Cybersecurity and compliance among bank directors’ concerns in US

An annual risk survey has revealed cybersecurity and compliance are a source of anxiety for US bank directors in 2023, with interest rates, deposit pricing and liquidity also causing concern.

The survey, which was fielded in January, showed that 89% of respondents had said their bank had completed a cybersecurity assessment, and that most banks use the tool offered by the Federal Financial Institutions Examination Council. Respondents reported a median of $250,000 budgeted for cybersecurity expenses.

Meanwhile, only 36% of respondents said their bank had adjusted its fee structure in anticipation of regulatory pressure, with just 8% doing so in response to direct prodding by regulators. 

While the proportion of bank leaders who said their board discusses climate change at least annually increased to 21% from 16% in 2022, 61% of respondents said their bank does not focus on environmental, social and governance issues in a comprehensive manner.

Management of the balance sheet is also consuming bank directors’ attention, the research shows.

Since the survey was conducted, concerns about interest rates and liquidity have become a reality, with a run on deposits that imperilled several institutions, leading to two sizable bank closures: $209 billion SVB Financial Corp., parent of Silicon Valley Bank, and $110 billion Signature Bank.

In addition to deposit pricing and talent retention, respondents focused on cybersecurity (83%) and compliance (70%) as areas where their worries have increased. The findings show that while banks managed to weather the rising rate environment in 2022 with little movement in deposit pricing, the tide has been turning. Banks continue to fight to compete with larger institutions and other industries for the talent they need to grow their organisations.

The survey found that 73% of executives and directors would raise interest rates offered on deposits, and 62% would borrow funds from a Federal Home Loan Bank if they needed to manage liquidity. Respondents identified slowing credit demand, liquidity management, evolving regulatory and compliance requirements, and CEO or senior management succession as significant strategic challenges.

The survey highlights the continuing challenges facing the banking industry, especially as interest rates and liquidity remain top concerns. With fears about the next economic downturn and heightened concerns about cybersecurity and compliance, it is clear that banks must remain vigilant and proactive in their risk management efforts to maintain their stability and growth.

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