February 12, 2020                                                                                                      No copyright infringement intended

Argent Money

An Information Resource Center

Banks 'Well-Positioned' to Weather a Recession      

The nation's banks remain highly capitalized as a result of post-crisis regulatory reforms, and "are well positioned to continue lending to households and businesses even in the event of a severe global recession," the Federal Reserve noted in its monetary policy report to Congress. The Fed did note, however, that bank profitability has weakened somewhat due to recent interest rate declines, which could "affect their ability to absorb losses or build capital through retained earnings."
The Federal Reserve also flagged corporate debt as a potential risk to financial stability. The report noted that roughly half of investment-grade debt outstanding is currently rated triple-B-the lowest category of the investment-grade range-creating "the risk that adverse developments, such as a deterioration in economic activity, could lead to a sizable volume of bond downgrades to speculative-grade ratings," and ultimately result in a sell-off.

Advisory on Agricultural Lending Issued      

The FDIC issued a  Financial Institution Letter reminding agricultural lenders to maintain sound underwriting standards, strong credit administration practices, effective risk management strategies, and appropriate allowances for losses and capital levels through the credit cycle.

Citing challenges to the U.S. agricultural industry of recent years, the agency encouraged financial institutions to work constructively with borrowers when they experience financial difficulties.

Transparency on Core Provider Exam Info Weighed      

According to Fed Governor Michelle Bowman, as part of its efforts to facilitate community bank innovation, the Federal Reserve may provide banks with information about core processors and other critical third-party vendors that the banking agencies supervise directly.
"I believe we can take a step further with increasing transparency on our supervisory program by making information that may be useful about our supervision of key service providers available to banks," she said. "This could take a number of forms, such as being more transparent about who and what we evaluate." Currently, the agencies make service provider exam reports available only to banks that are already clients, but she said she has directed Fed staff to propose options for more transparency.
Bowman also outlined reforms that she said would improve the due diligence process, including consistency across regulatory agencies. Specifically, she said, the Fed should adopt guidance the OCC has issued. Other steps should include allowing banks to share due diligence instead of duplicating work, tailoring due diligence requirements to different situations and tailoring ongoing monitoring requirements for banks with assets of under $1 billion.
Interest Rate Caps Debated      

The House Financial Services Committee discussed lawmakers' concerns about financial partnerships that could be used to allow nonbanks to skirt state caps on interest rates.

The Veterans and Consumers Fair Credit Act (H.R. 5050), introduced by Rep. Jesús "Chuy" García (D-Ill.), would impose a 36 percent federal interest rate cap on all consumer loans. The committee has a follow-up hearing scheduled for Feb. 26.

Fed Study Shows Debit Transactions As Opportunity       

ICBA's latest  Payment Executive Brief notes that debit is influencing much of the recent growth in payments.

Citing Federal Reserve data showing that consumers used debit cards almost twice as often as credit cards in 2018, the brief offers several ways community banks can take advantage of debit opportunities at the point-of-sale and online.
The brief encourages community banks to meet customers' debit needs, ensure debit cards are compatible with the latest technologies, and more.

Fed Study

Best Practices for Cybersecurity, Resiliency Recommended    

The Securities and Exchange Commission recently issued examination observations related to market participants' cybersecurity and operational resiliency practices.
The report recommends developing and updating a vulnerability-management program, securing legacy systems that contain personal information, and ensuring clearly defined communication channels in the event of an information security incident.
Answer of the Week

When a fee change to the account is relevant under both Regulation DD and Regulation E, which timing should be used?  
Regulation E change in terms timing requires change in terms to be mailed at least calendar 21 days before the change, and Regulation DD requires the change in terms to be mailed at least calendar 30 days before the change. In order to meet the requirements for notification of a change in terms, the change in terms may be sent under the Regulation E timing requirements and will be considered in compliance for Regulation DD.

Referrence: Regulation DD: 12 CFR 1030.3(c)  

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