Correction to This Article
An earlier version of this story incorrectly that the program was filled. It can accommodate up to 42 participants.

Smith School to walk bank directors through Dodd-Frank rules

By Danielle Douglas
Monday, January 3, 2011

Regulators may still be hashing out the finance reform rules of the Dodd-Frank Wall Street Reform Act, but with the legislation's implementation looming, the Center for Financial Policy at the University of Maryland's Robert H. Smith School of Business has begun guiding local banks through the labyrinth of laws now.

Starting this month, the center, in partnership with the Maryland Bankers Association, plans to launch the "bank director training program," a six-part series on the changing regulatory environment held at the College Park campus. The initiative is aimed at the more than 700 business leaders who serve on the board of directors at community banks in Maryland.

Community bank board members often hail from outside the banking industry and may not be well versed in the complexities of federal reform. Yet they must carry out critical assessments of an institution's operations, a task that requires a fair amount of knowledge of industry regulations.

Faculty and staff from the Smith School plan to teach courses on subjects such as asset liability, corporate governance and credit risk management.

Michael L. Middleton, chairman and chief executive of Community Bank of Tri-County in Waldorf, signed up all eight members of his board for the first course, which can accommodate up to 42 participants. A member of the Center for Financial Policy's advisory board, Middleton suggested the creation of the program to educate directors about the regulatory overhaul.

"There is a significant shift in the mind-set, a sea change that specifically tasks the directorship," he said. "If we are able to get the expertise, financial acumen and strategic planning skills collected in the directorships of financial institutions, particularly a community bank, you're going to have a much more stable sector than before."

There are a number of consulting and accounting firms that offer similar programs on compliance matters, typically geared to larger institutions. A number of associations have taken to hosting inexpensive online seminars for their members.

As helpful as these webinars can be, Middleton said, "that doesn't really make it. Where you can sit in a classroom and ask the professor of a well-named graduate school to explain a premise, that is a beauty."

Provisions for qualified residential mortgages, consumer protection requirements and risk retention are just a few elements from Dodd-Frank that stand to impact community banks. Since the legislation was in part a reaction to bank bailouts, the training program aims to deconstruct the ill-fated path of troubled institutions, said Clifford Rossi, academic director of the program and the executive-in-residence at the center.

A 25-year banking industry veteran who most recently served as chief risk officer at Citigroup, Rossi plans to teach the first course as "an anatomy of what not to do." He said he will delve into "what should the boards have been looking for . . . how did they not see the build up of risk concentration?"

Some industry observers have speculated that the anticipated increase in compliance costs, with the likely addition of officers to manage reporting requirements, could drive some community banks out of business or lead to a spate of mergers.

David G. Danielson, president of banking consulting firm Danielson Associates, did not rule out the possibility but insisted a majority of Washington area banks are strong enough to withstand higher expenses. Nevertheless he forecast, "In the long term, when [community banks] realize the cost of compliance and where they are in terms of covering their overhead, it will force a small group to exit."

Meanwhile, Rossi is pitching the training program to other institutions outside of Maryland, with hopes to replicate it nationwide later this year. "We've struck a nerve because it's so hard to get this kind of training for the smaller guys," he said.

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