SDBA eNews

May 26, 2022

ABA’s Nichols: Despite economic headwinds, banks are healthy and prepared

While uncertainty surrounds the U.S. economy at present, America’s banks remain healthy and prepared to support the communities they serve, said American Bankers Association President and CEO Rob Nichols today during an online forum discussing recent economic conditions and longer-term outcomes.

“It’s a challenging moment for the U.S. economy, with inflation running at its highest level in a generation, hitting every American in their wallet. We continue to suffer supply disruptions due to the lingering effects of the pandemic and the Russian aggression in Ukraine,” Nichols said, adding that the Federal Reserve has been working to slow demand by raising interest rates and plans to do so until inflation is under control.

Nichols pointed to the Fed’s recent Financial Stability Report to highlight banks’ resiliency. He noted that banks have maintained risk-based capital ratios well above regulatory minimums, credit quality remains robust and funding risks at domestic banks remain low after the deposits they received during the pandemic. Bank reserves remain above pre-pandemic levels, which Nichols noted is “another sign of the prudent planning and risk management underway as our industry prepares for potential headwinds.”

A significant threat to the financial system right now cited by the Fed report is the growing number of nonbanks looking to offer banking services without being subject to the same regulation as banks. “We have some concerns about that,” Nichols said. “New financial players should have to meet the same rigorous requirements as banks if we want to ensure that consumers and the financial system are protected. Innovation is critical to our competitiveness, but markets are also built and sustained on trust.” Click here to watch the video message from Nichols.

CSBS urges lawmakers to include SAFE Banking Act in Competes Act

As lawmakers attempt to reconcile the House and Senate versions of the America Competes Act, the Conference for State Bank Supervisors today advocated for the SAFE Banking Act to be included in the final version of the bill. The ABA-backed provision—which would enable banks to serve legitimate cannabis businesses in states where it is legal—was included in the House version of the Competes Act.

CSBS noted that allowing cannabis businesses to access banking services would help reduce risk, increase public safety and facilitate tax collection, among other things. “By granting a safe harbor for financial institutions, Congress can bring regulatory clarity to the financial services industry, address public safety concerns and ensure access to financial services for state-compliant marijuana and marijuana-related businesses,” said CSBS Acting President and CEO James Cooper.

ABA continues calling on all bankers to write to their members of Congress and urge them to support the inclusion of the SAFE Banking Act.

Fed survey: Americans’ financial well-being improves in 2021

Nearly 8 in 10 U.S. households surveyed in late 2021 said they were “doing OK” or “living comfortably,” according to the Federal Reserve’s annual Report on the Economic Well-Being of U.S. Households released yesterday. The combined 78% was the highest level recorded by the survey, up three points from 2020 and up 16 points since 2013. While the report does not specifically address households’ views of consumer price inflation, the survey was fielded in fall 2021 after consumer prices had risen at year-over-year rates exceeding 5% for several months. 

The share of unbanked American adults was virtually unchanged at 6% in 2021 and down from 8% in 2015. The report showed the share of adults considered “fully banked”—that is, who had a bank account and also did not use a number of nonbank financial alternatives—held steady at 81%. The report also showed that 11% of adults with a bank account paid an overdraft fee at some point in the prior year.

The survey also saw households’ savings practices improve in the aggregate. Sixty-eight percent (up 4 points from 2020 and up 18 points from 2013) said they could cover a $400 emergency expense in cash, a benchmark often cited by policymakers. The survey found that 25% of non-retired respondents reported having no retirement savings or pension, down a point from 2020 and marking continued progress from previous years.

The Fed survey asked questions about cryptocurrencies for the first time and found that 12% of adults had held or used crypto in the prior year—with almost all of these using it as an investment vehicle, not a form of payment. Crypto holders tended to be higher-income, with 46% of those using it as an investment earning over $100,000 per year. Ninety-nine percent of crypto investors also had bank accounts, but of those who used crypto for transactions, 13% reported being unbanked.

