It's Unfair. More than 96% of the banks in this country are community banks, but the very largest banks have capabilities community banks don't have. It's a mismatch that results in an unlevel playing field that favors huge banks.
A big challenge community institutions face is that they rely on technology vendors who themselves are growing to be very large and not aligned with the institution's objectives. Whether through private equity roll-ups (combining multiple vendors), taking firms public, or M&A transactions, community-based institutions don't view firms pursuing these activities positively because of prior negative experiences.
Technology firms can also be too small to have the capabilities needed to be effective. The key is working with vendors who have the experience and scale to provide the capabilities you need.
Another risk is a lack of focus. A firm can't be everything to everyone. Firms that specialize in healthcare are not going to be best at providing services to law firms, and firms that provide services to lawyers are not going to be best at providing services to financial institutions. Specialization is key to gaining the experience, knowledge, and relationships that are critical for financial institution success.
Technology is the great equalizer. How would your bank benefit from having access to more capabilities that deliver on cybersecurity, improve reliability, and increase efficiency?
What about your Board of Directors? There are three characteristics CEOs want in a bank director. Capital. The ability to make investments in the bank. Connections. Directors that have an innate ability and willingness to continuously make introductions and refer new business to the institution. Knowledge. Attorneys, CPAs, retired bankers, or professionals in a specific area to which the institution is marketing. Good directors possess one of these characteristics; great directors possess all three.
Does your board have a director with strong business knowledge of technology? It is not technical knowledge but rather the business acumen of the application of technology to guide through the opportunities and risks that advancing technology creates for your institution.
Regulators review the composition of boards. It is why they want the bios for each of your directors. They also stress the importance of having a director with business knowledge of technology on the board.
BankOnIT provides resources to institutions that want assistance gaining business technical knowledge at the board level. Contact us at solutions@bankonitusa.com to discover more.
As regulatory agencies continue their focus on technology and cybersecurity-related issues, they have released a variety of resources to help boards understand their role in technology and cybersecurity.
Documenting board training, presentations and material (such as this newsletter) in board minutes is a good idea.
Amazon is delaying its move to Microsoft Office 365 and putting this project on hold due to security concerns[4] Bloomberg News reported that Amazon is delaying a move to Microsoft Office 365 due to “concerns about the security of the bundle of email and productivity software." If Amazon sees risk in such a move, and your institution uses Microsoft’s Office 365, should you be assessing this risk too?
Increased threats and more disruption. On December 16, 2024, the OCC released its Semiannual Risk Perspective for Fall 2024.[5] Included in the report, and not specific to only OCC-regulated institutions but to all financial institutions, are the following findings:
Treasury Department says systems are hacked by China-backed actors. The Treasury Department recently disclosed a state-sponsored actor in China hacked its systems, accessing several user workstations and certain unclassified documents.[6] The treasury was informed on December 8 by a third-party software service provider that a threat actor used a stolen key to remotely access certain workstations and unclassified documents.
BankOnIT intentionally does not utilize third-party applications such as this for our network nor for the networks we host and support.
In addition, the FBI and CISA released a statement on PRC targeting telecommunications infrastructure. Nine telecommunication firms have been breached by the People's Republic of China (PRC) targeting U.S. telecommunications infrastructure. The White House's deputy national security advisor for cyber and emerging technology, Anne Neuberger, said The White House urges the FCC to take regulatory action at telecommunications firms to protect against hacking from foreign actors.[7]
Acting Comptroller of the Currency, Michael J. Hsu, made some interesting comments in a December 11, 2024 speech. The essence of the speech was while banks and bank regulators can do more to address financial fraud, they need social media platforms and telecommunications providers to do their part.[8]
Cybersecurity and technology risks are two of the top risks for financial institutions in 2025, according to a recent survey of bank officers. Asked about the top five risks facing their institutions, 63% of respondents pointed to cyber risk, and 38% noted technology risk.[9]
The U.S. weighs a ban on Chinese-made routers in millions of American homes. A recent Wall Street Journal article noted that TP-Link is the bestselling router on Amazon and has been linked to Chinese cyberattacks.[10] It is sold primarily for home and small office use. Is this device used at your home or office? Or is it being used by one of your directors?
Some board members may have no experience within the company—or even the company's industry. One unexpected challenge many new CEOs face is building a positive, constructive relationship with their board of directors.
Harry Kraemer, Clinical Professor of Leadership at Northwestern University's Kellogg School of Management, recently wrote recently an article on how CEOs can build stronger relationships with their boards. Kraemer previously served as CEO of Baxter International (global healthcare) and worked in corporate banking at Bank of America. It is a good read for new and experienced CEOs.[11]
While Kraemer has predominantly served at very large organizations, his points apply to institutions of all sizes.
What can a selfie tell doctors about your health? AI is creating new opportunities as well as creating new risks. For example, the FaceAge test is an artificial intelligence model trained on tens of thousands of photos from patients and public-image databases to look for signs of aging in the face. Cancer doctor Raymond Mak and his team found that the algorithm did a better job than doctors at predicting how long cancer patients would live. They hope that one day, the tool could be a standard part of assessing health.[12]
Artificial Intelligence and Banking. AI is creating new opportunities as well as creating new risks. Watch for our next CEO Newsletter where we will explore the opportunities and risks financial institutions have with AI. We will also provide insight into areas where AI is in use today that you may not be aware of.
Are you a financial institution CEO or board member with questions about technology at your institution? Contact us at solutions@bankonitusa.com or 405-653-1920.
[1] Technical Assistance Video Program - FDIC
[2] Community Bank Director and Senior Management Workshops, Information for Bankers and Bank Directors - OCC
[3] Basics for Bank Directors - KC FRB
[4] Amazon Paused Rollout of Microsoft Office for a Year After Hacks - Bloomberg
[5] OCC Reports on Key Risks in Federal Banking System
[6] Treasury Department Says Systems Hacked by China-Backed Actor - WSJ
[7] Joint Statement from FBI and CISA on China Targeting of Commercial Telecommunications Infrastructure - CISA
[8] Acting Comptroller of the Currency Michael J. Hsu Remarks “The Fraud Challenge” - OCC [9] Bank risk officers identify cybersecurity, fraud as top risks - ABA Banking Journal
[10] U.S. Weighs Ban on Chinese-Made Router in Millions of American Homes - WSJ
[11] How New CEOs Can Start Off on the Right Foot with Their Board - KelloggInsight
[12] What Your ‘Face Age’ Can Tell Doctors About Your Health - WSJ