July 21, 2022
MBA Slams ‘Deeply Flawed’ FDIC Approach on NSF Fee Representment
MBA sent a letter
this week to the Federal Deposit Insurance Corporation concerning its “deeply flawed” supervisory approach to nonsufficient funds fees for represented items. The letter comes as FDIC’s focus on representment NSFs continues creating problems for Missouri banks.
The letter notes that the FDIC “has not issued any rule or notice for comment regarding the issue of multiple presentments and NSF fees. Instead, the FDIC is penalizing banks for long-standing account terms and banking practices rather than issuing forward-looking guidance or regulation that would allow the industry the time to diligently review and change account agreements and disclosures.”
The regional FDIC office has indicated to MBA two-year lookbacks will be required in exams and if a bank either did not make a disclosure change or did not notify customers of such a change, a Level 3 UDAAP violation will be issued. In protesting this “arbitrary and unjust punitive enforcement policy,” MBA urged the FDIC “take a more prudent and legally grounded approach that protects consumers without undermining the safety and soundness of our nation’s banks and the integrity of our payment networks.”
MBA sent a copy of the letter to Reps. Emanuel Cleaver, Blaine Luetkemeyer and Ann Wagner, who serve on the House Financial Services Committee.
House-Passed Defense Bill Includes SAFE Banking Act
The House passed the 2023 National Defense Authorization Act, which included the SAFE Banking Act. The SAFE Act would enable financial institutions to serve legitimate cannabis businesses in states where it is legal. The House has passed the SAFE Banking Act several times previously.
“The SAFE Banking Act puts in place necessary protections to bring revenue from state-sanctioned cannabis businesses into the financial services mainstream,” the American Bankers Association said in a letter with several other trade groups. “Legal cannabis businesses would no longer be forced to deal exclusively in cash, which makes them vulnerable to violent robbery and puts customers, employees, and the public at risk.” Read the letter
FDIC Issues Statement, FAQs Clarifying Brokered Deposit Reporting Rules
The Federal Deposit Insurance Corporation issued a statement and updated frequently asked questions clarifying when deposits are required to be reported as brokered. Specifically, the statement noted that “deposits placed at [insured depository institutions] by unaffiliated entities (including, for example, broker dealers) that operate under a primary purpose exception are still required to be reported as brokered if there are any additional third parties involved that qualify as a deposit broker.”
The FDIC said that its analysis of call report data submitted after the 2020 brokered deposits final rule took effect “suggests that some IDIs receiving sweep deposits from unaffiliated broker-dealers appear to be reporting the sweep deposits as non-brokered, despite the involvement of a third party that engages in facilitating the placement of deposits, including through engaging in matchmaking activities.” The agency reminded banks that they must be aware of any additional third parties involved when receiving sweep deposits from an unaffiliated broker dealer with a primary purpose exception.
The FDIC added that it will not require banks to refile previous Call Reports “if, after good faith efforts, certain deposits were not previously reported as brokered by the IDI due to a misunderstanding of how the facilitation aspect of the deposit broker definition applies when additional third parties are involved.”
FDIC Floats Changes To Large, Complex IDI Assessments To Address TDR Elimination
In response to the Financial Accounting Standards Board’s recent elimination of accounting guidance for troubled debt restructurings for adopters of the current expected credit loss standard, the Federal Deposit Insurance Corporation is proposing to update the scorecard it uses to calculate assessments for large and highly complex insured depository institutions to reflect the changes.
The FDIC calculates deposit insurance assessment rates for these firms based on supervisory ratings and financial measures, including the underperforming assets ratio and the higher-risk assets ratio, both of which are determined, in part, using restructured loans or troubled debt restructurings. Specifically, the FDIC is proposing to “define restructured loans in the underperforming assets ratio to include ‘modifications to borrowers experiencing financial difficulty’” and to “amend the definition of a refinance for purposes of determining whether a loan is a higher-risk C&I loan or a higher-risk consumer loan, both elements of the higher risk assets ratio.”
The proposed changes would not affect small bank small bank deposit insurance assessments. Comments on the proposal are due 30 days after publication in the Federal Register.
Fed Seeks Comment On Proposal For Default Rules For Contracts Using Libor
The Federal Reserve invited comment on a proposal to provide default rules for certain contracts that use Libor. The proposal implements the Adjustable Interest Rate (LIBOR) Act, which Congress enacted earlier this year.
Libor will be discontinued after June 30 next year. In response, Congress enacted the Libor Act to provide a solution for replacing references to Libor in existing contracts without adequate fallback provisions. The proposal would replace Libor references in certain contracts with the applicable Fed-selected replacement rate after June 30, 2023. The contracts include those governed by domestic law that do not mature before Libor ends and that lack adequate fallback provisions.
