September 2, 2022

Special Session On Tax Cuts, Ag Tax Credits Delayed

Missouri leadership announced Wednesday that the special session planned for Sept. 6 will be delayed as lawmakers continue to negotiate and hash out the final details. Lawmakers are now expected to convene the week of veto session, which is scheduled for Sept. 14.

“Because of the important nature of both the tax cut proposal and the agriculture tax credits, we will continue to work together to develop a viable legislative package that can receive strong support in both chambers,” leaders in both the House and Senate said in a joint statement posted by Senate Majority Leader Caleb Rowden, R-Columbia, on social media.

Gov. Mike Parson’s official call for special session asked lawmakers to focus on a personal income tax cut and to extend tax credits on various agricultural program.

The planned income tax cut would reduce the top individual rate in Missouri from 5.3% down to 4.8%, eliminate the bottom income tax bracket, and increase the standard deduction by $2,000 for individuals and $4,000 for joint filers.

Parson also asked lawmakers to extend the sunset on tax credits for various ag programs to six years. Parson vetoed a version passed during regular session that extended the sunset by two years.

Banker Op-ed: Durbin-Marshall Credit Card Bill Will Hurt Small Businesses

A proposed bill that would allow merchants to control how banks process credit card transactions would be a pain for consumers, small businesses and community banks trying to meet the needs of their customers, said Shan Hanes, CEO of Heartland Tri-State Bank in Elkhart, Kansas, and board chair of the Kansas Bankers Association. In an op-ed for the Topeka-Capital Journal, Hanes said S. 4674, introduced by Sens. Roger Marshall, R-Kan., and Dick Durbin, D-Ill., would benefit big box stores and ecommerce platforms at the expense of everyone else.

“Kansas consumers will see their popular credit card rewards programs scaled back or end,” Hanes said. “Even if their issuer offers rewards, there’s no guarantee merchants will pick a network that credits them for their eligible benefits. More troubling, Kansans will not know if the merchant is relying on a payment network that skimps on security and compromises their data.”

Small businesses also would feel the pain, Hanes said.

“They will need to learn how to implement multiple payment options for each transaction as required by the government and train management and staff on the multiple new systems. They will need to explain to customers why they didn’t get the right reward points from their transactions or why their rewards programs went away altogether.”

Trade Groups Back OCC: Some Crypto Actions Within Scope Of Traditional Banking

Withdrawing Office of the Comptroller of the Currency interpretive letters regarding cryptocurrency would not benefit consumers and investors or promote a safe and secure marketplace, the American Bankers Association and the Bank Policy Institute said in a letter to Acting Comptroller Michael Hsu. The associations are responding to a recent request from four U.S. senators to Hsu to withdraw the interpretive letters, claiming that “the OCC’s actions on crypto may have exposed the banking system to unnecessary risk” given “current turmoil” in the crypto market.

In 2020 and 2021, the OCC issued several interpretive letters clarifying that many crypto activities are merely modernized versions of permissible traditional banking activities. ABA and BPI urged Hsu to reject the lawmakers’ request to withdraw the interpretive letters, reaffirming that certain crypto activities are within the scope of permissible traditional banking activities for national banks. The trade groups said the OCC’s technology-neutral approach to permissible banking activities enables banks to meet customer demand for modernized services within the robust supervisory and regulatory framework in which banks operate.

The appropriate way to address the risks highlighted in the congressional letter is through “appropriate regulation of nonbank crypto firms and products that are currently largely unregulated,” the associations said. “Banks are subject to comprehensive and robust risk management, supervision and examination processes, and have substantial experience with incorporating new technologies into the business of banking,” they wrote. “The public and the broader financial system benefit from banks’ involvement in the activities described in the interpretive letters.”

ABA and BPI said a consistent approach from federal banking regulators regarding permissible crypto activities for banks and related risk management expectations would benefit institutions and their customers. They recommended the agencies continue working to provide clarity on crypto activity permissibility and risk management expectations.

Powell: Fed To Continue Pursuing ‘Restrictive Policy’ To Combat Inflation

A recent easing in the rate of inflation hasn’t been enough to convince the Federal Reserve to reverse course on raising interest rates, with the Federal Open Market Committee likely to pursue a “restrictive policy stance for some time,” Fed Chair Jerome Powell said at the Jackson Hole, Wyoming, monetary policy conference. Although higher interest rates and a slowdown in hiring will bring “some pain” to households and businesses, “a failure to restore price stability would mean far greater pain,” he said.

The FOMC approved a 75 basis point increase in the federal funds rate during its meeting in July — the fourth increase so far this year — as part of its long-term goal to maintain inflation at 2%. Powell didn’t indicate whether he believed another 75 point increase was necessary during the committee’s next meeting in September but said the historical record “cautions strongly against prematurely loosening policy.” He acknowledged that the rate of inflation had dipped slightly in July, but “a single month's improvement falls far short of what the committee will need to see before we are confident that inflation is moving down.”

“In current circumstances, with inflation running far above 2% and the labor market extremely tight, estimates of longer-run neutral are not a place to stop or pause,” he said.

