October 13, 2022

ABA, Trade Groups: Data Argues Against Deposit Insurance Assessment Rate Hike

The American Bankers Association and five trade associations reiterated their opposition to a proposed two basis-point increase in deposit insurance assessment rates in comments submitted to the Federal Deposit Insurance Corporation, this time citing new deposit data they say shows the increase is unwarranted.

FDIC signaled in June its intent to raise assessment rates starting during the first quarterly assessment period of 2023. The six associations previously voiced concerns about the proposal in comments filed in August. Since then, the agency has published its most recent Quarterly Banking Profile, which shows that declines in deposit levels — including insured deposit levels — are well underway, the groups said in their follow-up letter. The groups also said that rising inflation and interest rates will likely further slow insured deposit growth and that pursuing an assessment rate increase amid those other economic stressors will harm the economy.

“The most recent data makes the case against an imminent increase to deposit insurance assessment rates even more compelling, and we encourage the FDIC not to implement one at this time,” the groups said.

Bank Economists: Credit Conditions To Weaken Over Next Six Months

Bank economists expect credit conditions to weaken over the next six months because of mounting economic headwinds, according to the Credit Conditions Index released by the American Bankers Association’s Economic Advisory Committee.

The fourth-quarter 2022 report found that near-term expectations for credit quality and availability for businesses and consumers alike fell for the third consecutive quarter. Following steady credit market recovery in 2021 and early 2022, the latest readings reflect persistent economic headwinds, most notably inflation and rising interest rates. In response, EAC members downgraded their forecasts for real economic growth in 2022 from 1.6% to -0.1%.

The Headline Credit Index fell again in the fourth quarter, dropping 10.8 points to 10, the weakest reading since the onset of the COVID-19 pandemic. The Consumer Credit Index fell 12.9 points to 10 in the fourth quarter. No EAC members expect consumer credit availability to improve over the next six months while more than two in three expect it to worsen.

The Business Credit Index fell 8.8 points to 10 in the fourth quarter. All but two EAC members expect both business credit availability and business credit quality to worsen over the next two quarters, and no members expect either to strengthen.

FOMC Minutes: Further Rate Increases Anticipated

Federal Open Market Committee members anticipate that further increases in the federal funds rate will be necessary to bring down inflation to the committee’s 2% objective, according to minutes released Wednesday for the FOMC’s September meeting. At the meeting, the committee raised the rate by 75 basis points to 3% to 3.25%. The minutes did not indicate whether committee members anticipate that a similar hike will be needed when it meets again in early November but noted that meeting participants believe the committee “needed to move to, and then maintain, a more restrictive policy stance.”

“Participants judged that the pace and extent of policy rate increases would continue to depend on the implications of incoming information for the outlook for economic activity and inflation and on risks to the outlook,” according to the minutes. “Several participants noted that, particularly in the current highly uncertain global economic and financial environment, it would be important to calibrate the pace of further policy tightening with the aim of mitigating the risk of significant adverse effects on the economic outlook.”

Participants commented that recent inflation data generally had come in above expectations and was declining more slowly than they had anticipated, according to the minutes. They expected inflation pressures to persist in the near term, noting labor market tightness and the resulting upward pressure on nominal wages, continuing supply chain disruptions and the persistent nature of increases in services prices, particularly shelter prices.

OCC’s Hsu: Crypto Regs Need ‘Strong Guardrails And Gates’

During a roundtable discussion of cryptoassets and international financial systems, Acting Comptroller of the Currency Michael Hsu addressed the Office of the Comptroller of the Currency’s continuing development of an appropriate regulatory framework for crypto. Many bankers, regulators and policymakers “don’t really understand or trust crypto as it exists today and that they see lots of risk,” Hsu said but don’t want to get left behind or be perceived as anti-innovation.

Likewise, regulatory bodies should resist lowering standards when dealing with crypto, Hsu said, adding that regulators have to “learn and smartly adapt” to “ensure safety, soundness and fairness and encourage responsible innovation.” Regulators should have learned a lesson from attempts to regulate shadow banking 20 years ago. “Instead of shielding the regulated banking system from the risks of structured finance and shadow banking, the approach of pushing those risks outside of the bank regulatory perimeter ended up simply masking the problem,” he said. “We don’t want to repeat that mistake.”

Hsu said that while interagency collaboration is making strides toward supervisory pathways, the banking sector needs to develop “guardrails and gates” identifying three areas that need clarity around supervisory expectations in the near term.

• liquidity risk management of deposits from cryptoasset companies, including stablecoin issuers
• finder activities, especially related to crypto trade facilitation
• crypto custody

“The more novel and riskier an activity, the tighter a bank’s limits and controls need to be to meet supervisory expectations,” he said. “Banks seeking to engage in crypto activities may want to carefully consider the scope of what they want to do, start with what can be most readily risk managed, and impose gates, through limits and other controls, to prevent uncontrolled expansion and growth into higher-risk activities. Banks interested in engaging in crypto will have to develop good brakes by fashioning strong guardrails and gates. Those able to do so will be positioned to grow and expand in the future.”

Barr: Regulators Look To Balance Fintech’s Potential With Appropriate Regulation

Fintech’s promise is that it can make financial services better, faster, cheaper and more available to those typically underserved, but excitement over innovative technology can lead to a pace of adoption that “overwhelms” industry and regulators’ ability to “assess and manage underlying vulnerabilities,” Federal Reserve Vice Chairman for Supervision Michael Barr told a fintech industry gathering Wednesday.

Cryptoassets’ rapid growth — in market capitalization and in reach — and activity outside and inside supervised banks requires oversight that includes safeguards to ensure that crypto service providers are subject to similar regulations as other financial services providers, Barr said.

