Clarity in the Middle of Great Uncertainty

Clarity in the Middle of Great Uncertainty

By: Bret Afdahl, Director of the South Dakota Division of Banking

First and foremost, I want to say a big thank you to the community bankers in South Dakota for all they have done the past three months to help our state’s business community through an extremely challenging situation. My initial idea for this article was to provide a reflection on my year as Chairman of the Conference of State Bank Supervisors (CSBS) and I will spend a few minutes on that topic but as all of you know, a lot has changed since the middle of March. Looking back to pre-COVID discussion items and work streams in my office after being gone for almost three months seem like a lifetime ago and some of those workstreams seem almost trivial at this point.  

We have all studied and discussed the long-term changes in the banking industry for years. I cannot say the present situation will lead to a revival in community banks or a rush to create new banks, but I can say this most recent episode has solidified the importance of community banks to their customers and broader community. I already knew this, as did you, but for many it has been an epiphany of sorts. As it turns out, having a relationship with your lender, your bank, actually matters. Amazing, huh? The importance of this relationship model is evident with the PPP loan program. The businesses who took the time over the years to develop a relationship with their local lender were much better positioned for a successful experience. Community banks did take on new customers, but when long-time customers, neighbors, community pillars need help, you help them before bringing on new customers. This is what community banking is all about; the community.

While none of us know how this story will end, I think we can all agree there are tough times ahead. There has just been too much disruption, change, and uncertainty for there not to be. Your first priority has to be to help your community through this period of immediate stress, but you must also document your decisions and the rationale for those decisions. Eventually, we’ll have to address the credit issues arising from this cycle and the more detail we have, the better understanding we will have of the context for decisions made under great stress and in a time of great uncertainty. The other bit of advice I would share is to continue to identify the risk in your bank whether it is in your loan portfolio, your securities portfolio, or in your funding sources. The earlier you identify those risks, the more time and options you will have to make decisions and adjustments. Our challenge and obligation will be to balance increasing levels of problems assets while also assessing risk management practices and recognizing the efforts of management at each bank. Please help us by having strong and proactive risk identification and management practices in place before your upcoming examinations.

In now what seems like a very long time ago, as CSBS Chairman, I hosted over 130 of my state counterparts and CSBS staff at the State Game Lodge in Custer last September for our Q3 Board meeting and annual strategic planning session. I can think of no better place to unplug and focus on very deliberate and strategic discussions about the future of the dual banking system, community banks, the interplay with various non-bank actors, and the state regulators charged with overseeing all of them. We worked closely with a futurist and looked 10 years into the future to understand where we will be and what it will take to get there. As part of this process, we looked back to what bank supervision was like in the early 1970’s and in each decade since. One constant along that entire time horizon has been change and more specifically, change through technology. 

Through that planning process, the CSBS Board concluded our reliance on technology and the pace of change in technology is only going to accelerate. At that time, a short 9 months ago, we had no idea how true this was going to be as we headed into 2020. Fast forward to this March and it quickly became evident how important technology would be as we scrambled to restructure how we operate, and in the process rely on more and new technology platforms to do our important work.

My time as CSBS Chairman is in the rearview mirror and while it did not end the way I had envisioned, I feel very good about the past year and where we are headed, despite the challenges. Some of the priorities we established through our planning process will be pushed to the back burner while others will be accelerated. The big concepts CSBS will be working toward in the coming year and beyond, include:

  • Empower the state system to be stronger, more efficient and assertive
  • Embrace networked supervision and move toward real-time oversight
  • Help state regulators develop the workforce of tomorrow
  • Build strong partnerships with vendors and those we regulate


As with any strong organization, CSBS has a great professional staff and a deep bench of knowledge and experience to pull from in the states and my counterpart form Georgia, Kevin Hagler, is the current CSBS Chairman. He will do a great job in the coming year. Kevin and I recently recorded a joint podcast you may find interesting: 

I look forward to meeting with you soon. When, where, and how that will occur is hard to say in this new normal, but we will move past this health crisis at some point and focus on the next phase. It will take all of us working together to get our communities and state through this crisis, but I have full confidence we will be successful. We know how to work together, and we all know the stakes.