SDBA eNews: July 14, 2016

In This Issue

Deluxe Offers Strategic Planning Success Webinar

Deluxe is offering a free webinar "Strategic Planning Success: How to Avoid Pitfalls That Can Kill Your Strategy at 1 p.m. CDT on Thursday, July 21.

Deluxe has engaged community banking strategy experts to help banks avoid the common pitfalls in strategic planning so they can develop a strategic plan that creates value for their stakeholders.

During a moderated discussion, James McAlpin, Jr. JD, of Bryan Cave LLP, and former community bank CFO Barry Adcock, will share ideas for how banks can boldly address critical topics during the planning process; keep their plan from dying on the vine; engage and empower employees at all levels; and satisfy the regulators and still be forward-looking.

Learn more and register.

Hacker Hour: Penetration Testing vs Vulnerability Assessments

Over the years, penetration testing and vulnerability assessments have been a good security practice to implement. However, there have been lingering myths and misconceptions about each of these assessments. 

Join Secure Banking Solutions (SBS) for Hacker Hour: Penetration Testing vs Vulnerability Assessments on Wednesday, July 27, at 2 p.m. CDT. In this free webinar, SBS will walk through penetration testing and vulnerability assessments.

SBS will also debate what a good pen test looks like, what financial institutions are doing for vulnerability assessments, how often should banks be doing these tests, and how to get the most out of a network testing provider. Learn more and register.

Compliance rules and regulations change quickly. For timely compliance updates, subscribe to Compliance Alliance’s email newsletters.

Compliance Alliance offers a comprehensive suite of compliance management solutions. To learn how to put them to work for your bank, call 888.353.3933 or email.

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Contact Alisa DeMers, SDBA, at 800. 726.7322 or via email.

Sen. Rounds Introduces ABA, Alliance-Backed Tailored Regulation Bill

Sen. Mike Rounds (R-S.D.) on Monday introduced the TAILOR Act, which would require financial regulators to consider bank risk profiles and business models when taking regulatory actions. The bill--a signature part of ABA’s Agenda for America’s Hometown Banks--has been strongly advocated by ABA and the alliance of state bankers associations, including the SDBA.

In addition to requiring a tailored approach for future rulemakings, the bill would require a review of regulations issued in the past six years and a report on how they might be better tailored. Regulators would be required to state in notices of proposed rulemaking how they applied the TAILOR Act.

The bill closely resembles the House version of the TAILOR Act, which was strongly pursued by ABA and the state associations. Championed by Rep. Scott Tipton (R-Colo.), the TAILOR Act cleared the House Financial Services Committee earlier this year.

“South Dakota is home to some of the smallest and the largest banks in the world, with wide variations in their business models,” commented SDBA President Curt Everson. “Bankers from those institutions agree that today’s one-size-fits-all regulatory scheme doesn’t make sense. We applaud Sen. Rounds for introducing the TAILOR Act to start the conversation about matching bank regulation to risk.” Read more.

Jerry Nachtigal Appointed to SDBA Board of Directors

The SDBA has appointed Jerry Nachtigal, Senior Vice President of Public Affairs, Citibank, Sioux Falls, to its Board of Directors. Nachtigal began his three-year directorship on June 12, 2016. This is his first, three-year term on the SDBA Board of Directors.

Nachtigal joined Citibank in 2003 after nearly 18 years as an Associated Press reporter in Missouri and Arizona and after working as communications director for three Missouri governors from 1999-2002. At Citi, he handles internal and external communications for the bank’s flagship credit card site in Sioux Falls and its nearly 2,100 employees, as well as community relations and government relations. He also administers much of Citi’s philanthropy budget in South Dakota. Nachtigal has a journalism degree from South Dakota State University in Brookings.

“I’m looking forward to using my background in public affairs and communications to help the South Dakota banking community to do a better job of explaining to the public, regulators and government officials the many, many good and positive things banks do to improve and strengthen our communities and society as a whole,” Nachtigal said. “While that’s often a challenging task in the general anti-bank environment we live in, it’s something we all have to work at, and I think we have seen considerable progress in this area in recent years.

“If banks collectively choose to remain under the radar and not tell our story, someone else will. I think helping individuals and families build wealth and assets, finance a home or vehicle, save for a college education, and improve our communities through financial donations and service on the board of directors of nonprofit organizations is something bankers should be proud of and excited about.”

Nachtigal is proud that Citi has contributed more than $35 million to nonprofit organizations in Sioux Falls and around the state since 1981 and also invested tens of millions of dollars to create several thousand affordable housing units in Sioux Falls and 15 other communities through CitiHousing Inc. and Citi Community Capital. Citi employees are very active in the community, volunteering more than 25,000 hours annually on behalf of dozens of charities.

Nachtigal serves on the board of directors of the Delta Dental of South Dakota Foundation and Sioux Falls Family YMCA, is a member of the SDSU Foundation Council of Trustees, and vice chairman of the Sioux Falls Area Chamber of Commerce Community Appeals Committee.

Nachtigal’s wife, Ann, works in corporate communications/investor relations for Great Western Bank in Sioux Falls. The couple has three children: Reid is a senior at SDSU; Jack is a sophomore at the University of Minnesota; and Libby is a sophomore at Washington High School.

