SDBA eNews

December 12, 2019

McWilliams: Brokered Deposit Proposal Will Seek to Foster Innovation

FDIC Chairman Jelena McWilliams yesterday previewed the long-awaited overhaul of the brokered deposit rule, which the agency is poised to propose during its board meeting today. McWilliams highlighted four key goals of the proposal, which include developing a framework that will encourage innovation and allow banks to better serve their customers.

“Striking the right balance in how we interpret the brokered deposits statute is key to this goal, as we seek to remove regulatory hurdles to innovative partnerships between banks and nonbanks, and avoid discoursing banks from offering products and services through online and mobile channels,” McWilliams said in remarks during an event in Washington, D.C. 

She added, however, that “the changes the FDIC is considering to its brokered deposits regulation should not be interpreted to mean that the FDIC is ignoring the potential risks associated with different forms of funding,” and also noted that undertaking a more holistic review of the brokered deposit statutes will require an act of Congress. ABA VP Alison Touhey also spoke at the event, providing the banking industry’s perspective. Read McWilliams’ remarks.

Kansas Banker Urges Support for ABA-Backed Ag Bill

Kansas banker Shan Hanes testified before a House Agriculture Subcommitee yesterday, offering the association’s perspective on agricultural credit issues in rural America. Hanes, acknowledged the current challenges facing the ag economy and urged support for the ABA-backed Enhancing Credit Opportunities in Rural America Act, a bill introduced by Rep. Steve Watkins (R-Kan.) earlier this year.

“The most important fact about this bill is that it will directly and almost immediately help all ag borrowers,” said Haneswho is president and CEO of Heartland Tri-State Bank in Elkhart, Kansas. “It would allow banks to lower interest rates on ag real estate loans to borrowers and help ease cashflow needs, while still maintaining an acceptable profit margin and return as monitored by regulators and shareholders.”‌

Hanes also thanked the committee for its work on the 2018 Farm Bill and discussed the bill’s successes including increasing borrower limits on USDA Farm Service Agency guaranteed loans, the continued support of crop insurance programs, and changes to the agriculture risk coverage and price loss coverage programs. Read Hanes’ testimony

Registration Open for NDBA/SDBA Bank Management Conference

Now is the perfect time to make plans to attend the NDBA/SDBA Bank Management Conference on Feb. 14-15 in Scottsdale, Ariz. Six keynote speakers will provide executive-level officers, bank directors and senior-level bankers with timely insights on the economic landscape, M&A trends, balance sheet management, talent acquisition, FinTech opportunities and top strategies for 2020.

Bankers value strategic information and networking with colleagues, and the Bank Management Conference offers plenty of both, in addition to some of the best hospitality Arizona has to offer. The conference will be held at Westin Kierland Resort & Spa, an AAA four diamond resort located adjacent to Kierland Commons. The conference will also include a golf tournament and programs for spouses and guests. 

The conference is hosted by the NDBA and co-sponsored by the SDBA. Learn more and register

FinCEN's Blanco Touts Need for Legislative Solution on Beneficial Ownership

The lack of beneficial ownership information collected when companies are formed is “a dangerous and widening gap in our national security apparatus,” Financial Crimes Enforcement Network Director Kenneth Blanco said Tuesday at the ABA/ABA Financial Crimes Enforcement Conference.

While the 2018 customer due diligence rule requiring financial institutions to collect this information from customers was a good first step, Blanco said that “the next critical step to closing this national security gap is to collect beneficial ownership information at the corporate formation stage.”

Blanco added that FinCEN is “committed to working with key stakeholders, including Congress, to find an effective solution to this.” One ABA-advocated legislative approach—H.R. 2513, which is sponsored by Rep. Carolyn Maloney (D-N.Y.) and passed the House this fall with a bipartisan majority—would address this by requiring corporations to file a report on their beneficial owners with FinCEN, which would in turn create a national database that banks could use to verify a business’s beneficial ownership information. Read the speech.  

Amid Strong Performance, OCC Flags Credit, Cyber Risks for Banks

Amid strong financial performance by banks during the longest U.S. economic expansion on record, the OCC flagged credit, operational and interest rate risks for bankers’ radar screens in its Semiannual Risk Perspective on Monday. “Banks should prepare for a cyclical change while credit performance remains strong,” the agency advised, noting that “[c]redit risk has accumulated in many portfolios.” While noting that banks “have largely maintained a disciplined approach in their underwriting,” competing with nonbanks’ growing share in mortgages and commercial lending could pose risk as well.‌

The OCC also cautioned banks about interest rate risk driven by recent volatility in repo markets, as well as increasing challenges in asset/liability management from recent yield curve inversions. The agency also said it is “increasing regulatory oversight” of banks’ transition away from the London Interbank Offered Rate, which is no longer guaranteed to be available after 2021. “Examiners will evaluate whether banks have begun to assess their exposure to Libor in assets and liabilities to determine potential impacts and develop risk management strategies,” the agency said.

