SDBA eNews

March 10, 2022

Tester: Libor Fix Legislation Is in Must-Pass Spending Bill

A bipartisan, ABA-advocated bill to address “tough legacy” Libor contracts is included in the omnibus spending bill that Congress is expected to pass in the coming days, Sen. Jon Tester (D-Mont.) said at the ABA Washington Summit yesterday. “We did get it put in the omnibus bill, which means by the end of this week, by tomorrow, it should be passed,” Tester said.

In a statement, ABA President and CEO Rob Nichols welcomed the inclusion of the provision, noting that “with this action today, Congress continues to express overwhelming support for a federal solution to ensure investors, consumers and issuers of securities avoid years of uncertainty and unexpected economic losses from Libor’s cessation.”

With two tenors of U.S. dollar Libor no longer being published and the remainder set to cease by June 30, 2023, the legislative language would direct the Federal Reserve to determine replacement rates for Libor-referencing contracts that lack fallback language and to provide a safe harbor from litigation over a change in rates after the cessation of Libor. A companion bill in the House, H.R. 4616, passed by an overwhelming bipartisan vote of 415-9 in December.

Meanwhile, Tester said he is continuing to push S. 3409, which would direct the federal banking agencies to fix the community bank leverage ratio at a level between 8% and 8.5%, down from 9%, through the end of 2024. “This is a problem, an unintended consequence” of bank balance sheets that ballooned after the pandemic crisis and the Paycheck Protection Program, Tester said. “It was spectacular work that community banks did and we need to make sure it doesn’t impact you in other ways.”


Biden Signs Executive Order to Advance Digital Assets, Explore CBDC

President Biden yesterday signed a long-awaited executive order directing government agencies to take “concrete steps” to advance the use of digital assets, including further exploration of a possible U.S. central bank digital currency, or CBDC. The order calls on the Fed to continue its ongoing work in this area, and calls for “placing urgency on research and development of a potential United States CBDC, should issuance be deemed in the national interest.”

In addition, the order directs the Treasury Department and other agencies to develop policy recommendations to address the growing digital asset sector and ensure consumer protection, directs the Financial Stability Oversight Council to identify and mitigate systemic risks related to digital assets, and calls for a whole of government approach to direct “unprecedented focus” to mitigate illicit finance and national security risks posed by illicit use of digital assets.

The order also focuses on driving U.S. leadership and competitiveness in developing and using digital asset technologies and calls for a Treasury report on the future of money and payment systems, including implications for economic growth and financial inclusion, among other things. As policy conversations continue regarding the creation of a U.S. CBDC, ABA has raised concerns that the creation of such a currency could compete with bank deposits and limit banks’ ability to power economic growth.

“While much of the executive order calls on federal agencies to assess the expanding marketplace of digital assets before recommending new rules, we are concerned that it clearly directs federal agencies to begin pursuing a central bank digital currency even before determining if a U.S. CBDC is actually ‘in the national interest’ as the order also requires,” said ABA President and CEO Rob Nichols. “We urge the administration and the agencies involved to carefully consider the implications of a U.S. CBDC, which could fundamentally reshape our banking and payments system to the detriment of bank customers and their communities.” Read the executive order.


Sen. Moran Stresses Importance of Keeping Rural Banks Competitive

Speaking at the Washington Summit, Sen. Jerry Moran (R-Kan.) reiterated his support for the Enhancing Credit Opportunities in Rural America (ECORA) Act and other legislation intended to bolster the competitiveness of rural and agriculture-focused banks. “ECORA would provide borrowers—ranchers and farmers—with access to credit at less expensive rates,” he said.

Under ECORA, interest from loans to farmers secured by agricultural real estate would be exempt from federal income tax. ECORA also would level the playing field between banks and the tax-advantaged Farm Credit System. “It would help ensure that small community banks are competitive and have the tools to best meet the unique needs of the rural customers they serve," Moran said. ECORA remains an important issue for ABA, and the association continues to advocate for its passage.

Moran also mentioned the Community Bank Regulatory Relief Act, which he co-sponsored. The legislation is intended to provide community banks with regulatory relief amid coronavirus recovery by lowering the community bank leverage ratio and delaying the implementation of Current Expected Credit Loss accounting standards for community banks until December 2024. “This should pass relatively easily,” Moran said, clearly frustrated with the amount of time it’s taken to get the bill out of committee. “It is a pretty darn common-sense approach, but the Banking Committee has a problem getting legislation to the Senate floor."


Crypto, Stablecoins Top Rep. Waters' Agenda for 2022

The House Financial Services Committee will increase its focus on cryptocurrencies, including stablecoins, in 2022, Committee Chairwoman Maxine Waters (D-Calif.) told attendees of the ABA Washington Summit Tuesday. This focus will build on the committee’s prior activity, including a digital assets working group and a major hearing with digital asset firm CEOs in December 2021, she added.

