STATE GOVERNMENT RELATIONS
Indiana Special Session Continues Into Second Week
The Indiana General Assembly continued its work this week on legislation addressing the issues of abortion and tax refunds. Lawmakers were called back to work by Gov. Eric Holcomb, restarting the legislative process last Monday to work through both issues. This week, the Senate worked through HB 1001, and the House took up SB 1 and SB 2. A number of amendments have been proposed, and several adopted for both bills. It is expected that all legislative activity will conclude next week as both chambers reconcile differences between versions of the legislation.
Register for 2022 IBA Regional Meetings
The New Albany regional meeting, originally scheduled for August 4, is being rescheduled due to the special legislative session in progress. Once a date is selected, the IBA will send out notifications and update the registration on the IBA website. The Richmond and Bloomington regional meetings will take place as scheduled. Be a part of the regional meetings around the state 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 meet for lunch with bankers from the community. Three regional meetings remain, each beginning at 11:00 a.m. local time. Below are the dates, locations and registration links of each regional meeting.
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 Releases Advisory, Fact Sheet on Deposit Insurance and Crypto
The Federal Deposit Insurance Corp. issued an advisory to banks last week regarding what it indicates are misrepresentations by some cryptocurrency companies that their products are eligible for FDIC deposit insurance coverage or that customers are FDIC-insured if the crypto company fails.
“Over the past several months, some crypto companies have suspended withdrawals or halted operations. In some cases, these companies have represented to their customers that their products are eligible for FDIC deposit insurance coverage, which may lead customers to believe, mistakenly, that their money or investments are safe,” the agency wrote in the advisory. It added that in dealings with crypto companies, “FDIC-insured banks should confirm and monitor that these companies do not misrepresent the availability of deposit insurance.”
The FDIC also issued a two-page fact sheet reminding the public that the FDIC only insures deposits held in insured banks and savings associations and only in the event of an insured bank’s failure.
Fed: Stablecoin Growth Poses Structural Vulnerabilities
The value of outstanding stablecoins grew roughly fivefold last year, the Federal Reserve indicated in its 2021 annual report. In the report, the Fed noted stablecoins have structural vulnerabilities similar to those of other cash-like vehicles, making them susceptible to runs and posing risks to payment and financial systems. The Fed also indicated it is studying the implications of crypto and other emerging financial technologies, which have raised fundamental questions about appropriate legal and regulatory safeguards.
FDIC to Increase Focus on CRE Loan Concentration in Exams
Federal Deposit Insurance Corp. examiners will increase their focus on commercial real estate loan concentration in the upcoming exam cycle as economic pressures and changes in work and commerce habits continue to elevate CRE lending risk, according to the most recent issue of the agency’s Supervisory Insights published Wednesday.
The number of banks exceeding supervisory CRE concentration criteria ¬– as defined by interagency guidelines established in 2006 – grew to about 9% of banks in 2021, the agency indicated. That is well below pre-pandemic levels, but the FDIC noted several potential uncertainties facing the CRE market. They include pandemic-induced societal changes: downward pressure for office space as more employees worked remotely, increased hotel vacancies and a reduction in shopping at brick-and-mortar retailers. The agency also cited inflation, rising interest rates and supply chain challenges as potentially increasing risk.
Given those uncertainties, “examiners will be increasing their focus on CRE transaction testing in the upcoming examination cycle. In particular, examiners will be testing newer CRE credits, credits stressed within sub-categories and geographies, and credits with payments vulnerable to rising rates and rising costs,” the agency indicated.
The FDIC also noted that banks with well-developed risk management practices generally adapted better during the pandemic. “For banks substantively involved in CRE lending, this was especially true when robust contingency planning and stress testing/scenario analysis processes were in place.”
Read an overview of FDIC examinations
Trades: Data Aggregators Should Be Subject to CFPB Examination
The American Bankers Association, the Independent Community Bankers of America and six other national trade associations petitioned the Consumer Financial Protection Bureau Tuesday to initiate a rulemaking to ensure that businesses that collect large amounts of consumer financial data are subject to the same oversight as financial institutions.
