SDBA eNews: August 24, 2017

In This Issue

Webinar: DefCon Hacking Conference Highlights

Hackers at the 2017 DefCon Conference were able to hack any voting machine in less than 90 minutes. DefCon is a hacking convention held in Las Vegas that attracts 25,000 people from around the world--mostly hackers and security experts. Presentations are given about resources or issues in cybersecurity.  

SBS and other IT security experts send people every year to learn about emerging issues, so they can provide the best advice to clients about what's going on in the world of cybersecurity and what can be expected down the road.

Join the Graduate School of Banking at the University of Wisconsin's "DefCon Hacking Conference Highlights" webinar on Sept. 6 to hear the top 10 lessons learned from DefCon that will benefit financial institutions. The webinar will be held at 10 a.m. CDT. Learn more and register.

GSB To Hold Bank Technology Security School

The Graduate School of Banking at the University of Wisconsin will hold the Bank Technology Security School Oct. 15-20 in Dallas, Texas.

The program is designed especially for technology security professionals in the banking industry and covers the hottest topics in cybersecurity, information technology and the business of banking. The school includes both business of banking curriculum and IT security curriculum. Learn more and register.

Question of the Week

I have a question regarding HMDA reporting on home improvement loans that are not secured by a dwelling. When the regulation says that you report a home improvement loan "that is classified as a home improvement loan by the financial institution,” how is that classification made? Via the bank's Call Report? We very rarely have a home improvement loan, and the last one we recorded on our LAR was secured by the dwelling. I'm just curious if the loan is not secured by the dwelling, how it is/would be or should be "classified" in order to report it.

Answer: HMDA is asking for literally any classification. One of the examples in the commentary even suggests that if a creditor puts all the home improvement loans in blue folders and this one is in a blue folder, that would be a home improvement loan. So, it really matters as to what the bank considers the loan purpose to be.

Home improvement loan.
Classification requirement for loans not secured by a lien on a dwelling. An institution has “classified” a loan that is not secured by a lien on a dwelling as a home improvement loan if it has entered the loan on its books as a home improvement loan, or has otherwise coded or identified the loan as a home improvement loan. For example, an institution that has booked a loan or reported it on a “call report” as a home improvement loan has classified it as a home improvement loan. An institution may also classify loans as home improvement loans in other ways (for example, by color-coding loan files). Commentary to 1003.2 

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SDBA To Host Emerging Leaders Networking Meetings this Fall

Education, Skills, Lead, Learn, IdeasThe SDBA will host a series of regional meetings across the state this fall to build and deepen the connection of the next generation of banking leaders to the Association. The SDBA invites member bank leaders to bring at least one of their bank’s young, emerging leaders to the meetings.

The general business session will be a chance for bankers to learn more about the SDBA, current issues of concern to the industry, how they can engage in public policy debate, and a discussion on ideas for further engagement with emerging industry leaders. The meetings will also provide an opportunity for networking and social interaction with peers during lunch, an afternoon of optional sporting clays/trap shooting and refreshments to follow. 

The business session will begin at 10 am, followed by lunch. The meetings will be held:

  • Sturgis, Buffalo Chip Shooting Complex: Sept. 28
  • Aberdeen, Aberdeen Gun Club: Oct. 2
  • Humboldt, Hunters Pointe Shooting Complex: Oct: 4
  • Pierre/Fort Pierre, View 34 and Willow Creek Wildlife Inc.: Oct. 11
Learn more and register to attend.

Comment Period Extended for Proposed Changes to Employee Benefit Plan Audits

The American Institute of CPAs has extended the deadline for comments on proposed changes to auditing standards relating to employee benefit plans.

The proposal was issued in response to recent Department of Labor efforts to reform Employee Retirement Income Security Act audits, including those on benefit plans that opt for a “limited scope” audit opinion. In these audits, the plan custodian (typically a bank) certifies the activities and investment values of plan assets. Comments are due Sept. 29.

ABA was the first of several organizations to request more time to respond to the proposal. Preliminary analyses conducted by ABA and bankers suggest that the proposal could lead to higher costs and liability to both benefit plan sponsors and custodians within a limited scope audit. Read the proposal. For more information, contact ABA's Mike Gullette.

