Community banks collaborate for efficiencies

One of the Newsbytes on the site caught my attention recently. The article discusses an OCC policy paper that “is generally supportive of efforts by community banks to collaborate in ways that generate cost efficiencies or leverage specialized expertise.”

It makes sense: When community banks collaborate, they might share back-office services, or jointly purchase materials, or co-develop new products.

Community banks collaborate with each other—and with service providers

efficiencies happen when banks collaborateThe OCC “noted several risks in collaboration between banks, however, that bankers must keep in mind.”

Not every business process is a good candidate for interbank collaboration. Some create privacy or competitive conflicts. Others might extend beyond the expertise levels of your combined staffs.

Community bankers are familiar with specialization—your loan officers and financial advisors spend years perfecting their specialties.

Here’s a simple analogy: Two sisters come in to your bank after inheriting $50,000 each. Miriam plans to invest the funds for retirement, while Barbara wants to use the cash as a down payment on a new home. You probably wouldn’t send Miriam to your mortgage banking specialist, and you wouldn’t sign up Barbara to receive updates from your bank’s investment advisor. And neither sister would have much interest in a meeting with your internal auditor.

Business technology has become specialized in the same way. I have watched an incredibly talented network engineer spend the past five years learning all there is to know about routers and switches. Odd as it may seem to anyone outside of IT, this small segment of a standard bank network is so complex that one engineer could dedicate his entire career to mastering a single piece of equipment.

Your bank’s hiring manager knows that it is impossible to find one individual IT person who is a certified expert in routers and switches, physical servers, back-up, Disaster Recovery, virtual servers, storage area networks, security management and strategy, and a dozen other specialties. Yet as a bank, you are mandated to have well-crafted and stringently tested back-up plans, Disaster Recovery routines, server maintenance, and a host of other procedures that comply with audited and regulated technology standards.

Community and regional banks are unable to hire individual experts in each of the key components of the typical network. It is not financially realistic. And IT collaboration between banks presents challenges and risks.

The promise of managed IT services is that your bank’s technology needs will receive expert attention, without the high overhead of multiple IT staffers and without exposing your bank’s proprietary information or competitive position in a collaborative arrangement. Partnering with an IT expert reduces your bank’s exposure to risk and frees up internal resources to focus on core applications, and to plan for future growth, rather than being caught up in day-to-day IT maintenance.

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