Having weathered the “Category 5 regulatory hurricane” that’s hit the banking industry in recent years, Thread Bank CEO Chris Black said the lender has come out stronger on the other side.

“You can only spend so long yelling at the weather or being mad at the weather,” Black said. “You should spend the rest of the time making sure your house can withstand the storm.”

Rogersville, Tennessee-based Thread Bank is one of several financial institutions that’s faced regulatory scrutiny over its banking-as-a-service program. In May, the Federal Deposit Insurance Corp. issued a consent order that specifically called out Thread Bank’s BaaS business and ordered the bank to ensure its third-party risk management program addresses the level of risk and complexity of fintech partners in its BaaS program, among other things.

“That we've kind of gone through this process in this hurricane analogy, I think, only creates more enduring value for the bank,” Black said. “Consent order or not, our goal is continuous improvement and really to embrace risk management.”

During a recent interview, Black wouldn’t comment on the bank’s progress with regard to the consent order. The broad order required updates to the bank’s strategic plan, its enterprise risk management framework, its anti-money laundering/countering the funding of terrorism program and its liquidity management policy. The bank was also ordered to identify strategies and goals to bolster earnings as part of a profit plan. 

The FDIC order came two years after Patriot Financial Partners LP and Hermann Companies led a $47 million recapitalization into Civis Bank, which was renamed Thread Bank in 2022. Black joined the company as part of that endeavor, and funds were intended to address the bank’s capital regulatory requirements and to invest heavily in embedded banking capabilities.

Regulators have taken a harder look at banks’ third-party partnerships in recent months. Evolve Bank & Trust, Blue Ridge Bank, Piermont Bank, Sutton Bank and Lineage Bank have all been hit with enforcement actions related to their BaaS programs. Some banks have opted to exit the BaaS space.

But Black said Thread Bank executives are confident in their regulatory relationships, and the bank is more committed than ever to its BaaS business.  

“There's only one way to handle these things, and it’s very proactively, very transparently,” Black said. The consent order is “one of these kind of facts of life, and you deal with it. But I would say it's only made us stronger.” 

Black declined to share numbers when it comes to investments the bank has made, including in risk management, compliance and operational scale. Thread Bank’s consent order also required the bank to ensure beneficial ownership information is documented and maintained – an issue that’s been in the spotlight this year amid the collapse of fintech middleware firm Synapse.

The Synapse mess has highlighted that “banks have got to be in control of the risk frameworks,” Black said. “We have to do Banking 101 and be really good at that, and extend that framework to our partner.”  

Across the industry, the Synapse situation appears “to be a wild outlier,” Black added.

Black declined to name any of the lender’s fintech partners or specify how many it has, other than to say it has “more than a handful.” Its roster has experienced some “natural churn, over time,” like any portfolio, he said. Thread Bank aims to partner with companies serving small business and consumer customers, and sees increasing opportunity beyond tech firms, such as companies in specific verticals with strong customer bases. 

“We continue to grow with existing partners, and we continue to evaluate and talk with potential new partners,” he said. The bank has partnered with middleware fintech Unit, according to a post on that company’s website last year.

As for the future of BaaS and fintech partnerships, Black suggested banks who’ve endured the current environment are better for it in the long run, and will be the standard-setters. He’s hoping the second Trump administration, bringing expected change in leadership atop regulatory agencies, will “get us back to reasonable,” and usher in a more welcome attitude toward innovation.

“We’re going to find a spot that makes sense,” Black predicted of the regulatory environment, adding that if the pendulum swung too far in the other direction, “that would be a negative, too.”

Bank executives will be closely watching Congressional activity, and the banking agencies’ response to Congress’s approach, as a good indicator of intermediate trends to pay attention to, he said.