Bankers and insurers become regulator for an hour to view regulatory as a value

What if bankers and insurers had input into regulatory rules - would that change the game? After all, who knows more about the industry than its leaders? That was a question posed in an interesting and challenging brainstorming session at SAS’ global headquarters in Cary, North Carolina last week. At the

During the summit, attendees participated in Power Sessions led by facilitators from Matter Solutions. Discussion facilitators push the group conversation to the cliff's edge while graphic facilitators capture the session's content on whiteboards in colorful, visual ways that most of us have never seen before. (You can get a better idea of what these kinds of sessions look like in this YouTube video.) In this session, the attendees were divided – bankers in one room and insurers in another. In the banking session, attendees were further divided into five teams and asked to brainstorm and write their answers on a giant white board. During round one, three of the teams role-played as bankers and worked on, “What questions should regulators be asking us?” The regulations should benefit taxpayers, depositors, colleagues and stakeholders. The other two teams role-played as regulators and worked on, “What questions should regulators be asking banks?”

Their 15-minute session produced these answers:

• How did you respond to the complaint that we received from your customers?
• Are you going to be around tomorrow?
• How are your incentive structures designed to avoid risk?
• How can you simplify or manage inefficiencies in compliance?
• What are the risks that are correlated across your LOBs?
• Are the board and regulators concerned about the same thing?
• Do you have appropriate governance and compliance mechanisms?
• What is your internal audit processes/practices/engagement?
• Do you have a training program, evaluation and measurement of regulatory measures?
• Do you know what results you will see under stress conditions?
• What controls are in place for proactive intervention?
• How can compensation be altered to positively affect the customer?
• When problems occur, what processes do you employ to vet them?
• How can we better reconcile conflicts between regulatorsHow are risk/benefit decisions made?
• What are appropriate Tier 1 and Tier 2 capital buffers?
• Are you allocating necessary capital?
• What is your real risk?
• Prove that your models work.
• What is your culture of compliance?

After 15 minutes, members of the teams were juggled and then reassigned to an idea-filled white board. They were asked to evaluate the ideas and develop a three-minute pitch outlining the three best ideas for working with regulators to improve regulations with an eye toward the customer and the US taxpayer.

As an observer, it was interesting to watch bankers trying to get into the regulators’ shoes. There are challenges faced by the regulators and the bankers, but it was clear from the answers given and from the tone in the room that bankers are open to a collaborative dialogue that includes regulation. The teams were focused on finding the highest value question that would reduce systemic risk and elevate trust.

Just talk to the man

When the three-minute presentations began, I realized that the teams had decided not to present their high-value question and had instead decided to present their lesson learned from the session. Nearly every team had the same take away – let’s work together.

“Those institutions that are most proactive in their collaboration with regulators will have a culture of compliance. This should include written policies, education and enforcement."

“It’s possible that the regulators have let the regulatory pendulum swing too far because of the recent financial crisis. This poses an opportunity where we can open a dialogue to pose suggestions about appropriate regulations."

"There is no one-size-fits-all regulation. Standardization for the sake of standardization doesn’t work. A balance is needed and can only be accomplished through dialogue.”

Take your own walk in the regulator’s shoes. What questions do you think the regulator could ask that would add value to the customer, protect the taxpayer and provide value to the shareholder? Do you think an improved dialogue with regulators is beneficial?