As Assets Rise, TDFI’s Strategic Plan Takes Shape

By TDFI Commissioner Greg Gonzales

In November, Tennessee state government held budget hearings with the Governor and the House Finance Committee to preview the upcoming budget cycle.

For the Tennessee Department of Financial Institutions and the state banking industry, these hearings were very timely and gave me the opportunity to highlight a dynamic banking and trust environment.

In my conversations with key policy makers during and outside of the hearings, there was excitement and surprise to hear that the assets in the state banking industry doubled from $44 billion to $88 billion from 2011 to 2019. The conversion of First Horizon from a national bank to a Tennessee state bank in October, and the bank’s subsequent announcement of a significant merger with Louisiana-based IBERIABANK, means that the state banking system assets will likely double again within a year.

Another great story of growth is the trust industry under TDFI supervision. In five years, trust industry assets under our supervision have grown from $25 billion to about $125 billion. We do not see that growth slowing down either.

Bottom line: The state banking and trust industries combined should reach $300 billion in assets in 2020.
I took the opportunity at the budget hearings and at other times to discuss our people, the industry, and the challenges we are all facing.

I talked about the mission of ensuring a safe and sound banking system by tailoring our supervision to the risk profile of each bank—from the largest to the smallest—and the examiner experience it takes to do that. 

I talked about the two major goals in front of us. First, to make sure we have the people and infrastructure in place to ensure the regulatory integrity of supervising our two state banks over $10 billion in assets. But secondly, and just as important, to enhance our supervision and partnership with over 120 community banks.

Governor Bill Lee is looking to us to ensure a safe and sound banking system but to also contribute significantly to his rural initiative. This all presents itself at just the right time as we have just presented the Governor with our first ever 4-year strategic plan.

The following are some basic budget points in consideration of this environment:

1. The Department is in a relatively good position to take on this challenge, and we are fortunate to have currently overall a well-managed banking and trust industry reflecting a healthy system.

2. However, the Department is not necessarily built for such growth that is expected to continue and we have reached out to our partner and fellow state agency, the Department of Human Resources, to strategize with us on what the Department infrastructure should look like.

3. The Department has been authorized to hire a dozen examiners to support the exam function for both large banks and community banks. Three large bank examiners have been promoted from within and their experience will be felt. The other nine positions will be filled in the coming months.

4. While these new positions will bring significant and needed help, the full effect will take some time to materialize. I believe the key is to focus on existing staff who possess critical knowledge and experience. The Department cannot simply add more staff to deal with the challenges of growth and greater complexity in the system.

5. The ultimate focus on developing our infrastructure should be on the following:
A. Compensate existing staff for assuming significant new regulatory responsibility.
B. Build more experience in the examiner ranks through compensation and work environment. The median years of experience for our exam group is 6.5 years and will probably go lower. It takes 5 years, on average, to train an examiner. Creating more experience is critical to tailoring regulation for each bank.
C. Create capacity within existing staff to take on more regulatory responsibility and acquire additional expertise as needed.

It is important to note that the Department is deferring the majority of additional expense to FY2021 when a significant amount of new banking assets will enter the state banking system and our fee base.

Our goal from a budget standpoint is to put the Department in a position to fulfill our mission and be strong partners to the banking industry and federal regulators. If we do not put the Department in a position to continue our ability to have a strong voice on all regulatory matters, then we run the risk of yielding regulatory judgment to the federal government.

I am happy to discuss our budget and direction with anyone who has questions or suggestions

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