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PCBB Banc Investment Daily May 03, 2019
Banc Investment Daily
May 03, 2019

Inquiry & Insight - To Outsource Or Not

Summary: In our new BID feature, "Inquiry and Insight", we provide questions from readers and bankers and do our best to give you relevant, insightful answers.
An Ascend2 survey finds the most effective tactics to use in a marketing strategy are: social media marketing campaigns (53%); content marketing campaigns (48%); search engine optimization (47%); email marketing campaigns (39%); marketing automation campaigns (28%).
As you ponder this over your cup of coffee, we also wanted to welcome you to the inaugural issue of a new BID feature we call "Inquiry and Insight."
As you will see with these issues, we share specific questions we have been receiving from our readers and bank clients. Questions selected are likely on the minds of other community bankers too. So on a monthly basis, we will publish some of the most frequently asked questions. Along with that, we will do our best to give you relevant, thoughtful, insightful answers. Enjoy this new addition to our educational line-up.
Q: I am uncertain whether I should outsource certain services, such as ALM, CECL or CSA, because I don't want examiners to think that I have given up control. How do I justify outsourcing and for what services is it acceptable?
A: As business complexity and costs around compliance continue to rise, it's no wonder that more banks are considering outsourcing certain business functions. While some are reticent to go down this route, regulators have, in fact, given this practice a green light - with certain caveats.
Community banks today are looking to outsource many areas of the business that they either deem to be non-core, too complex or simply more cost effective to do outside. There are many moving parts with technology and changing regulations, so with limited resources and expertise in certain areas, it makes sense to outsource products such as ALM, CECL and CSA.
You might be surprised, but when you decide to outsource something, you don't necessarily need to justify your reasons to regulators. Recall that they are not concerned about the business drivers. But, they are concerned about the risks around those business drivers. They are also well-aware of the challenges community banks face and have been especially supportive.
To decide what might make sense to outsource, consider looking at the things you do each month and ask whether each project is your highest and best use of time. If not, perhaps that is a good candidate to outsource. Another question to ask here is how difficult it is to keep up with things and whether handing it off to someone else might free you up to be more strategic.
When you do outsource something, know that regulators still expect you to take appropriate responsibility for vendor management in these areas. We can't stress enough that while there's certainly a convenience factor to outsourcing, managing these third-party relationships is something you must retain in-house. You are ultimately responsible for any regulatory requirements, but moving from player to coach can free you up to do more important things than grinding through data.
No matter what you may consider outsourcing, be sure to understand the specifics of the programs and how the programs should be managed. To start, we recommend you do a thorough cost-benefit analysis, since the answer can vary for every bank.
Know that we can help with some of your outsourcing needs too. So, feel free to contact us for further discussion.