OCC: Credit, Strategic Risk Leading Issues for Small, Midsize Banks

The OCC is focusing on credit risk and strategic risk as the top risk priorities in its supervision of community and midsize banks, according to the agency’s Semiannual Risk Perspective report released on Monday. For larger banks, compliance and operational risks remain dominant concerns, the agency added.

Credit risk has grown throughout the upswing in the economy cycle, which has seen strong loan growth combined with eased underwriting standards as banks compete among themselves and with nonbank lenders for loans. The report noted that credit concentrations have grown at banks of all sizes, particularly in commercial real estate, financial services and energy loans. Supervisors will be focusing closely on concentration risk management, the OCC said.

The agency raised particular concerns about the “notable and unprecedented growth” in auto lending, with total loan volume growing by 50 percent since 2010. As delinquencies rise and collateral values decrease, the OCC said that “some banks’ risk management practices have not kept pace with the growth and increasing risk in these portfolios.”

Strategic risk remains high as smaller and midsize banks struggle with increased nonbank competition (from marketplace lenders, for example), merger trends, the persistent low-rate environment and governance issues--particularly around innovation. “Banks are increasingly adopting innovative products, services and processes in response to the evolving demands for financial services and the entrance of new competitors, such as out-of-market banks and financial technology firms,” the agency said.

For larger banks, the OCC highlighted operational and cybersecurity risks from their large and complex operations, as well as the ongoing challenge of integrating new rules--such as the Military Lending Act amendments taking effect in October--into their compliance management systems. Other top operational and compliance priorities for the next year include Bank Secrecy Act compliance, third-party risk management and cybersecurity, the agency added. Read the report.

ABA Urges Congress to Encourage Growth, Remove Barriers to Bank Startups

New banks help build communities and their growth is being stifled by unrealistic capital hurdles, unreasonable funding constraints and excessive regulation, according to testimony from the American Bankers Association before the House Oversight and Reform Committee on Wednesday.

“New entrants into any industry are a sign of growth and economic opportunity,” said Guy Williams, who testified on behalf of ABA. “New banks stimulate more choices of competitive products and services for businesses and consumers, which translates into greater economic activity and growth in local communities.” Williams is president and CEO of Gulf Coast Bank and Trust in New Orleans.

“Sadly, the forces that have acted to stop new charters are the same ones that have led to the dramatic consolidation of our industry--excessive and complex regulations that are not tailored to the risks of specific institutions. This--not the local economic conditions--is often the tipping point that drives small banks to merge with banks typically many times larger and is a barrier to entry for new banks,” said Williams.

Williams welcomed FDIC supervisory changes regarding new bank charters, but noted these don’t address the underlying barriers to entry: unrealistic capital hurdles, unreasonable regulatory expectations on directors, funding constraints, an inflexible regulatory infrastructure, and tax-favored competition from the credit union industry and the government-backed Farm Credit System.

“It’s time to think differently to encourage new banks--by requiring less capital, reducing regulatory burden, permitting greater flexibility in business plans and lifting funding restrictions,” said Williams.

“The fact remains that only seven de novos have been created in the last five years. More troubling is there are 1,500 fewer community banks today than five years ago--a trend that will continue until regulatory improvements are made that will help banks better support their communities,” he said.

For a copy of Williams’ full testimony, please click here

Nichols Brings Message of Fintech Innovation, Partnership to the Hill

Banks are aggressively innovating and partnering with financial technology startups, but Congress and regulatory agencies could do more to promote “innovation-forward” policies, ABA President and CEO Rob Nichols told the House Financial Services Committee on Tuesday.

As the only representative of the banking industry testifying at the hearing, Nichols explained that banks continue to build on their history of technological innovation, and that many are currently partnering with nonbank fintech companies to bring their customers the latest tech through trusted and secure bank channels.

“When banks innovate and partner with startups to deliver new technologies, their customers win,” he said. “Banks have a long history of serving customers' needs and have established trusted relationships. These relationships are backed by a culture of compliance and regulatory oversight that ensures customers are protected.”

Nichols emphasized the win-win nature of fintech partnerships for banks, nonbanks and customers alike. Banks provide a trusted customer relationship, strong community presence and stable deposit funding, while customers get access to the most innovative technologies--whether or not they emerged from a bank.

To help foster these partnerships, Nichols urged Congress and regulators to ensure that regulation is focused on activities, not charter type; to update laws and rules to reflect present-day and future technologies and to provide a regulatory “greenhouse” for testing new fintech products. Read the testimony.

Wendy's Confirms Data Breach at More Than 1,000 Locations

The fast-food chain Wendy’s last week confirmed that 1,025 locations--nearly 20 percent of U.S. stores--were part of a major data breach that ran for up to several months in which cyber criminals infected card terminals with malware to steal debit and credit card data. While the impact of the breach on financial institutions is as yet unknown, one financial trade group has said the fraud volumes tied to the Wendy’s breach are greater than those from the widely publicized Target and Home Depot breaches.

Wendy’s said it believes the malware was introduced in the fall of 2015 to restaurants’ systems via the remote access credentials of Wendy’s service providers. The company said the malware used to steal card data at the restaurants had been disabled by early June.

However, the breach--which was publicly disclosed by cybersecurity reporter Brian Krebs in January--was noticed months earlier by issuers and payments industry professionals noting suspicious activity on cards used at Wendy’s locations. Read Wendy’s statement. Access a list of compromised locations.