November 16, 2022
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FTX meltdown reignites debate over crypto regulation 

FTX’s death spiral, which was prompted by a run on the exchange, and culminated on Friday with the company's announced chapter 11 bankruptcy filing and resignation of its CEO Sam Bankman-Fried, has fueled the debate on the need for enhanced oversight.
 
On the eve of FTX's bankruptcy filing on Friday, Rep. Maxine Waters, (D-Calif.), chair of the House Financial Services Committee, and Sen. Sherrod Brown (D-Ohio), chair of the Senate Banking Committee, joined Rep. Pat McHenry (R-N.C.), ranking member of the House panel and its likely future chair, in calling for more scrutiny on crypto markets.
 
ICBA recently told the Treasury Department that protecting national security and implementing anti-crime measures should be primary drivers of cryptocurrency policymaking and regulation. Reflecting previous ICBA calls for regulators to prioritize national security in new crypto rules, ICBA noted that bad actors still use Tornado Cash despite it being federally sanctioned.
 
Hours after FTX's bankruptcy news hit, several wallets allegedly belonging to FTX were drained of more than $650 million in coins, according to news reports. FTX US general counsel, Ryne Miller tweeted that the company was “investigating abnormalities with wallet movements related to consolidation of FTX balances across exchanges” while industry speculation pointed to a potential security breach with FTX staffers using their Telegram channel to urge users to delete their FTX app to avoid a potential malware attack.

Source: ICBA
Court action halts Biden’s student loan forgiveness plan

A Texas federal court ruling could derail President Joe Biden’s announced plans to cancel student debt for millions of Americans through his student debt relief program.
 
Calling Biden’s debt relief program “an unconstitutional exercise of Congress’s legislative power,” U.S. District Judge Mark Pittman challenged claims granting the administration’s authority under the HEROES Act in his 26-page decision.
 
“We strongly disagree with the District Court’s ruling on our student debt relief program and the Department of Justice has filed an appeal,” White House Press Secretary Karine Jean-Pierre said in a statement.
 
This is the latest blow by the courts. Last month the Eighth U.S. Circuit Court of Appeals issued a temporary order, which halted the Education Department from proceeding with Biden’s student debt relief program.
 
The forgiveness plan, which would provide up to $20,000 in student debt forgiveness and extend the federal student loan repayment moratorium, applies to Americans earning under $125,000 per year, or $250,000 per year for married couples who file taxes jointly. Borrowers would have the ability to opt into a repayment plan that caps payments at 5% of income.
 Source: ICBA
Guidance to address shoddy investigation practices and bulletin analyzing rise in crypto-asset complaints

The Consumer Financial Protection Bureau (CFPB) issued a circular to affirm that neither consumer reporting companies nor information furnishers can skirt dispute investigation requirements. The circular outlines how federal and state consumer protection enforcers, including regulators and attorneys general, can bring claims against companies that fail to investigate and resolve consumer report disputes. The CFPB has found that consumer reporting companies and some furnishers have failed to conduct reasonable investigations of consumer disputes and to spend the time necessary to get to the bottom of inaccuracies. These failures can affect, among other things, people’s eligibility for loans and interest rates, for insurance, and for rental housing and employment.

“One wrong piece of information on a person’s credit report can have destructive consequences that follow a consumer for years,” said CFPB Director Rohit Chopra. “Companies that fail to properly address consumer disputes in accordance with the law may face serious consequences.”

The Consumer Financial Protection Bureau (CFPB) also released a new complaint bulletin that highlights complaints the CFPB received related to crypto-assets. Consumers most commonly reported being victimized by frauds, theft, account hacks, and scams. Consumers also had issues with executing transactions and transferring assets between exchanges. Many consumers had issues with accessing funds in their account due to outright platform failures, identity verification issues, security holds, or because of technical issues with platforms. Poor customer service is a common theme across crypto-related complaints.