Mester Sees FOMC Raising Rates Above 4%

It will be necessary to raise the federal funds rate to “somewhat above 4%” by early next year and hold it there, predicted Loretta Mester, president of the Federal Reserve Bank of Cleveland, during a recent speech. She added that she does not anticipate cutting the fed funds rate target next year.

‌The Federal Open Market Committee has raised the rate four times this year and will meet again Sept. 20-21. In her remarks, Mester said despite a recent slowdown in the pace of inflation, “it is far too soon to conclude that inflation has peaked, let alone that it is on a sustainable downward path to (the Fed target of) 2%.” She anticipated monetary policy needed to move “into a restrictive stance” but shied away from committing to any specific action at the next FOMC meeting.

“While it is clear that the fed funds rate needs to move up from its current level, the size of rate increases at any particular FOMC meeting and the peak fed funds rate will depend on the inflation outlook, which depends on the assessment of how rapidly aggregate demand and supply are coming back into better balance and price pressures are being reduced,” she said.

ABA Weighs In On ‘Tough Legacy’ Contracts Under Libor Law

In its comment letter to the Federal Reserve, the American Bankers Association made three recommendations concerning the Federal Reserve’s proposed rule to implement the Adjustable Interest Rate (Libor) Act, particularly provisions addressing “tough legacy” contracts.

First, the association recommended that the Fed acknowledge that the final rule does not alter or impair the rights or obligations of any person, or the authorities of any agency, under federal consumer financial law. Second, ABA said it would be useful if the Fed addresses the ambiguity of Libor being “nonrepresentative,” even if a “synthetic” Libor continues to be published. Third, the association urged the agency to clarify that changes made as permitted under the terms of existing Libor contracts do not conflict with the determination and implementation of the Fed-selected benchmark replacement for such contracts as provided in the act and the proposed rule, including availability of the act’s safe harbor.

OCC To Lower Assessments Next Year

The Office of the Comptroller of the Currency will lower assessments in 2023 as part of an effort to close the pricing differential between state and federal charter assessments, Acting Comptroller of the Currency Michael Hsu said during remarks to the Texas Bankers Association. Effective in March, the agency will make a 40% reduction in assessments for a bank’s first $200 million in total balance sheet assets. It also will make a 20% reduction for bank assets between $200 million and $20 billion. The cuts will result in a $41.3 million reduction in assessments for community banks next year, Hsu said.

“The purpose of this adjustment is to level the playing field with the cost of supervision compared to state community bank charters,” he said. “The recalibration will not reduce the quality of OCC supervision or the resources available to community banks. I am hopeful that this reduction will provide community banks with extra breathing space and capacity to invest and seize opportunities related to digitalization, compliance, cybersecurity and personnel.”‌

Hsu announced other agency actions designed to help community banks, which he praised as vital members of the communities they serve. The OCC is working to:

• streamline the licensing process for community banks
• clarify the agency’s standards and coordinate with the Federal Deposit Insurance Corporation and Federal Reserve to minimize redundancies
• support a revitalization of de novo activity

The agency also is updating its approach to risk-based supervision and is continuing a realignment of midsize and community bank supervision.

“During the pandemic, we learned a lot about the importance of community banks and your role in getting relief funds into the hands of small-business owners nationwide,” he said. “On June 30, 2020, community banks held 41%, or $198 billion, of the market of Paycheck Protection Program loans. ... Your customers are not likely to forget how you stepped up in their time of need.”

FedNow Instant Payments Service To Launch By July

The Federal Reserve said its FedNow service will launch midyear 2023, targeting May to July as the production rollout window for the anticipated instant payments service. The pilot program is slated to enter technical testing next month.

‌More than 120 organizations are taking part in the pilot. FedNow will be accessible to financial institutions of any size, and participants will be able to provide businesses and consumers with the ability to send and receive instant payments efficiently and securely, and payment recipients will have full access to funds immediately, according to the Fed.

“The Federal Reserve has made a substantial commitment to the FedNow platform, which has benefited from the innovative technologies and approaches proven by global technology companies that are vital for today's always-on digital economy,” Fed Vice Chair Lael Brainard said during an address to a FedNow Early Adopter Workshop. “Our cloud-first design, unique among central bank instant payment services, positions us for the future by enabling not only the throughput and scalability required for high-volume retail transactions but also broad geographic points of resiliency to ensure continuous service.”

‌Participants in the FedNow pilot will complete a certification process to ensure operational and messaging readiness and then move into production once the service is launched. As the pilot program moves into the testing phase, the Fed will engage nonpilot financial institutions and service providers interested in being early adopters. ‌

New Online Tool Collects Home Mortgage Data

The Consumer Financial Protection Bureau unveiled a new online tool that gives users the ability to view Home Mortgage Disclosure Act mortgage loan data and follow mortgage market trends during the collection year. The Quarterly Graphs tool provides 21 graphs organized according to questions often asked about the mortgage market, according to the agency.

