February 1, 2023
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118th Congress policy priorities

ICBA shared its policy priorities for the 118th Congress with members of the House and Senate.
 
In a letter to lawmakers and a full-page ad running in Politico, ICBA said its policy recommendations on behalf of community banks are designed to promote economic prosperity while avoiding misguided policies that carry unintended consequences.
 
Among the legislative priorities in its letter, ICBA called on Congress to:
  • Provide robust oversight of federal financial regulatory agencies and regulations.
  • Ensure climate risk rules do not obstruct community banks’ support for their communities.
  • Continue to reject controversial and counterproductive credit card routing mandates.
  • Enact effective and comprehensive oversight of cryptocurrencies, including stablecoins.
  • Oppose direct lending under the Small Business Administration’s 7(a) program.
  • Support a fair and competitive financial services landscape, by examining and addressing tax and regulatorily advantaged credit unions, Farm Credit System entities, and industrial loan companies.
  • Advocate a robust Farm Bill that provides a stable safety net for American agriculture.
  • Advance regulatory policies that promote economic growth and job creation.
Source: ICBA
Liquidity pressures put funding in the crosshairs at community banks

Rising funding costs and growing liquidity pressures at community banks will begin to stand in the way of additional net interest margin expansion in 2023.

Healthy loan growth, higher interest rates and modest increases in deposit costs have resulted in far stronger community bank margins in 2022. However, liquidity pressures have begun to emerge and will cause community banks to record notably higher funding costs in 2023 as institutions increase their reliance on more expensive wholesale funding and CDs. Credit costs will also rise off historically low levels serving as a headwind to earnings but are expected to fall short of losses witnessed during a severe downturn.

Community bank margins have expanded notably from recent lows as increases in interest rates pushed loan yields materially higher, even as institutions boasted much stronger loan growth in 2022. Meanwhile, excess liquidity that community banks accrued during the pandemic allowed institutions to resist raising deposit costs through the first half of 2022.

Community banks began to feel greater pressure on liquidity in the late summer, though, as depositors began to more actively move funds to their higher-yielding alternatives offered in the Treasury and money markets. Community banks, like their larger counterparts, also arguably find themselves without the same access to liquidity from their bond portfolios because those positions are deeply underwater. With that in mind, bank managers likely will not be as comfortable letting their loan-to-deposit ratios increase to the same levels they might have in the past.

Against that backdrop, community banks bolstered liquidity through the first nine months of 2022 by relying more heavily on borrowings from the Federal Home Loan Banks, brokered deposits and certificates of deposits for funding, but the balances remained well below pre-pandemic levels. Many banks have reported notable increases in CDs in particular during the fourth-quarter season as deposits became more precious.
Source: S&P Global Market Intelligence
FDIC extends deadline on proposed updates to logo rules

The FDIC extended by 45 days the public comment period for proposed changes to its regulations relating to the FDIC’s official sign, official advertising statement, deposit insurance misrepresentations, and misuse of the agency’s name or logo. Comments are now due by April 7.
 
Among its provisions, the proposal would require the use of signs that differentiate insured deposits from non-deposit products, provide for a new digital version of the official FDIC sign, and clarify agency regulations on information that might be misleading and confuse consumers.
 Source: FDIC
Federal actions to mitigate nonbank risks

Several federal actions recently announced will help mitigate the risks posed by special-purpose depository institutions and digital assets.

The Federal Reserve Board issued a policy statement clarifying that its regulatory limitations apply to both insured and uninsured depository institutions to “promote a level playing field for all banks with a federal supervisor.” It notes that crypto activities—such as issuing stablecoins on decentralized networks—is “highly likely to be inconsistent with safe and sound banking practices.”

Separately, the White House issued a statement calling for a broader policy response to digital assets, citing misleading claims about crypto-assets being insured by the FDIC, misuse of investor assets, and the need for stronger law enforcement over crypto firms.

The White House announcement also cites a request for information from the Office of Science and Technology Policy on a National Digital Assets Research and Development Agenda. The administration said R&D “will help the technologies powering cryptocurrencies protect consumers by default” and could help stakeholders understand the implications of a U.S. CBDC.
Source: ICBA
As rent soars, Feds promise closer look at housing practices

The White House announced several actions it says will increase fairness in the rental market as part of a “Blueprint for a Renters Bill of Rights.”
 
Included in the agency actions:
  • The Consumer Financial Protection Bureau will collect information to identify practices that “unfairly prevent applicants and tenants from accessing or staying in housing.”
  • The CFPB will issue guidance on ensuring accurate information in the credit reporting system.
  • The Federal Housing Finance Agency will launch a process to promote renter protections and limits on rent increases.

Source: Washington Post
Credit union interest rate ceiling raised

The National Credit Union Administration board voted to extend the 18% interest rate ceiling for loans made by federal credit unions through Sept. 10, 2024.
 
The Federal Credit Union Act caps the interest rate on federal credit union loans at 15%, but the NCUA board has the discretion to raise that limit for 18-month periods if interest rate levels could threaten safety and soundness of individual credit unions.
 
The Treasury Department told the NCUA that it does not see any compelling reason to raise the rate ceiling beyond 18%. In a letter to the NCUA board, Treasury said Congress established the rate ceiling due to credit unions’ nonprofit structure and that banks are charging an estimated average APR of just over 13% on non-reward credit cards.
 
Community bankers can continue urging Congress to hold hearings on the credit union tax exemption using a customizable message to lawmakers on ICBA’s Wake Up page.
Source: ICBA
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With the exception of official announcements, the Arkansas Community Bankers Association Board of Directors, Officers and staff disclaim any responsibility for opinions expressed and statements made in articles published in Arkansas Community Bankers NewsWatch 2023.
2023 ACB BSA/AML Conference Live
Powered by FORV/S

March 9, 2023 - Aloft Hotel, Little Rock

Topics include:
Common mistakes in BSA Programs
Best practices for monitoring suspicious activities
How to effectively identify and monitor higher risk customers
CDD and EDD, how important is it?
A view from Homeland Security


March