Urban Partnership CEO: Rules Spurring ‘Fear Factor’ Among Banks

May 1, 2014 (Chicago, IL)-- On May 1, a column posted on Bloomberg, the global business and financial information media outlet, featured comments from William  Farrow, President & CEO about community banking and regulations. The full interview and more in-depth version covering a variety of topics will be featured in Bloomberg’s electronic newsletter slated for distribution in June.


Urban Partnership CEO: Rules Spurring ‘Fear Factor’ Among Banks

by Kim Chipman May 1, 2014

(Bloomberg) — Urban Partnership Bank CEO William Farrow says while the intent of many post-crisis regulations is good, "at this point they have created a series of challenges" for community banks.

Difficult for customers to start creating wealth because hurdles have been set so high, Farrow says in interview... For banks, there is "fear factor" that any mistake will prompt "severe" regulatory repercussions; labor costs can be high amid competitive market for compliance official.

Technological necessities pose big challenges as banks must ensure 3rd party vendors are compliant. Farrow says UPB, which was formed in 2010 out of branches of failed Chicago lender ShoreBank Corp., so far has had more than 70 regulatory-related visits; "unintended consequence" of such visits is they require attention of employees who otherwise would be serving customers; can "stifle your ability to get loans done."

"The pendulum may have swung a bit too far. I’m sure it will settle into the right place" eventually. UPB has focused on creating "very, very small branches," with maximum size of about 1500 sq ft and as small as 755 sq ft at branch at Wal-Mart in Chicago’s historic Pullman neighborhood. The Wal-Mart location, open 7 days a week and drawing about 2m visitors a year, is part of UPB's new approach. 

"We want to bring people into the banking system but we recognize that banks aren’t destinations anymore."

Farrow, a former executive at Chicago Board of Trade and Bank One, says industry consolidation makes him concerned number of community lenders will dwindle and be replaced by "mid-tier regional banks that actually don’t serve the community." Farrow says he’s hopeful UPB, which is still working through ShoreBank portfolio, will have opportunity to grow as low-and moderate-income market expands.

NOTE: Investors of UPB, a $1 billion-asset bank based on Chicago’s South Side, include Goldman Sachs and JPMorgan.