance of state banks through the third quarter of 2015 and offered suggestions aimed at helping banks better assist customers.

The study found that Alabama banks rank 40^th in the nation for “aggregate return-on-assets” with $253 billion in assets. Alabama banks generated $169 billion in individual and business loans as of the third quarter of last year and provided $14 billion in small business loans.

The study further states that Alabama’s 386,000 small businesses created more than 24,800 new jobs as of 2012 (the most recent numbers available) and, of the 131 banks with headquarters in the state, all but eight are considered “small” or “community” banks with less than $1 billion in assets.

Researchers suggested an overall easing of regulations to assist banks in serving “underbanked or non-banked” consumers via short-term loans at lower rates than those offered by payday lenders and their ilk.

Further, it was suggested that the “harmful effects” of the Dodd-Frank Wall Street Reform and Consumer Protection Act be examined in view of the realization that regulations have increased costs but not revenues.The study also called for the Department of Banking to look into ways of easing regulatory burden, and the costs associated therein, for state-chartered banks.