“Our analysis of consumer complaints suggests that bad actors are leveraging crypto-assets to perpetrate fraud on the public,” said CFPB Director Rohit Chopra. “Americans are also reporting transaction problems, frozen accounts, and lost savings when it comes to crypto-assets. People should be wary of anyone seeking upfront payment in crypto-assets, since this may be a scam. We will continue our work to keep the payments system safe from fraudsters targeting Americans.”
Source: S&P Global Market Intelligence
Ag outlook strong despite expenses, drought pressures

Interest rates on farm loans increased sharply in the third quarter as the acceleration in farm real estate values continued to ease, according to the Federal Reserve Bank of Kansas City’s latest ag credit survey. Volatility in crop markets, higher expenses and drought could hinder incomes for some producers, but prices of key crops and livestock remained at multi-year highs and profit opportunities across the farm sector remained favorable.
Source: ICBA
Liquidity sources diversifying as funding pressures intensify

Many banks are focused on diversifying their funding base.

During the pandemic, banks experienced record levels of deposit inflows thanks to government stimulus programs and accommodative monetary policy, but are now seeing outflows. The rising interest rate environment has led to increased competition and higher costs for core deposits, and the developments are pushing banks to adjust their funding approach.

"There has ... been renewed interest among publicly traded banks and our clients on hedging new funding as the liquidity environment normalizes," said Isaac Wheeler, head of balance sheet strategy at Derivative Path, which helps financial institutions with hedging transactions.

Some are increasingly looking to wholesale options like brokered deposits or Federal Home Loan Bank, or FHLB, advances, while others plan to use cash flows from investments to fund loan growth in coming quarters.
Source: S&P Global Market Intelligence
SBA expanding 7(a) program participants

The Small Business Administration has taken the first step in extending its flagship 7(a) program to fintech companies and nondepository lenders with a proposed rule removing a 40-year moratorium capping 7(a) participation by small-business lending companies, or SBLCs, at 14, American Banker reported. Regular for-profit lenders, such as the 14 incumbents and most fintechs, and nonprofit-mission-based SBLCs focusing on underserved markets and demographic groups will be added, according to the report.

Source: S&P Global Market Intelligence; American Banker
Unbanked rate reaches all-time low

Nearly 96% of U.S. households were banked in 2021 despite economic challenges posed by the COVID-19 pandemic, the FDIC said.
 
The agency’s latest biennial National Survey of Unbanked and Underbanked Households found an estimated 4.5% of U.S. households lacked a bank or credit union account, the lowest national unbanked rate since the FDIC survey began in 2009.
 
Meanwhile, 14.1% of households were underbanked last year, meaning they had a bank or credit union account and used nonbank financial products and services. The underbanked rate declined by roughly one-third since 2017.
 
Approximately 1.2 million more households were banked since 2019, with nearly half of newly banked households saying government payments contributed to their decision to open an insured account. In 2011, 8.2% of households were unbanked, according to the survey.
 
Last year, 2.1% of White households were unbanked, compared with 11.3% of Black households and 9.3% of Hispanic households. The gaps are down from 2019, when unbanked rates were 2.5%, 13.8%, and 12.2% for White, Black, and Hispanic households, respectively.
 
The survey also found:
  • The use of mobile banking increased sharply among banked households since 2017 and was the most prevalent primary method of account access.
  • The most commonly cited reasons for not having an account were not being able to meet minimum balances and not trusting banks, though the proportion of respondents citing fees or minimum balances fell from 38% in 2019 to 29.2% last year.
  • The use of check cashing and nonbank credit products, such as payday or pawn shop loans, decreased.
  • The use of nonbank online payment services, such as PayPal and Venmo, increased.
 
The historically low unbanked rates could undermine policymaker arguments touting proposals such as postal banking, Federal Reserve retail deposit “FedAccounts,” and a U.S. central bank digital currency as tools to access unbanked households.
Source: ICBA; FDIC
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