SDBA eNews

May 27, 2021

President Biden Signs Sweeping Executive Order on Climate-Related Financial Risk 

President Biden last week signed an executive order on climate-related financial risk that, among other things, directs financial regulators to take several steps to ensure the appropriate measurement and mitigation of these risks. The order directs the treasury secretary to work with the members of the Financial Stability Oversight Council to consider “assessing, in a detailed and comprehensive manner, the climate-related financial risk, including both physical and transition risks, to the financial stability of the federal government and the stability of the U.S. financial system,” as well as facilitating the sharing of climate-related risk information between FSOC member agencies and other areas of the federal government as needed.

In addition, Treasury must issue a report within 180 days on current efforts by the financial regulatory agencies to incorporate climate-related financial risk into their policies and programs. That report should include recommendations on how “identified climate-related financial risks can be mitigated, including through new or revised regulatory standards as appropriate,” according to the order. This action by the Biden administration comes after officials from the Federal Reserve, OCC, FDIC and SEC in recent weeks have all indicated that they are focusing efforts on climate-related financial risks.

The executive order also directs the secretary of labor to take certain actions to address climate-related financial risks that could affect retirement savings and pension funds. Among other things, the Labor Department should “consider publishing by September 2021” proposals to “suspend, revise or rescind” the Trump administration’s finalized rules on ESG investing and proxy voting. DOL already has suspended enforcement of these rules and is in the process of re-examining them for revision. Read the executive order.

Fed Advisory Council Urges Scrutiny of Fintechs Seeking Payments System Access

Members of the Federal Reserve’s Community Depository Institutions Advisory Council—which includes several ABA member bank CEOs—raised concerns about the growing number of nonbank competitors seeking to offer banking products and services while circumventing the traditional regulatory structure, according to minutes released last Friday by the Fed.

“Regulations exist for a reason; they protect consumers and other financial institutions that provide services and conduct transactions as counterparties,” council members noted. “When one segment of the industry is allowed to operate under fewer rules that provide economic gain to that segment at the cost of greater counter-party and systemic risk, the overall financial ecosystem is placed at greater risk.”

The groups also raised concerns about an increase of special purpose charter applications by novel financial firms and emphasized that the Federal Reserve should “carefully review any applications to the payments system from nontraditional, more lightly-regulated financial institutions.” Read the meeting minutes.

ABA Urges FDIC to Modernize Signage, Advertising Requirements 

The ABA urged the FDIC on Monday to modernize its signage requirements to reflect new technologies and provide clarity about requirements regarding displays, promotional materials and social media advertising. In response to an FDIC request for information about revisions to sign and advertising rules, ABA in a joint letter with the Bank Policy Institute said that it supports effort to modernize these rules, which were last updated in 2006.

The groups recommended that signage requirements permit depository institutions to display a single sign in one prominent location per branch, “allowing for electronic displays and that similarly, signage requirements should be updated to require insured depository institutions to display an FDIC sign or logo only on the homepage or landing page of their online or mobile platform.” ABA and BPI also recommended that the FDIC increase the accessibility and transparency of its tools to help consumers differentiate between insured banks and non-insured financial providers.

Additionally, the groups emphasized that “any changes or clarifications the FDIC makes should be flexible enough to adapt to both the present and the future” and enable banks to address yet-unknown challenges. “Ensuring flexibility, rather than implementing prescriptive requirements that may impose additional burdens on banks, will better permit banks to adjust to the needs of an ever-changing marketplace.” Read the letter.

New ABA Report Examines Americans' Access to Banking Services

An estimated 124.2 million households were considered “banked” in 2019, with at least one member having a checking or savings account, according to FDIC figures that were highlighted in a new report from the ABA on Tuesday on access to the banking system. Banking services are widely available to Americans, the report found, with the average person living within commuting distance of 25 branch locations.

Recent research suggests that consumers are increasingly turning toward mobile channels to access financial services. Prior to the pandemic, 34% of American households used mobile channels as their primary channel to access their bank accounts. COVID-19 caused a further uptick in preference for mobile banking options: 97% of banks reported an acceleration in mobile adoption among their customers as a result.

Findings from a recent ABA/Morning Consult survey highlighted the important role these digital services play when it comes to banking system access—84% of Americans agreed that innovation and technology and innovation improvements by banks are making it easier for them to access financial services, and 99% rated their bank’s online or mobile experience as “good,” “very good” or “excellent.” Additionally, 91% of Americans agreed that their overall access to banking services was good, very good or excellent.

