STATE GOVERNMENT RELATIONS
Register for 2022 IBA Regional Meetings
Three regional meetings remain in Richmond, Bloomington and New Albany. The New Albany regional meeting has been rescheduled for Oct. 17. Be a part of the these meetings to facilitate grassroots communication between the bankers we serve and the legislators who serve our state. The meetings will include an hour-long update on the IBA, including legislative information and advocacy opportunities. Following the update, local legislators from the Indiana General Assembly will join bankers for lunch. Each meeting begins at 11:00 a.m. local time.
New Albany (NEW DATE) – October 17
The Exchange Pub
118 W Main Street
New Albany, IN 47150
Richmond – August 29
Olde Richmond Inn
138 South 5th Street
Richmond, IN 47374
Bloomington – August 30
Graduate Hotel
210 East Kirkwood Avenue
Bloomington, IN 47408
FEDERAL GOVERNMENT RELATIONS
FDIC Issues Guidance for Multiple NSF Fees Charged for Re-Presentment
The Federal Deposit Insurance Corp. released guidance yesterday on the practice of charging multiple non-sufficient funds fees for transactions presented multiple times against insufficient funds in a customer’s account, adding that it will recognize an institution’s proactive efforts to self-identify and correct violations.
The FDIC listed a range of “risk-mitigating activities” institutions could pursue in regard to NSF fees. They include eliminating the fees; declining to charge more than one NSF fee for the same transaction, regardless of whether the item is re-presented; conducting a comprehensive review of policies and practices related to re-presentments; and clearly communicating to customers the amount of fees and when those fees will be imposed. If institutions self-identify re-presentment NSF fee issues, the agency expects them to take several steps, including providing restitution to affected customers and “promptly” correcting NSF fee disclosures and account agreements.
The FDIC indicated it recognizes an institution’s proactive efforts to self-identify and correct violations. “Examiners will generally not cite (unfair or deceptive acts or practices) violations that have been self-identified and fully corrected prior to the start of a consumer compliance examination.” The agency added that in recent examinations, it has identified instances where institutions have been unable to reasonably access accurate ACH data for re-presented transactions beyond two years. In those cases, the FDIC has accepted a two-year look-back period for restitution. “The FDIC expects supervised institutions to promptly address this issue," the agency indicated.
Fed Issues Guidance for Banks Seeking to Leap into Crypto
In a supervisory letter issued Tuesday, the Federal Reserve indicated that Fed-supervised banks seeking to engage in activities related to cryptocurrency and other digital assets must first assess whether such activities are legally permissible and determine whether any regulatory filings are required. The letter also stated that banks should notify the Fed prior to engaging in crypto-asset-related activities.
The supervisory letter is similar to guidance previously issued by the Office of the Comptroller of the Currency and Federal Deposit Insurance Corp.; in all cases, the agencies require banks to notify regulators before engaging in any kind of digital asset activity, including custody activities. The three agencies released a joint statement late last year in which they pledged to provide greater guidance on the issue in 2022.
The Fed noted in its letter that the crypto-asset sector presents opportunities for banks but comes with many potential hazards, including cybersecurity risks and financial stability risks. “A supervised banking organization should, prior to engaging in these activities, have in place adequate systems, risk management and controls to conduct such activities in a safe and sound manner and consistent with all applicable laws, including applicable consumer protection statutes and regulations,” the letter stated. Banks already engaged in crypto activities should contact the Fed “promptly” if they have not already done so, the agency indicated.
Fed staff “will provide relevant supervisory feedback, as appropriate, in a timely manner.” The Fed also encouraged state member banks to contact state regulators before engaging in any crypto-asset-related activity.
Bowman: Fed to Detail Crypto Expectations
The Federal Reserve is working to articulate supervisory expectations for banks on various digital asset-related activities, Fed Gov. Michelle Bowman said. Speaking at The Venture Center’s VenCent Summit in Little Rock, Ark., Bowman said supervisory expectations will cover issues such as crypto custody, facilitating customer purchases and sales, loan collateral, and bank issuance and distribution of stablecoins.
Bowman noted that the Fed this week issued guidance indicating that Fed-supervised banks engaging in or seeking to engage in crypto-related activities should notify their lead supervisory point of contact at the agency. That guidance followed prior releases by the Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency and last year’s joint guidance that began laying the regulatory groundwork on crypto assets.
The risks posed by digital assets were a point of discussion at the Federal Open Market Committee’s latest meeting according to minutes released Wednesday. Participants said crypto’s growing importance and interconnectedness underscores the need for a robust supervisory and regulatory framework
Fed Issues Final Guidelines for Payments System Access
The Federal Reserve Monday announced final guidelines that it will use when evaluating requests for master accounts with the Fed or access to the agency’s financial services. The finalized guidelines are substantially similar to those first proposed by the Fed in 2021, which came amid growing requests from fintech firms and entities with novel bank charters to gain access to the payments system.
According to the Fed, the guidelines include a tiered review framework to provide additional clarity on the level of scrutiny that Reserve Banks will apply to different types of institutions with varying degrees of risk. For example, institutions with federal deposit insurance would be subject to a more streamlined level of review, while institutions that engage in novel activities and for which authorities are still developing appropriate supervisory and regulatory frameworks would undergo a more extensive review.