The CFPB is currently engaged in rulemaking under Section 1033 of the Dodd-Frank Act, which will establish standards for sharing consumer financial data, typically through third parties, in a secure and transparent manner that gives consumers control. Financial institutions already must meet strict data privacy requirements under federal law and are monitored for compliance for all consumer compliance laws by the bureau, the trade groups noted in the petition. Data aggregators will be covered by the Section 1033 rule but are not subject to CFPB supervision, leaving a significant gap in protection for consumers, they added.
The groups called on the CFPB to initiate a rulemaking to define "larger participants” in the data aggregation services market that should be subject to ongoing supervision by the bureau for compliance with the rule when it is final.
“We believe the CFPB should ensure that data aggregators and data users that are larger participants in the aggregation services market – not just banks and credit unions – are examined for compliance with applicable federal consumer financial law, especially the requirements of the forthcoming 1033 rulemaking, including the substantive prohibitions on the release of confidential commercial information,” the associations indicated.
OCC's Hsu: Banks Get High Marks on Mitigating Cyber Risk, But There’s More to Do
The financial services sector has done “a good job” so far of building cyber defenses and working with law enforcement and the regulatory community to guard against attacks, but there’s more work to be done, said Acting Comptroller of the Currency Michael Hsu Tuesday during remarks to financial services groups.
He noted that the Office of the Comptroller of the Currency has observed increases in cyberattack frequency and severity against financial institutions and service providers. Cyberattacks, such as ransomware, have elevated risks beyond financial loss, Hsu said. “Disruption to financial services can significantly impact banks’ abilities to deliver critical services to their customers and has the potential to affect the broader economy. Many of the largest financial institutions…not only support their own customers, but also support critical activities including wholesale payments, trade settlement and custody.”
Hsu said cybersecurity breaches have been caused or intensified by the failure to have effective controls in three areas: strong authentication; effective systems configuration and patch management; and cyber response and resilience capabilities. He said banks need to assess the potential effect cyber incidents may have on their institutions as well as the broader financial system, adding that “effective management of basic cybersecurity controls can significantly contribute to enhancing the resilience of systems and operations against cyber threats.”
Fed Survey: Business Leading Standards Tighten, Demand Grows Stronger
Lending standards for business loans tightened during the second quarter of 2022, according to the Federal Reserve’s senior loan officer opinion survey released Tuesday. Lenders also reported no change in standards for consumer loans during the survey period.
- C&I: Banks reported having tightened standards on commercial and industrial loans to firms of all sizes after several quarters of continued easing last year and unchanged standards in the previous quarter. Tightening was most widely reported for premiums charged on riskier loans. At the same time, a majority of banks reported stronger demand for loans from large and middle-market firms and while a smaller percentage reported stronger demand from small firms.
- CRE: A significant net share of banks (20-49%) tightened standards for all commercial real estate loan categories. Moderate net shares of banks (10-20%) reported weaker demand for construction and land development loans and for nonfarm nonresidential loans. A modest net share of banks (5-10%) reported stronger demand for loans secured by multifamily properties.
- Mortgages: On net, banks reported no change in lending standards for most mortgages. However, a moderate net share of banks tightened standards for subprime residential mortgages, while modest net shares of banks tightened standards for QM jumbo and non-QM non-jumbo residential mortgages, as well as for HELOCs. Most banks reported weaker demand for all residential real estate loans over the second quarter, except for HELOCs, which experienced stronger demand.
- Personal lending: Lending standards for all consumer loan categories – credit card loans, auto loans and other consumer loans – remained basically unchanged. Banks also reported most terms on credit card loans remained unchanged. The exception was a modest net share of banks that reported having increased (i.e. eased) credit limits. Banks also reported, on net, leaving most terms on auto loans and other consumer loans unchanged.