Agencies Pause Basel III Phase-In for Most Banks

The Federal Reserve, FDIC and OCC on Tuesday issued a proposed rule that would pause the transition to the Basel III capital framework for banks not using the Basel advanced approaches. The rule comes as regulators are working on a broader effort to simplify the regulatory capital rules for non-advanced approaches banks as has been long advocated by ABA and championed in the Treasury Department report on financial reform.

“As part of the recent review of regulations under the Economic Growth and Regulatory Paperwork Reduction Act, the agencies announced that they are developing a proposal that would simplify the capital rules to reduce regulatory burden, particularly for community banks,” the agencies said. “That proposal would simplify the capital rules' treatment of mortgage servicing assets and other items. However, under the current capital rules, the transitional treatment for those items is scheduled to be replaced with a different treatment on Jan. 1, 2018.”

The proposed rule would pause the full transition to the Basel III treatment of mortgage servicing assets, certain deferred tax assets, investments in the capital of unconsolidated financial institutions and minority interests pending a new rulemaking addressing these topics. Since advanced approaches are principally used by banking organizations with more than $250 billion in assets or foreign bank subsidiaries with more than $10 billion in assets, the pause would apply broadly to community, midsize and even several regional banks.

ABA plans to comment on the proposal and will strongly urge the agencies to include the advanced approaches banks in both the extended transition period and the future rulemaking simplifying the capital framework. Comments on the proposed pause are due 30 days after the rule is published in the Federal Register.

Agency Guidelines on HMDA Data Testing Fall Harder on Smaller Lenders

The federal banking agencies on Tuesday issued guidelines for how examiners will test the accuracy of data collected and reported by financial institutions under the Home Mortgage Disclosure Act.

Despite coming after concerns expressed by ABA and others about the burdens imposed by unreasonable error tolerances that require a bank to resubmit its HMDA data--in light of the vastly expanded data fields that must be reported beginning in March 2019--the new guidelines are expected to have the opposite result, creating disproportionate expectations for smaller volume lenders. For example, an examiner will review 30 loan files of a bank that only makes 50 mortgage loans but only 159 files for a bank that originates 100,000 loans. Moreover, a small number of errors in any given data field will trigger review and resubmission.

In comments filed to the proposed guidelines, ABA called for more reasonable tolerances. The association intends to ask the congressional banking committees to review the new guidelines and consider whether the level of perfection required will undermine the ability of banks to serve their customers. Read more. For more information, contact ABA’s Rob Rowe.

Justice Department Formally Ends 'Operation Choke Point'

In a letter to House Judiciary Committee Chairman Bob Goodlatte (R-Va.) last week, a Department of Justice official formally confirmed that the agency has ended the controversial Operation Choke Point initiative, which under the Obama administration sought to curtail legal but politically disfavored businesses by working through bank regulators to pressure financial institutions to end customer relationships with those businesses.

“All of the Department’s bank investigations conducted as part of Operation Choke Point are now over, the initiative is no longer in effect, and it will not be undertaken again,” wrote Assistant Attorney General Stephen Boyd. “The Department will not discourage the provision of financial services to lawful industries, including businesses engaged in short-term lending and firearms-related activities.”

ABA has long opposed Choke Point, successfully urging the FDIC to end its participation in the initiative and supporting legislation to prevent similar activities in the future. However, many financial institutions had been concerned about serving Choke Point-targeted businesses without a clear statement from DOJ that the initiative has been dropped. Read the letter.

Farmer Mac To Hold Road Show this Fall

Farmer Mac is hosting a series of free, credit-focused workshops throughout the country this September and October. Farmer Mac will be in Bismarck on Sept. 18, Sioux Falls on Sept. 19 and Rapid City on Oct. 13.

Attendees can prepare for the upcoming lending season and hear about the latest secondary market tools available through Farmer Mac's programs. The sessions are designed for new as well as existing program participants.

The meetings will begin at 9:30 a.m., and lunch will be provided. A bonus session will be held from 1-2 p.m., where attendees will receive additional insight on winning strategies successful Farmer Mac lenders use to structure and price their loans.

While registration is free, space is limited so sign up today. Learn more and register to attend.