Operational risk remains elevated amid an increasingly complex environment of cybersecurity threats, third-party risk management and fraud. As it has done before, the agency singled out cybersecurity for special attention, calling on banks to focus on patch management, network configuration, access rights, phishing, compromised credentials and ATM exploits, among other threat vectors.

The risk outlook comes against the background of historically high capital levels, returns on equity above the pre-crisis highs for the first time and 25-year lows in past-due loans. Read the report

Podcast: Consciously Cultivating an Internal Talent Pipeline

After her bank’s CEO unexpectedly died a quarter century ago, Annette Russell was suddenly thrust into the top job at Security Federal Savings Bank in Logansport, Ind. But if Russell has anything to do with it, the next transition won’t be so abrupt. On the latest episode of the ABA Banking Journal Podcast—sponsored by OneTrust Vendorpedia—she discusses the succession planning and talent development programs she’s built, both at Security Federal and at the state level during her chairmanship of the Indiana Bankers Association.‌

Russell talks about engaging emerging leaders in advocacy, soliciting emerging leader feedback through structured mechanism and how the bank conducted an organization-wide culture assessment. “It’s really encouraging people to think outside the box, to make decisions and carry forward to implement those ideas, breaking away from a compliance-driven, handcuff culture,” she says. “That’s refreshing.” Russell also discusses her bank’s mutual character and how the bank employs that in its marketing as well as challenges facing community banks today. Listen to the episode

Managing MSP and MSSP Relationships

Earlier this year, the Department of Homeland Security issued a warning about the growing number of cyber attacks targeted at managed service providers (MSP) and other IT services providers. Criminals target MSPs because they can get more bang for their buck. By breaching a single MSP system, they can potentially gain access to all of the networks the MSP services. 

Join SBS CyberSecurity for the free webinar Hacker Hour: Managing MSP and MSSP Relationships on Wednesday, Dec. 18, at 2 p.m. CST. SBS will discuss the benefits and risks associated with MSP and MSSP relationships. SBS will highlight specific steps to take to understand and mitigate risk with your MSP relationships. They will also walk through what to look for when selecting a new MSP.

Register for the webinar

SD Grassland Coalition to Hold Holistic Resource Management Roadshow 

The South Dakota Grassland Coalition will hold the Holistic Resource Management Roadshow and Annual Meeting across South Dakota next week. The event will be held in Watertown on Monday, Dec. 16; Chamberlain on Tuesday, Dec. 17; Bell Fourche on Wednesday, Dec. 18; Hot Springs on Thursday, Dec. 19; and Faith on Friday, Dec. 20. Times are 10 a.m. to 3 p.m.

The guest speaker will be Joshua Dukart, a holistic management educator and rancher from western North Dakota. Dukart will cover converting a ranch from crisis management to holistic management, creating a profitable ranch business using holistic principles and more. Cattle Business Weekly presented Dukart with a Top 10 National Industry Leaders Award in 2015.

The cost is free for current South Dakota Grassland Coalition members and $30 for nonmembers. Lunch is included. Learn more and RSVP.

Compliance Alliance

Question of the Week

Question: Is an "assumed" loan HMDA reportable? There was only one borrower when the loan was originated (not this year) and the loan was reported in that year. The bank has now allowed another borrower to assume the note from the original borrower.

Answer: Yes, it would be when the bank enters into a written agreement accepting a new borrower in place of an existing borrower, even if the bank does not create a new obligation.

i. Assumptions. For purposes of Regulation C, an assumption is a transaction in which an institution enters into a written agreement accepting a new borrower in place of an existing borrower as the obligor on an existing debt obligation. For purposes of Regulation C, assumptions include successor-in-interest transactions, in which an individual succeeds the prior owner as the property owner and then assumes the existing debt secured by the property. Under § 1003.2(d), assumptions are extensions of credit even if the new borrower merely assumes the existing debt obligation and no new debt obligation is created. See also comment 2(j)-5.

Comment 2 to §1003.2(d)(2)(i):

First, the HMDA Rule maintains Regulation C’s coverage of loan assumptions, even if no new debt obligation is created. A loan assumption is a transaction in which a financial institution enters into a written agreement accepting a new borrower in place of an existing borrower as the obligor on an existing debt obligation. The HMDA Rule clarifies that, under Regulation C, assumptions include successor-in-interest transactions in which an individual succeeds the prior owner as the property owner and then assumes the existing debt secured by the property. Assumptions are extensions of credit under the HMDA Rule even if the new borrower merely assumes the existing debt obligation and no new debt obligation is created. Comment 2(d)-2.i.

HMDA Small Entity Compliance Guide, p. 32:

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Contact Alisa Bousa, SDBA, at 800.726.7322 or via email.