October 13, 2021
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Vendor * Spotlight
IRS consumer campaign tops 700K messages

ICBA’s campaign urging consumers to speak out against an IRS reporting proposal topped 700,000 consumer messages to members of Congress.
ICBA is calling on community bankers to use its customizable email and social media content to urge consumers to contact Congress in opposition to the plan, which would require banks to report customer account information to the IRS.
Meanwhile, community bankers can call their lawmakers using an ICBA call alert and customizable script on the proposal, which Congress is working to include in its budget-reconciliation package.
Congressional pushback continues with an op-ed series from Senate Minority Leader Mitch McConnell (R-Ky.), a floor speech from Sen. Jerry Moran (R-Kan.), and growing support for Sen. Tommy Tuberville’s (R-Ala.) bill to block the plan.
Source: ICBA
Survey Shows Pandemic Impact on Community Banks

The lingering effect of the Covid-19 pandemic on local economies has created a new concern for community banks: historic levels of deposits and narrow net interest margins, according to the Conference of State Bank Supervisors’ (CSBS) eighth annual national community bank survey.
The survey of nearly 500 community bankers nationwide reveals a shift from last year, when local business conditions were foremost on their minds. As the pandemic lingers, they report abundant liquidity; however, 52% of community banks also describe loan demand as a “very important” challenge with a decline in lending, particularly in the business, agricultural and commercial real estate categories.
The pandemic also created some positive long-lasting effects, with more than 40% of community bankers saying it increased efficiency and more than 70% of respondents saying prospects for long term lending were improved by new or closer customer relationships.
Other key findings from the 2021 survey include:
  • Cybersecurity concerns are on the rise, with 81% of respondents calling it a very important risk - more than double the rate of any other type of operational risk.
  • The cost of technology leapt from one of the least important issues two years ago to among the most important, with nearly 47% of bankers calling it a “very important” challenge.
  • Concern about the cost of funds is on the rise, described as a “very important” risk by 22% of respondents compared to a year ago when it barely registered as a challenge.

Meanwhile, regulation risk continues to be seen as a challenge, with nearly 50% calling it “very important.”
Source: CSBS
Opposition to 7(a) direct lending continues

A group of 15 Republican senators led by Tim Scott (S.C.) continued pushing back against proposed changes to the SBA 7(a) loan program.
In a joint letter, the lawmakers say the reconciliation package’s $4.5 billion to fund direct 7(a) lending by the SBA would be inefficient, costly, and unequitable.
The message follows a recent House Small Business Committee joint letter and CNBC.com op-ed from Ranking Member Blaine Luetkemeyer (R-Mo.) opposing the proposal.
Testifying before Congress, Bank of Charles Town, W.Va., President and CEO Alice Frazier said experimenting with direct 7(a) lending—in which the agency has a poor track record—would jeopardize access to credit for small businesses.
Source: ICBA
Climate Change:

Brainard breaks down climate scenario analysis

Financial regulators are developing climate scenario analysis to model the possible financial risks associated with climate change and to assess the resilience of financial institutions and the financial system to these risks, Fed Governor Lael Brainard said.
In remarks to a Boston Fed conference on stress testing, Brainard cited:
  • Transition risks arising from changes in policies, technology, and consumer and investor behavior.
  • Physical risks of damages caused by increasingly frequent and severe climate-related events as well as chronic changes, such as rising temperatures and sea levels.
  • Sudden asset price changes that could lead to financial instability.

Treasury releases climate action plan

The Treasury Department released an action plan to guide its efforts to adapt and increase its resilience to the effects of climate change. The Climate Action Plan establishes five focus areas, including addressing the climate change impact on department operations and ensuring a climate-focused approach to managing Treasury’s real property portfolio footprint.
Source: Federal Reserve; US Treasury
ARRC issues LIBOR recommendations summary

The Alternative Reference Rates Committee released a summary of its recommendations to date regarding spread-adjusted fallbacks for contracts referencing U.S. dollar LIBOR.
The document is designed to provide a single reference point for market participants to understand the ARRC’s recommendations on LIBOR fallback language.
Speaking in Las Vegas, Federal Reserve Vice Chair for Supervision Randal Quarles said the Dec. 31 end of LIBOR is “definitive and immovable” and will not be extended.
“To be ready for year-end, lenders will have to pick up the pace, and our examiners expect to see supervised institutions accelerate their use of alternative rates,” Quarles said.
Source: ICBA
Credit unions hunting for nonbank M&A to diversify revenue

Credit unions are increasingly looking to buy nonbanks such as insurance brokers and wealth management firms in an effort to diversify their income.

The interest in nonbanks comes at a time when credit unions, much like banks, are facing a poor revenue environment due to tepid loan growth and low interest rates. Several deal advisers said in interviews that there are active discussions between credit unions and nonbanks that do not offer depository services.

"It's becoming more common as [credit unions] grow," said Michael Bell, partner and co-leader of the financial institutions practice group at Honigman LLP.

Over the past month, three of Bell's credit union clients have expressed interest in insurance or wealth management M&A. Credit unions are interested in acquiring individual insurance or trust services businesses, or acquiring banks with those existing business lines, Bell said.

Credit unions' "other noninterest income" — a data field that includes miscellaneous noninterest income excluding items such as investment gains and overdraft fees — has almost tripled since 2012. It is still relatively rare for a credit union to wholly own a fee-generating line of business. But with a weak earnings landscape, a growing number of credit unions are on the hunt for acquisitions that can boost income growth.

"Even the largest credit unions are saying, 'This is getting to be too much.' So they're looking at all kinds of things," Peter Duffy, a managing director at Piper Sandler, said in an interview. Duffy said credit unions are looking at everything from title insurance to trust services, motivated by a need to increase and diversify their revenue streams.
Source: S&P Global Market Intelligence