In a statement, Fed Vice Chair Lael Brainard said the guidelines “provide a consistent and transparent process to evaluate requests for Federal Reserve accounts and access to payment services in order to support a safe, inclusive and innovative payment system.” However, in separate remarks, Fed Gov. Michelle Bowman said the guidelines are only a first step and that more work needs to be completed to implement them. “There is a risk that this publication could set the expectation that reviews will now be completed on an accelerated timeline,” she said.
House Democrats Pass Reconciliation Package
Following passage by the Senate earlier this month, the House last Friday passed the Inflation Reduction Act, a bill to address selected portions of the Biden administration’s agenda for climate change, health care and tax policy. The House adopted the same legislation that passed the Senate, and the bill was signed into law by President Biden on Wednesday.
The legislation includes a book minimum tax (affecting corporations with income over $1 billion), and favorable adjustments for depreciation, selected amortization and controlled groups were made as the bill moved through the Senate. In addition, a 1% stock buyback excise tax on public companies and an extension of the excess business loss limitations were included. Generally, the tax revenue provisions are effective for 2023 forward.
The bill also includes rules related to prescription drugs, large expenditures on green energy and adds $80 billion over 10 years to the IRS budget to improve tax compliance, operations and enforcement. Importantly, a controversial reporting provision ─ that would have required banks to report information on gross inflows and outflows on customer accounts above a certain de minimis level ─ was omitted from the reconciliation package. The Indiana Bankers Association, along with other financial trade groups and bank customers, had vigorously opposed the proposal last year.
FHFA Announces Updated Eligibility Standards for GSE Sellers, Servicers
The Federal Housing Finance Agency Wednesday announced updated standards that mortgage lenders will have to meet in order to sell or service loans on behalf of Fannie Mae and Freddie Mac. Additionally, Ginnie Mae also updated its requirements for servicers of Ginnie Mae mortgages in coordination with FHFA. Among other provisions, the standards create several new requirements for non-depository sellers and servicers to help mitigate the risk posed by these firms.
Under the new standards, sellers and servicers will be required to maintain a base net worth of $2.5 million plus 35 basis points of the unpaid principal balance for Ginnie Mae servicing and 25 basis points of the unpaid principal balance for all other 1-to-4-family loans serviced. Fannie and Freddie sellers and servicers would be required to maintain a capital ratio of tangible net worth to total assets that is greater than or equal to 6%. Depository institutions can continue to rely on their prudential regulatory standards to meet the GSEs’ capital and liquidity requirements.
The majority of the requirements ─ including those related to net worth and liquidity ─ take effect September 2023.
Fed Minutes: Higher Rates Likely to Remain ‘For Some Time’
A tight labor market and high inflation convinced the Federal Open Market Committee to unanimously approve a 75-basis point rate-hike in July, according to minutes released Wednesday. Moreover, some participants said that once the policy rate had reached “a sufficiently restrictive level,” it likely would need to remain there “for some time” to ensure inflation was firmly on a path back to the Federal Reserve’s 2% target.
The minutes show FOMC participants anticipated that ongoing rate increases would be necessary, but didn’t hint at what shape those would take. However, “as the stance of monetary policy tightened further, it likely would become appropriate at some point to slow the pace of policy rate increases while assessing the effects of cumulative policy adjustments on economic activity and inflation.”
Participants saw little evidence to date that inflation pressures were easing. They did judge inflation would respond to monetary policy tightening, but given the delay in associated moderation of economic activity, inflation pressures “would likely stay uncomfortably high for some time.”
FHFA Proposes to Change Affordable Housing Goals for Fannie Mae, Freddie Mac
The Federal Housing Finance Agency announced changes to the methodology Fannie Mae and Freddie Mac will use to measure their multifamily housing goals. Under a rule proposed Tuesday, the GSEs will switch from using the number of units in multifamily properties financed annually by each institution to the percentage of units financed.
FHFA last year established benchmark levels for the multifamily housing goals for 2022, citing the pandemic and the potential for unforeseen changes to multifamily market conditions as reasons for sticking to a single year. The proposed goals would be for 2023 and 2024. The agency is not proposing any changes to the underlying criteria that determine which multifamily units qualify for credit.
FHFA acknowledged that its existing methodology does not incentivize Fannie Mae or Freddie Mac continue to acquire mortgages backed by goal-qualifying units after the institutions have purchased enough mortgages to meet the minimum numeric benchmark.
“Today’s proposed rule would ensure that each enterprise’s focus remains on affordable segments of the multifamily market and reaffirms FHFA’s commitments to its statutory duty to promote affordability nationwide,” said FHFA Director Sandra Thompson. “The proposed change to the methodology will make the multifamily housing goals more responsive to market conditions.”
CFPB Planning Inquiry on Credit Card Interest Rates
The Consumer Financial Protection Bureau released a blog post last Friday targeting the growing divergence between credit card interest and charge-off rates ─ and previewing an inquiry into industry practices. The CFPB indicated in the post that credit card companies did not decrease their prices following the Great Recession despite lower charge-off rates, which helps explain large credit card banks’ nearly 7% annualized return on assets. The CFPB also indicated it plans to evaluate whether market trends, such as increasing rewards and high switching costs, explain the industry’s persistently high interest rates and whether anti-competitive practices have driven issuers’ profits at cardholders’ expense.