The proposal identifies separate Fed-selected replacement rates for derivatives transactions, contracts where a government-sponsored enterprise is a party and all other affected contracts. As required by the law, each proposed replacement rate is based on the Secured Overnight Financing Rate. Comments will be accepted for 30 days after publication in the Federal Register.
FHFA Seeks Input On Fintech In Housing Finance; Establishes Fintech Office
The Federal Housing Finance Agency is seeking feedback on the role of financial technology in housing finance and the risks and challenges presented by technology throughout the mortgage lifecycle. Comments are due by Sunday, Oct. 16.
FHFA also established a new office of financial technology to help address emerging fintech risks and priorities. The new office will support the agency in:
- developing strategies for FHFA’s regulated entities to advance safe, responsible and equitable innovation
- facilitating the sharing of best practices related to fintech
- providing outreach
- facilitating interagency collaboration to enable information sharing and partnership opportunities
- providing resources on developments, trends and emerging risks in housing finance fintech
FSB Issues Progress Report On Climate Risk Efforts
The Financial Stability Board issued a progress report on its work to implement its roadmap for addressing climate-related financial risk. Specifically, the report noted that significant progress has been made toward establishing global baseline climate reporting standards, with the newly established International Sustainability Standards Board issuing exposure drafts addressing climate and general sustainability-related disclosure statements
The FSB also said it is continuing work on:
- improving the availability and cross-border comparability of climate-related data
- using scenario analysis to monitor climate-related vulnerabilities
- introducing supervisory risk management expectations and guidance regarding climate-related financial risk
FSB acknowledged that “the understanding of the financial risks arising from climate change and the policy approaches needed to address them remains at an early stage” and that “there continues to be a need for strong international coordination of actions in the coming year (and beyond) because of the importance of this issue for the global financial system.”
The work of the FSB and ISSB influences what is ultimately implemented at the national level by prudential regulators and by other financial regulatory agencies. The FSB’s initiatives are typically aimed at large, internationally active institutions.
CPMI, IOSCO Issue Guidance For Systemically Important Stablecoin Arrangements
At the direction of the Financial Stability Board, the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions have issued guidance regarding the application of existing principles for financial market infrastructures to stablecoin arrangements that are considered systemically important financial structures. The guidance is intended to provide more clarity to systemically important stablecoin arrangements and relevant authorities, but it is not intended to create new standards, FSB said.
The guidance offers several considerations for determining the systemic importance of an SA, including the following.
- the size of the SA
- the nature and risk profile of the SA’s activity
- the interconnectedness and interdependencies of the SA and the substitutability of the SA — the extent to which there are available alternatives to using the SA as a means of payment or settlement for time-critical services
Regarding the application of the principles for financial market infrastructures, the guidance noted that “a systemically important SA should develop appropriate risk-management frameworks and tools to address these risks. In particular, it should identify and implement appropriate mitigations, taking an integrated and comprehensive view of its risks.” The guidance also addressed governance, settlement finality and money settlements.
CFPB: Overdraft Revenue Increased In 2022, Down 20% Overall Since 2019
The Consumer Financial Protection Bureau released a blog post that showed that overdraft revenue has increased over the past year, based on the CFPB’s analysis of call report data. The CFPB found that the recent increase in overdraft revenue is greatest among community and midsize banks. However, the data show that overall overdraft revenue is down 20% since the onset of the COVID-19 pandemic in 2019.
Observing that several banks announced changes to their overdraft programs in late 2021 and 2022, the CFPB stated that it is an “open question how these program changes, once implemented, translate into changes in overdraft/NSF fee revenues.”
The CFPB also noted that account maintenance and ATM fees have increased since 2020, including at banks that experienced a decrease in overdraft revenue. Nonetheless, the CFPB stated that, for two banks whose ATM and account maintenance fees have increased significantly since 2020, the increases in revenues from these other fees were “far from sufficient to make up for the decline in overdraft/NSF fee revenues.”
Survey Finds Consumers Dissatisfied With Fed Interest Rate Actions
A recent survey by WalletHub found that six out of 10 respondents are dissatisfied with the Federal Reserve’s performance as inflation takes a toll on their finances, with eight out of 10 believing the country is heading toward a recession.
In the online survey of approximately 250 Americans conducted by the personal finance site in early July, 90% of respondents said they are concerned about inflation. Of those surveyed, 61% blame U.S. politicians for inflation, with 26% instead putting the most blame on Russian President Vladimir Putin and 13% on the Fed. At the same time, 51% do not believe the Fed raising interest rates will help with inflation. However, 56% said Fed rate hikes make them worry about layoffs and job security.
The Fed has increased rates by 1.5% this year. Among the survey’s findings:
- 63% said those increases have affected their wallets
- 35% said they were “upset” about rising interest rates
- 25% were “unprepared” for the rate hikes but an equal percentage were “indifferent” about the Fed’s actions
- 15% were “happy” the Fed raised rates