Registration Open for SDBA State Legislative Day

Find your seat in the process. The SDBA will hold its 2019 State Legislative Day on Wednesday, Feb. 13, at the Ramkota Hotel & Conference Center in Pierre.

The State Legislative Day is your opportunity to stay up-to-date on both state and federal legislation which could affect the banking industry and to visit with state legislators. The day will include a luncheon, featured speaker, chance to visit with legislators at the State Capitol and an evening reception. The Governor has also been invited to address bankers. In addition, a special reception and sessions will be held for emerging leaders.

This year's featured speaker is Naomi Camper, who is chief policy officer at the American Bankers Association (ABA). Camper will speak about the ABA’s plan for public policy advocacy in what could be a hyper-partisan, divided Congress and how the ABA is positioned to work with leadership on both sides of the aisle to find middle ground on industry priorities.

Learn more and register.

Fed Hikes Rates for Fourth Time in 2018

The Federal Open Market Committee announced another quarter-point rate hike at the conclusion of its meeting yesterday, marking the fourth and final rate increase of 2018. The committee unanimously voted to raise the federal funds rate 25 basis points to a range of 2.25 to 2.5 percent, citing positive economic indicators including a strong labor market, solid job gains and low unemployment since the committee’s last meeting.

The FOMC noted that inflation continues to remain near the 2 percent target and said it anticipates just two rate hikes in the year ahead, backing off from its September estimate of three rate hikes in 2019. Read the FOMC statement.

House Members Call for CECL Study, Delay

As the Financial Stability Oversight Council met yesterday to discuss, among other topics, the Financial Accounting Standards Board’s Current Expected Credit Loss model for loan loss accounting, 28 Republican House members urged a delay in CECL’s implementation date and a comprehensive study of its effects on the banking industry and access to credit. Read the letter.

Led by House Financial Services Committee member David Kustoff (R-Tenn.), the signers called on Treasury Secretary Steven Mnuchin as chairman of FSOC to “closely evaluate the negative consequences this standard will place on the banking industry, small businesses and the consumer.” They added that uncertainty about CECL’s effects on bank capital “may cause many community banks to reduce the number of financial products offered to consumers.”

ABA and four other trade groups yesterday called for a quantitative impact study of CECL and a delay in implementing the standard until the study can be conducted. Meanwhile, the Financial Accounting Standards Board announced that it will hold a public roundtable on CECL implementation issues in January. Read more about the roundtable.

FDIC Greenlights Three-Year Phase-In for CECL's Regulatory Capital Effects

The FDIC on Tuesday voted to approve a final rule giving banks the option to phase in over a three-year period the day-one adverse effects of the Current Expected Credit Loss standard on regulatory capital. The CECL standard, which goes into effect in 2020 for SEC registrants, 2021 for non-SEC banks that are FASB-defined "public business entities," and 2022 for all other banks, requires an estimate of expected credit losses over the life of the portfolio to be effectively recorded upon origination.

ABA has long raised concerns about CECL’s effects on specific lending products and on banks, particularly community banks, and noted that the phase-in does not go far enough to ensure CECL will function as intended. “Banks have long been concerned about CECL’s cost and impact on our ability serve our customers and communities, particularly in times of economic stress,” said ABA President and CEO Rob Nichols. “That’s why ABA believes CECL must be delayed until a quantitative impact study can be conducted and the economic consequences of the accounting standard are fully understood.” Read more.

FDIC Seeks Public Comment on Brokered Deposit Regulations

In a move long sought by ABA, the FDIC on Tuesday issued an advanced notice of proposed rulemaking on brokered deposits and the national rate cap. ABA has been actively engaged with the FDIC on the need to revise the regulations so that they accommodate modern banking and don’t discourage healthy banks from gathering deposits. Written over 30 years ago, brokered deposit regulations were designed to restrict certain kinds of deposits that institutions in a weakened capital position could accept. With the advent of the Internet, smartphones and new business models, however, brokered deposits have evolved, and ABA has long been concerned that the rules can interfere with customer interactions, penalizing banks for finding new and innovative ways to provide deposit services.

Also at issue is the FDIC’s view on deposits above a rate cap. While the rate cap is intended to prevent struggling banks from offering excessively high rates, it is often used as a proxy for volatile deposits at healthy banks and calculated in a way that doesn’t account for differences in local markets and how banks compete.

“Brokered deposit regulations affect every bank in this country, and it’s our duty to our members and our members’ customers to try find a better approach to the rules,” said ABA President and CEO Rob Nichols. “We think they can be updated to reflect the realities of today’s marketplace and better fit how banks serve their customers.” Read the ANPR. For more information, contact ABA's Alison Touhey.

