Credit unions launch bank buying spree

The number of bank purchases by credit unions is moving closer to last year's record total after a wave of announcements.



This year started off slow with just two deals in the first five months of the year, but the pace has kicked up and eight have been announced since June 1.

Ten bank acquisitions by credit unions have been announced so far in 2023, just four shy of the record of 14 such deals last year, excluding terminated transactions. Half of this year's deals were announced in the four days between Aug. 28 and Aug. 31.

Given the overall slow pace of US bank M&A, only 72 US bank deals have been announced through Aug. 31, and credit unions account for buyers in nearly 14% of those deals. Deal advisers said more deals are expected.

While the number of deals has picked up in recent weeks, the size by total assets of the bank targets still lags behind recent trends. All 10 targets so far this year had under $400 million in assets each, bringing the total target assets to just $1.81 billion so far this year, compared to $5.15 billion among the 14 targets last year, according to S&P Global Market Intelligence data.

Given the small size of the targets this year, the total average asset size of banks selling to credit unions stands at $180.9 million, down from $368.1 million among the 14 targets last year.

The average asset size of the credit union buyers this year is $2.76 billion.

Total outstanding credit union subordinated debt has been rising every quarter since at least the first quarter of 2020 as credit unions increasingly avail themselves of the option to support organic and inorganic growth.

Source: S&P Global Market Intelligence

Regulators call for greater supervision of evolving payments space

Banking regulators are seeking to expand oversight of the US payments system as they grow increasingly worried about its evolution.

Speaking at a financial technology conference hosted by the Philadelphia Federal Reserve last week, top regulators from various agencies expressed concerns about the evolution of the payments system in the US and how to properly regulate it while still allowing for innovation.

The Fed's top banking regulator expressed concern about unregulated stablecoins, saying they pose a risk to financial stability, monetary policy and the US payments system without proper oversight if their value is tied to the US dollar, and it "borrows the trust" of the Fed when used as a form of payment.

"Stablecoins are a form of money, and the ultimate source of credibility in money is the central bank," Vice Chair for Supervision Michael Barr said. "There are big risks when the Federal Reserve does not have direct supervisory and regulatory authority."

Stablecoins are typically backed by a reserve of bank deposits and Treasury securities, so that their value can be pegged to fiat currencies, often US dollars, on a one-to-one basis. The business has spurred concerns about how issuers maintain a steady value of their tokens and how they manage the reserves, but it continues to attract new players. PayPal is the latest payment company that launched its own stablecoin in August.

A stablecoin bill currently making its way through Congress is likely to be passed by the House when it comes up for a vote, Patrick Toomey, a former senator who was the most senior Republican on the Senate Banking Committee, predicted during a panel discussion at the conference.

The Fed will continue to work with Congress to ensure there is a "robust federal framework" for overseeing stablecoins, Barr said.

Fed officials also discussed the possibility of central bank digital currencies (CBDCs). While stablecoins are issued by companies in the private sector, CBDCs are virtual money controlled by central banks.

The Fed is in the investigation and research phase of understanding the impact of CBDCs and the architecture of such a system but is "a long way" from development, Barr said.

The agency "has made no decision on issuing a CBDC and would only proceed with the issuance of a CBDC with clear support from the executive branch and authorizing legislation from Congress," Barr said.

Earlier during the conference, Fed Governor Michelle Bowman also called for more exploration of the potential issues related to CBDCs and collaboration with Congress to create one.

Source: S&P Global Market Intelligence

Labor Department proposal to update overtime rules

The Labor Department recently announced a proposed rulemaking that would increase the number of employees who are considered non-exempt and therefore entitled to overtime compensation.

In the announcement, the Labor Department said its plan would restore and extend overtime protections to 3.6 million salaried workers and guarantee overtime pay for most salaried workers earning less than roughly $55,000 per year.

The Labor Department based a 2019 rule reviving its overtime pay earnings threshold on its 2004 overtime methodology. That final rule—which came after a federal judge in 2017 struck down a rule issued in 2016—increased the salary level test from $23,660 to $35,568 per year and the total annual compensation level for "highly compensated employees" from $100,000 to $107,432 per year.

Source: ICBA

Big Tech policies dictate mobile payments

The Consumer Financial Protection Bureau issued a report on Big Tech companies’ policies and practices that govern tap-to-pay on mobile devices.

The report says:

• Apple forbids banks and payment apps from accessing the tap-to-pay functionality on Apple iOS devices and imposes fees through Apple Pay.
• Google’s Android operating system does not have such a policy.
• Regulations imposed by mobile operating systems can have a significant impact on innovation, consumer choice, and the growth of open and decentralized banking and payments.

Source: ICBA

USDA forecasts significant drop in farm sector income

Farm sector income is forecast to fall in 2023 after reaching record highs in 2022, according to a recent report from the USDA Economic Research Service. The agency projects net farm income to decrease an inflation-adjusted 25.4% from 2022, with net cash farm income declining 28.9%, though both measures would remain above their 2003-2022 averages in inflation-adjusted dollars.

Source: ICBA

CRE net charge-offs surge

Total commercial real estate (CRE) loan net charge-offs exploded 4,138.6% year over year to $1.17 billion in the second quarter, from just $27.7 million in the 2022 second quarter, according to S&P Global Market Intelligence data.

The CRE loans' total net charge-off rate inched up 18 basis points sequentially to 0.26% in the second quarter. That represented a 26 basis-point increase from the same period a year ago, and the highest charge-off rate since the fourth quarter of 2020.

CRE loan delinquencies rose as borrowers struggled to service increasingly expensive debt.

The delinquent CRE loan balance for banks totaled $18.21 billion in the second quarter, up 35.7% from $13.42 billion a year earlier. Delinquent CRE loans as a percentage of total CRE loans stood at 1.01%. Total CRE loans at US banks grew 5.2% year over year to $1.796 trillion.

Declining credit quality metrics in CRE lending pushed several banks to reduce their exposures to the sector by offloading loans related to the asset class, particularly office loans, in the second quarter.

More than 40% of respondents in S&P Global Market Intelligence's latest bank outlook survey said they expect commercial real estate credit quality to decline at their institutions over the next 12 months, up from 26.3% in the first quarter and 31.2% in the fourth quarter of 2022.

Source: S&P Global Market Intelligence

‘Pig butchering’ crypto scam

The Financial Crimes Enforcement Network issued an alert to highlight a prominent virtual currency investment scam known as “pig butchering.” The alert explains the scam’s methodology; provides behavioral, financial, and technical red flags to help financial institutions identify and report related suspicious activity; and reminds financial institutions of their reporting requirements under the Bank Secrecy Act.

Source: ICBA