According to the FDIC, approximately 7.1 million U.S. households—or 5.4%—remain completely unbanked. While that figure represents the lowest level of unbanked households since 2009, banks continue to actively promote financial inclusion, including through offering Bank On certified accounts—something the ABA has urged its member banks to do. As of May 2021, 88 financial institutions with more than 32,000 branches nationwide were offering Bank On certified accounts, which offer features including low costs, online bill pay capabilities, no overdraft fees and certain transaction capabilities. Read the reportLearn more about Bank On.

Treasury Report Offers Limited Details on ABA-Opposed Tax Reporting Proposal

The Treasury Department last Thursday released a report further detailing its proposals to shrink the tax gap as part of the American Families Plan that was unveiled by President Biden last month. Among other things, the plan calls for a new reporting requirement that would require financial institutions to report information on account flows, including earnings from investment and business activities—an idea opposed by the ABA and several other financial trade associations based on the information provided by the administration to date. The report provided only limited operational details, and reserved “significant flexibility for the [Treasury] Secretary and the IRS to design new reporting requirements.”

The proposed reporting regime “would build from the framework of the Form 1099-INT reports that taxpayers already receive from financial institutions when they earn more than $10 in interest from a bank, brokerage or other financial institution,” the Treasury report said. Banks would be required to report “additional data on the financial accounts of these existing information returns. Specifically, the annual return would report gross inflows and outflows on all business and personal accounts from financial institutions, including bank, loan and investment accounts but carve out exceptions for accounts below a low de minimis gross flow threshold.”

The reporting regime—which is assumed to take effect for the 2023 tax year—would also apply to payment settlement entities, foreign financial institutions and crypto asset exchanges and custodians. The Biden administration said it “would concurrently seek out ways to reduce any new burden on financial institutions associated with this information reporting requirement.”

In previous comments on the proposal, the ABA emphasized that banks are already subject to robust reporting requirements and emphasized that a new reporting structure like this raises important privacy concerns and would add additional costs and complexities to an already over-complicated tax reporting structure. The ABA advocated instead for more targeted auditing of questionable tax returns to address the tax gap. Read the reportRead ABA’s previous comment letter.

SDBA to Remember Bankers Who Have Passed Away

The SDBA will remember bankers and their family members who have passed this past year during its Annual Business Meeting on Tuesday, June 15, at the Quad States Convention in Rapid City. If you know of someone who has passed away and should be included, contact the SDBA's Halley Lee

Learn About Fundamentals of Commercial Banking

Commercial banking can be intimidating because of its complexity and the risk-oriented nature of the work. Breaking into Banking 101: Fundamentals of Commercial Banking, a virtual seminar on June 23, is a clear and thorough introduction to the key concepts, terminology and processes involved in credit and lending.

The seminar doesn’t assume much prior knowledge of the topic, so it’s ideal for those in their first year in the industry. New credit analysts, lenders, portfolio managers, underwriters and bankers who don’t do credit analysis but need a working knowledge of the process will all benefit from the seminar. 

Attendees will walk away with a clear understanding of their job and how their specific role fits into the bank’s overall profitability goals. The cost for the seminar, which will be held via Zoom, is $245. Learn more and register

Registration Open for ABA/IBA Women's Leadership Symposium

Registration is open for the ABA and Illinois Bankers Association Women's Leadership Symposium, to be held virtually on July 13. The symposium provides an opportunity for career advancement through mentorship and one-of-a-kind executive education.

The symposium features keynotes from diversity, equity and inclusion thought-leader and author Raven Solomon and relationship capital expert Deborah Tsai Munster. Attendees will also have opportunities to connect with fellow banking leaders and hear remarks from industry leadership. Register here.


Question of the Week

Question: A customer deposited a check into a savings account, the funds from which were made available, and then transferred the funds into a savings account. The savings account receives Social Security benefits. The check is now being returned. Can the bank exercise the right of setoff against the savings account?

Answer: This is a fine-line question that has several moving parts.  First, the bank potentially would be able to offset against funds in the savings account to the extent those funds are not protected under 31 CFR 212. This requires the bank to calculate the “protected amount,” in accordance with that section, with any remainder being available for setoff.

But when an account receives federally-protected funds, like in this scenario, whether the bank can exercise the right of setoff against those funds as well has not been clearly established by courts or available regulatory guidance. While some jurisdictions appear to permit this practice, the law is not uniform. Therefore, unless the bank confirms the specific stance on the issue with the bank’s jurisdiction or further clarification is obtained, C/A advises not setting-off against federally-protected funds.

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 and ask for our Membership Team.

For timely compliance updates, subscribe to Bankers Alliance’s email newsletters.

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Contact Alisa Bousa, SDBA, at 605.224.1653 or via email.