Podcast: A Cooperative Model for Fintech Innovation

“Innovation doesn’t have to be in technology,” says Julieann Thurlow. “Innovation can be [about] rethinking a problem and really thinking about what consumers want and where the need is.” On the latest episode of the ABA Banking Journal Podcast, Thurlow--president and CEO of Reading Cooperative Bank in Reading, Mass.--discusses a variety of ways her community bank drives innovation of all varieties. Topics include:

Increasing automation in the loan application process so that bank staff can spend more time on the kind of credits that may need extra attention.
How to test and iterate products--like a small-dollar emergency loan--to bring a fintech approach to innovation into the bank.
Reading Coop’s partnership with 11 other community and midsize banks through Alloy Labs, which helps the bank innovate faster and partner on solutions. “We have a bigger voice if we do it together,” she says.
How Reading Coop’s high school branch helps it recruit young staff--and acquire young customers who, thanks to mobile banking technology, stay with the bank even if they leave the area for higher education.
Thurlow’s lead role in ABA’s core processor innovation initiative.

Listen to this episode. This is the last podcast episode of 2018. To be the first to listen when episodes resume in 2019, subscribe via Apple Podcasts, Google Play, Player.fm, Pocket Casts, Spotify, Stitcher or TuneIn. The podcast will continue to be available in the Daily Newsbytes email every Thursday.

Nichols Talks 2019 Legislative Agenda on Bloomberg Radio

ABA President and CEO Rob Nichols appeared on Kevin Cirilli’s Bloomberg Radio show on Tuesday to discuss the legislative outlook for the banking industry in the 116th Congress, which convenes on Jan. 3. ABA hopes to “build on what happened in the last Congress,” namely bipartisan regulatory reform bill S. 2155, Nichols said.

He added that ABA is hoping lawmakers will tackle updates to the decades-old anti-money laundering framework, the need for consistent data security standards across industries and the growing uncertainty about banking marijuana-related businesses as more and more states legalize some forms of cannabis use. “We just need to know what are the rules of road so that banks can lend to their customers and communities,” Nichols said. Listen to the interview.

Happy Holidays from the SDBA

Happy holidays from the SDBA! The best thing about the holidays is the opportunity to express our gratitude for your continued trust in us.

During the holiday season, we like to thank our members by making a donation to a worthy cause on their behalf. The SDBA has made donations to Pierre Area Referral Service and Missouri Shores Domestic Violence Center.

The SDBA Office will be closed Monday and Tuesday, Dec. 24-25. We will reopen on Wednesday, Dec. 26. From us to you...may your holiday season be filled with peace, happiness and hope.

Question of the Week

Question: If the bank identifies a bookkeeping error or a posting error prior to a commercial customer notifying the bank, does the bank still need to fill out the error resolution form and/or follow the procedures set out in Reg. E for errors? We know that we need to correct the error, of course.

Answer: Technically the bank does not need to comply with the procedures set forth in section 1005.11 of Reg. E. This is for multiple reasons, though. The first and foremost reason being that the scope of Reg. E coverage is limited to consumer accounts, as the definition of “account” is narrowed to include only consumer-type accounts. Thus, when a bank encounters an error in respect to a commercial customer, the bank is not bound by Reg. E. The second reason being that errors discovered by the bank, itself, are expressly carved out of the error resolution procedures of Reg. E. So, even if the error was in regards to a consumer account, for section 1005.11 procedures to kick in, the customer would need to notify the bank of the error.

(b)(1) “Account” means a demand deposit (checking), savings, or other consumer asset account (other than an occasional or incidental credit balance in a credit plan) held directly or indirectly by a financial institution and established primarily for personal, family, or household purposes.

12 CFR § 1005.2(b)(1): https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1005/2/#b

5. Discovery of error by institution. The error resolution procedures of this section apply when a notice of error is received from the consumer, and not when the financial institution itself discovers and corrects an error.

12 CFR § 1005.11(b)(1)-5: https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1005/Interp-11/#11-b-1-Interp

However; check your disclosures to ensure the bank has not given error resolution rights to commercial customers. If it is disclosed, we must follow our contract with the customer.

Compliance rules and regulations change quickly. For timely compliance updates, subscribe to Compliance Alliance’s email newsletters.

Compliance Alliance offers a comprehensive suite of compliance management solutions. To learn how to put them to work for your bank, call 888.353.3933 or email.

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Questions/Comments
Contact Alisa Bousa, SDBA, at 800.726.7322 or via email.