"The banking industry must continue to innovate responsibly,” Waters said. “This is particularly true in the areas of digital assets. While crypto may provide new investment and payments options for traditionally underserved communities, and especially communities of color, the banking industry must consider the volatility of certain crypto products, like bitcoin, the lack of investor and consumer protections and the environmental impact of some resource-intensive crypto technologies before proceeding any further."

Waters also said she is “concerned about the decline of de novo bank charters” and “troubled by the decline in minority depository institutions.” She highlighted the Treasury Department’s Emergency Capital Investment Program, which she championed. Waters also noted the committee’s passage of the bipartisan, ABA-backed H.R. 4590, introduced by Rep. Jake Auchincloss (D-Mass.), which would require the banking agencies to study and develop a plan to combat the challenges faced by MDIs, community development financial institutions and groups launching de novo banks.


FinCEN Flags Russian Attempts to Evade Sanctions

As the U.S. continues its crackdown against Russia over the recent invasion of Ukraine, the Financial Crimes Enforcement Network on Monday called on financial institutions to be vigilant against attempts to evade the expansive sanctions and restrictions currently in place. The advisory noted that “sanctioned Russian and Belarusian actors may seek to evade sanctions through various means, including through non-sanctioned Russian and Belarusian financial institutions and financial institutions in third countries.”

FinCEN noted several red flag indicators that could signal attempted sanctions evasions, including several related to convertible virtual currency, noting that “sanctioned persons, illicit actors and their related networks or facilitators may attempt to use CVC and anonymizing tools to evade U.S. sanctions and protect their assets around the globe, including in the United States.”

According to FinCEN, banks should specifically watch for transactions initiated from IP addresses located in Russia, Belarus or other sanctioned jurisdictions; transactions connected to CVC addresses listed on the Office of Foreign Assets Control’s lists of specially designated nationals and blocked persons; and customer use of a CVC exchanger or foreign-located money service businesses in a high-risk jurisdiction.

The advisory also reminded institutions of dangers posed by Russian-related ransomware campaigns. ABA continues to track developments related to the Russian invasion of Ukraine on its dedicated webpage on aba.com, and has also issued a staff analysis summarizing recent sanctions activity.


Zarate: Russia Sanctions Put Banks on the Front Line

“This isn’t business as usual,” was the message from counterterrorism finance expert Juan Zarate, who spoke Tuesday during ABA’s Washington Summit about what Russia’s invasion of Ukraine and sanctions mean for U.S. banks. Zarate—a former senior counter-terrorist financing official in the George W. Bush administration and co-founder of the Financial Integrity Network—called the sanctions “a rapid and aggressive response” that are “unprecedented in scope and impact,” adding that “the weight of the war has been put on the shoulders of sanctions” unlike anything the international financial community has seen before.

The international response has been uniquely consistent, with most countries in Europe, including the normally neutral Switzerland, united in their approach to cutting Russia off from traditional banking systems and resources such as SWIFT, Zarate said, which provides services related to the execution of financial transactions and payments between banks worldwide. But the big question is what comes next.

“More sanctions are going to come. We know the Russians are going to try to evade [sanctions],” he said. “There’s going to be more enforcement pressure and financial institutions, like it or not, are at the center of the storm. I would make sure that compliance, risk officers and general counsel are proactively thinking about what your Russia exposure is and what you can do to protect yourselves. This includes cybersecurity. Putin doesn’t obey the same laws. These regimes feel pressure and see the agents of that pressure as the financial system, and they won’t be shy in biting back—not just at government servers but also the public sector.”


ABA Highlights Agriculture Issues in March

March is National Agricultural Month, and ABA is highlighting resources, trainings and events for agricultural bankers. On March 17, ABA is hosting a webinar focused on the legislative and regulatory issues affecting agricultural and rural banking in 2022. March is the perfect month to join ABA's Ag Banking Network, a private, online forum where agricultural bankers share industry insights, ask questions and make lasting career connections.

Visit ABA’s agricultural banking webpages throughout the month for updates and information on how to better access ag loans, guidance on creating a strong marketing plan, tips to navigate tough times on the farm. Learn about farm credit system reform and find financial tips for America's young and beginning farmers. ABA members can also access a performance scorecard to evaluate their ag banking successes. Look for upcoming announcements and relevant resources from ABA, all in honor of National Agricultural Month—and the work ag bankers do all year.


Registration Open for Tri-State Trust Conference

The North Dakota Bankers Association announced that the 2022 Tri-State Trust Conference, which will be held April 26-28 in Fargo, will have in-person and virtual registration options. Highlights at this year's conference include:

  • K.C. Matthews, UMB Bank Chief Investment Officer, “The Great Balancing Act”
  • Sharon Carson: “J.P. Morgan’s Guide to Retirement”
  • Samuel A. Donaldson, Georgia State University: “Federal Tax Update”
  • Plus, Team Rubicon’s Art delaCruz’s opening keynote Tuesday night: “Lead with Passion”
  • Nearly 30 companies will exhibit. 

See the full agenda and register


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Contact Natalie Likness, SDBA, at 605.224.1653 or via email.