|
Sigh of Relief
Community banks have largely embraced the new regulatory environment, as evidenced by much of the talk at Bank Director’s Bank Board Forum this week in Austin, Texas. For example, federal agencies have changed rulemaking that seemed onerous to banks, such as the Section 1071 rule that requires banks to report demographic data on small business loans. The Consumer Financial Protection Bureau, which supervises banks above $10 billion for consumer protections, “has been decimated,” according to one speaker at the conference. Efforts are underway to ease the regulatory burden for community banks, too. Among changes, the Office of the Comptroller of the Currency redefined a community bank as anything below $30 billion. Many community bankers — and board members — are breathing a sigh of relief.
On the other hand, there are aspects of the changes that could increase future risk, several speakers said. Regulators have rescinded prior administration guidance, leaving banks to interpret some of the rules themselves. Also, examiners in many agencies have been told to focus on financial risks such as credit, interest rate and liquidity risk, not so much on processes and policies. While that’s largely welcome news for banks, that could leave management and boards without feedback on emerging and nonfinancial risks.
The current environment welcomes banks to take on new operational and strategic risks. Bank employees and vendors are increasingly using agentic or generative artificial intelligence, all without guidance from federal regulators that is specific to the risks of AI. Namely, the models underpinning the newer forms of AI can add bias or “hallucinate,” creating errors along the way.
Facilitating or taking custody of stablecoin also presents new opportunities and risks. Challenges include dealing with private keys for digital asset wallets or transacting on payment rails that don’t exist at the bank today, said Tom Lazard, a partner at Crowe Advisory.
Shaun Harms, a principal at Forvis Mazars, said prior administrations handed out the enforcement actions known as matters requiring attention like they were candy, but there are important things to consider even if your bank doesn’t get an MRA. “It’s important to understand our true risks and expectations, because we don’t want to let our guard down,” Harms said.
• Naomi Snyder, editor-in-chief for Bank Director
| 