A financial institution is required to file quarterly HMDA data if it reported a combined total of at least 60,000 applications and covered loans, excluding purchased covered loans, for the preceding calendar year. The Quarterly Graphs tool allows users to download of the graphs as CSV, XLS and PDF files, or create a custom web link for sharing. The tool currently contains data for 2019, 2020, 2021 and the first quarter of 2022. Data for each new quarter will be added as soon as it is available.

Government Watchdog: DOJ Falling Short Of Obligations To Share BSA Info

The Government Accountability Office found significant room for improvement regarding the Department of Justice’s obligation under the Anti-Money Laundering Act of 2020 to provide the Financial Crimes Enforcement Network with information on its use of Bank Secrecy Act reports.

According to a new report from the GAO, “FinCEN receives limited data from law enforcement agencies on their use of BSA reports or the reports’ impact on case outcomes because agencies largely do not collect such data. As a result, FinCEN cannot provide comprehensive feedback to financial institutions on the usefulness of the BSA reports they file,” another requirement under AMLA.

To help rectify the situation, the GAO recommended that DOJ include data on the use of BSA reports in its ongoing agencywide efforts to improve data collection and to involve its chief information officer and statistical official in the design of its annual BSA statistical report. The DOJ neither agreed nor disagreed with the recommendations.

FHFA To Review Federal Home Loan Bank System

The Federal Housing Finance Agency will conduct a “comprehensive review” of the Federal Home Loan Bank System beginning later this month. The agency plans to host two public listening sessions and a series of regional roundtable discussions to consider and evaluate the mission, membership eligibility requirements and operational efficiencies of the FHLBanks, according to a statement.

‌The first listening session will be held in-person Sept. 29 in Washington, D.C., with the option to participate virtually. The agency is seeking public feedback in six areas.

• FHLBanks’ general mission and purpose in a changing marketplace
• FHLBank organization, operational efficiency and effectiveness
• the banks’ role in promoting affordable, sustainable, equitable and resilient housing and community investment
• their role in addressing the unique needs of rural and financially vulnerable communities
• member products, services and collateral requirements
• membership eligibility and requirements

Written comments also will be accepted through Oct. 21.

Article: How Your Compliance Team Can Get Ready For ESG Developments

With the Security and Exchange Commission soon to finalize new rules for climate disclosure, the responsibilities of a bank’s environmental, social and governance team will only grow, so now is the time to evaluate your preparedness, Tahmina Day, a bank risk professional and ESG expert, writes in an article for ABA Risk and Compliance. Day offers steps that compliance professionals can take now for better outcomes tomorrow.

“If your compliance team has not been monitoring the latest ESG and climate disclosure updates, now is the right time to engage them,” Day writes. “Getting up to speed with the proposed rules, and some of the underlying frameworks, such as TCFD and GHG Protocol, is the first step.”

‌Day also suggests banks revisit current methodologies to assess if climate disclosure rules and ESG in general will require introducing any new compliance review or controls testing procedures and updating governance documents. And she stresses that when it comes to ESG, banks must be tech-savvy.

“The starting point is to evaluate your existing compliance software for required adjustments in anticipation of the workload associated with climate disclosures,” she writes. “Does your current technology require adding new categories and forms to perform risk and gap analysis? Will it require integration with other platforms for data flow and input?”

Survey: Banks Increase Tech Budgets To Upgrade Security

Eight in 10 U.S. bank board members and executives said their banks had increased their technology budgets in 2022, with cybersecurity being a key area of investment, according to a new report by Bank Director Magazine. The report said participating banks had raised their tech budgets by a median 11% over the past year, with 45% of respondents saying their institutions rely on outdated technology. A total of 138 board members and bank executives participated in the survey.

Cybersecurity was the primary focus for investment, with 89% of respondents identifying it as an area where their banks had deployed new technologies or upgraded capabilities in the last 18 months. During the same time period, 63% implemented or upgraded payments capabilities to improve the customer experience while 54% focused on enhancing digital retail account opening, according to the report.

Most respondents said their banks employ high-level executives focused on technology, particularly in the form of a chief information security officer (44%), chief technology officer (43%) and/or chief information officer (42%). Few reported having a chief data officer or data scientist on staff, despite almost half expressing concerns that the bank doesn't effectively use or aggregate data.

Poll: Financial Institutions See Low Demand For Crypto

Relatively few executives at banks and other financial institutions said customers were requesting cryptocurrency options, according to a recent survey by the digital banking platform provider Alkami. The company polled 152 executives and found that 21% of respondents said their account holders were requesting bitcoin products and services, while nearly 30% said they “weren’t sure.” Despite the relatively low volume of requests from consumers, 35% of bank respondents said that adding bitcoin products and services to their digital menu would offer a competitive advantage.

The survey also found that customers’ use of cashless options has increased over the past two years. Nearly 80% of respondents said that cashless transactions had increased, with two out of five reporting an increase of 20-40% and one out of five reporting an increase of more than 50%.

In addition, the company found that most banks were using some form of data analysis to optimize performance or reach new markets. Respondents said they were using data to deliver a better member and customer experience (86%), guide decision-making (72%) and reduce development time and costs (23%).