United States

OCC supportive of collaboration but cautions about risks


The Office of the Comptroller of the Currency (OCC) issued a paper which describes potential benefits of collaboration among community-focused national banks and federal savings associations (collectively community banks or banks), outlines examples for structuring collaborative arrangements, and cautions about the potential risks inherent in collaboration. The paper was issued, in part, as a response to concerns expressed by community banks to the OCC relating to sustainability and profitability while they continue to meet the needs of the communities they serve. In a nutshell, the OCC supports community banks’ efforts at collaboration, but reminds banks that “any collaborative activities among banks…must comply with antitrust laws” so they must be sure to “take appropriate steps to ensure that the activities do not violate antitrust laws.”

Collaboration can occur with a variety of partners, such as a competitor or an institution regulated by a different state or federal banking regulator. Your partner may not even be an entity that normally provides services to other banks. The paper views collaboration as an alternative to outsourcing where “community banks work together to support each other to tackle growing external pressures.” Several collaborative mechanisms are described in the paper, including jointly purchasing materials or services, owning a service organization, providing or developing products and services; sharing back-office or other services, a specialized staff member or team; creating a consortium; or participating in disaster mitigation agreements. 

As outlined in the paper, the benefits of these collaborative arrangements may include operational or financial efficiencies, spreading of costs, increased ability to obtain technology, conserve capital, obtain specialized expertise, or accelerate the delivery of products or services through new channels. 

In addition to the benefits of collaborating with another bank, the paper acknowledges that there are also risks, but points out that “there are also risks to doing something alone without the proper expertise or in an inefficient or ineffective manner.”  As with any risk, it must be “identified, measured, monitored, and controlled.”  The OCC is clear in its expectation that “a bank practice effective risk management whether the bank performs the activity internally or through a third party, including another OCC-supervised bank,”  and references OCC Bulletin 2013-29 “Third-Party Relationships: Risk Management Guidance” as a resource to help banks understand those expectations.

Combining appropriate strategic planning with the right partner can lead to a beneficial collaboration effort. The OCC included the following table to demonstrate how successful collaboration can align with strategic objectives:

S Successful  
T Trust Trust is a key element in a successful collaboration. Consider other community banks that share your common goals and objectives. Do they have a shared vision of the outcome of the partnership? Even the most successful collaborations will face challenges. Management should recognize this in advance and remain flexible.
R Realistic Successful collaboration has clear strategic objectives and should be viewed as a means to achieve a strategic end. Look for opportunities to collaborate in areas where there is a realistic chance the initiative will be supported and implemented. Conduct due diligence and confirm compatibility with potential partners.
A Agreement Successful collaboration should be documented in writing in an agreement or memorandum of understanding that memorializes commitments and outlines the guiding principles, activities, responsibilities and prioritization.
T Talk Communication is vital to any successful collaboration. Talk with OCC staff, partners and prospective partners; ask questions, voice concerns and resolve differences of opinion.
E Expectations Successful collaborations define expectations and responsibilities and establish clear goals and objectives. Make sure your bank knows and acknowledges what your partner expects to get out of the relationship. How will you evaluate success? If partners have divergent expectations, it limits the chance of success.
G Governance For collaboration to be successful, community banks must ensure they have an adequate governance structure. Community banks should have policies and procedures designed to identify, measure, monitor and control risks related to their relationship with third parties.
I Innovation Successful collaborations often embody innovation and creativity to find the best solutions and a competitive advantage, possibly one in unchartered territory. When exploring new options, community banks should communicate with supervisory staff.
C Collaboration