“The same type of activity should be regulated in the same way,” he said. “This principle holds even when the activity may look different from the typical activities we regulate, or when it involves an exciting new technology or a new way to provide traditional financial services.”

Because crypto-related activities pose novel risks, it is important for banks to ensure that any cryptoasset-related activities they conduct are legally permissible and that banks have appropriate measures in place to manage those risks, Barr said. In August, the Fed issued supervisory guidance outlining steps that Fed-supervised banks should take before engaging in cryptoasset-related activities. Banks must understand the heightened liquidity risks they face from certain types of deposits from cryptoasset companies, Barr added, noting that there are additional types of cryptoasset-related activities where the Fed may need to provide guidance to the banking sector in the coming months and years.

Stablecoins linked to the dollar are of particular interest to the Federal Reserve, Barr added. “History has shown that money-like assets are subject to runs that can threaten financial stability,” he said. Barr also noted that banks are exploring different models to issue dollar-denominated tokens on distributed ledger networks, and he recommended that they do so only in a “controlled and limited manner.” Banks should engage with regulators “early and often” as they experiment, Barr said, to discuss the benefits and risks of new use cases, ensuring they are consistent with banking activities “conducted in a safe, sound and legally permissible manner.”

FinCEN’s Das Outlines Next Steps For CTA Rules, Processes

During an address Wednesday at an industry event, Financial Crimes Enforcement Network Acting Director Himamauli Das outlined timelines and next steps for Corporate Transparency Act-mandated rulemakings and other FinCEN enforcement activities.

The final beneficial ownership information reporting rule — the first of three rulemakings to implement the CTA — was issued late last month and goes into effect Jan. 1, 2024. The second is the access rule, which outlines protocols for access to the beneficial ownership database by law enforcement and financial institutions, which Das said will be issued “in the near term.” The third is a revised customer due diligence rule to be issued “no later than one year after the effective date of the reporting rule,” he said. FinCEN also is developing infrastructure to build “a secure and confidential database that meets the highest security standards,” ensuring only authorized users can access information, Das said, which he expects to be operational by the time the reporting rule comes into effect.

“We know the reporting rule will impact small businesses, as well as financial institutions and federal and state law enforcement that use the reporting information” and FinCEN is “mindful” of the possible burdens of the rule, he said. “We will be working to develop guidance and educational materials to help reporting companies prepare to file their beneficial ownership information reports.”

Fed To Replace Bank Application Filing System This Month

The Federal Reserve will replace its current bank application filing system with a new and upgraded system later this month. The cloud-based system, known as FedEZFile, will provide real-time status tracking, two-way messaging and digitally signed documents for applications, according to the agency. The substantive requirements of applications will remain the same with the new system.

FedEZFile will use Login.gov, a secure sign-in service run by the federal government that allows individuals to use a single username and password to access participating government agency websites. The system will be accessible via PC, tablet and smartphone. A tutorial service named “FedEZFile Fluent” will be available through the Fed’s website and provide step-by-step instructions on how to register for FedEZFile, submit an application and access filing information.

Users will be able to register for FedEZFile and access FedEZFile Fluent starting Oct. 17. Upon FedEZFile going live, users will no longer be able to access E-Apps. All pending applications filed before Oct. 17 will be transferred to FedEZFile for continued processing. An “Ask the Fed” webinar on the new system will be scheduled at a later date.

OCC Releases FY2023 Bank Supervision Operating Plan

The Office of the Comptroller of the Currency released its bank supervision operating plan for fiscal year 2023. The four-page document provides the foundation for policy initiatives and supervisory strategies as applied to individual national banks, federal savings associations, federal branches, federal agencies and technology service providers. The OCC staff uses the plan to guide supervisory priorities, planning and resource allocations.

Report: Elder Financial Exploitation On The Rise

The rate of elder financial exploitation across the globe has more than doubled since the start of the COVID-19 pandemic, with that count likely an underestimate as only one in 44 older adult victims report to the authorities that they have been targeted, according to a new report by AARP.

The association collaborated with University of Chicago researchers to analyze more than 100 sources of data on elder financial exploitation. They found that family members were the major culprits, stealing on average twice as much money from the elderly as strangers. The fact that family members are involved is probably a major reason why so few cases of elder exploitation are reported, they said. Still, the researchers noted that scams targeting older individuals are on the rise. “Smishing” efforts, in which perpetrators pose as banks and other legitimate businesses in texts to gain access to personal information and money, increased 58% in the U.S. in 2021. Complaints to the Consumer Financial Protection Bureau about peer-to-peer payment fraud also are increasing.

Many financial institutions have educated consumers and their employees and have used technology to stop elder financial exploitation, the researchers noted. The American Bankers Association offers an online course on elder financial exploitation, as well as its Safe Banking for Seniors program, which offers resources for banks seeking to educate customers about the problem.

Survey: Customers Want Banks’ Help As Inflation Affects Growing Numbers

More Americans report feeling the effects of inflation and increasingly are turning to banks for help, according to a new J.D. Power survey.

Nearly three-fourths (72%) of Americans said the cost of goods is increasing faster than their income — up 2% since June, which was an all-time high. Retail bank customers classified as financially healthy dropped to an all-time low of 30% while the proportion of those falling into the financially vulnerable category rose by six percentage points to 45%, the survey reported.

Bracing for recession, one-third of customers are waiting for assistance from their banks, the survey said, with 81% reporting that bank support is important to help them manage living with high inflation, which includes 91% of overextended customers. Asked if banks had reached out with information on how to handle inflation, 31% reported receiving some form of communication. Another 31% said they had not but wish they had.