Also for the first time, the survey covered the growth of “buy now pay later” loans, which 10% of respondents reported using in the prior year. Nearly 8 in 10 BNPL borrowers cited convenience as one reason, while 53% said they used BNPL because they did not want to use a credit card, 51% said it was the only way they could afford the purchase and just under one-fifth said it was the only payment method they had. Among BNPL borrowers, just 15% had been late making a payment in the prior year.

FDIC: Increase in provision expense drives bank net income down 

FDIC-insured banks and savings associations earned $59.7 billion in the first quarter of 2022, a 22.2% decrease from the year prior, the FDIC reported yesterday in its Quarterly Banking Profile. The decrease was driven by an increase in provision expense. Despite the decrease, FDIC Acting Chairman Martin Gruenberg said that “capital and liquidity levels remain strong” and that “loan growth and credit quality metrics remain generally favorable.”

The average net interest margin edged down one basis point from the previous quarter to 2.54%, four basis points higher than the record low in the second quarter of 2021. Net interest income rose 6.4% from the fourth quarter to $138 billion—the fourth consecutive increase. Meanwhile, a 65.9% decline in income from loan sales drove a reduction in noninterest income from the same quarter last year. Community banks reported a $1.1 billion decline in first quarter net income year-on-year, the FDIC said.

American Bankers Association Chief Economist Sayee Srinivasan emphasized the continued strength of the banking industry. “Credit quality is exceptionally strong and lending continues to gain steam following robust growth in the previous quarter,” Srinivasan said. “Banks increased loan-loss provisions in the first quarter due to heightened uncertainty, which lowered industry net income. Nonetheless, banks are well capitalized and the industry remains well positioned to handle the challenges caused by the Fed’s efforts to combat inflation.”

The average net charge-off rate fell 12 basis points year-on-year to 0.22%, and the noncurrent loan rate fell five basis points to 0.84%. During the first quarter, three banks opened and no banks failed. The number of banks on the FDIC’s problem bank list declined by four to 40, a new record low.

FDIC weighing raising assessment rates

In June, the FDIC will consider “options to amend [the 2020 Deposit Insurance Fund]restoration plan, including increases to assessment rates,” FDIC Acting Chairman Martin Gruenberg said today in remarks following the release of the QBP report.

That statement came after the DIF balance fell $102 million in the first quarter to $123 billion—the first DIF balance decline in more than a decade. The decline was attributed to unrealized losses on available-for-sale securities in the DIF portfolio, driven by rising interest rates, which offset insurance assessment income. At the same time, industry-insured deposits continued to grow at an elevated pace. These two factors dropped the DIF reserve ratio to 1.23% as of March 31.

After the DIF reserve ratio dipped below the statutory minimum reserve ratio of 1.35% in June 2020, the FDIC announced a plan to restore the fund by September 2028 with no anticipated increase in the assessment rate schedule. However, Gruenberg noted that “a key assumption surrounding the restoration plan was that insured deposit growth would normalize and the surge of insured deposits associated with the pandemic would recede over time. However, more than one year after the most recent round of pandemic-related fiscal stimulus, the industry has continued to report strong insured deposit growth.”

CISA News Tip of the Week: Top 11 Security Dont's

How many of these are present in your organization?  

1.No cybersecurity training for employees

2.Software is not up to date

3.Strong password policies are not implemented

4.Use of vendor-supplied default configurations or default login usernames and passwords

5.Open ports and misconfigured services are exposed to the internet

6.Incorrectly applied privileges or permissions and errors within access control lists

7.Remote services, such as VPNs, lack sufficient controls to prevent unauthorized access

8.Multifactor authentication (MFA) is not enforced

9.Cloud services are unprotected

10.Failure to detect or block phishing attempts

11.Poor endpoint detection and response

Click here to read how to mitigate these weak points. 

Memorial Day Observance

In observance of Memorial Day the South Dakota Bankers Association and South Dakota Bankers Insurance and Services will be closed on Monday, May 30th. We will re-open at 8 a.m. CDT on Tuesday, May 31st. 

Juneteenth Day of Observance

South Dakota Bankers Association and South Dakota Bankers Insurance and Services will be closed on Monday, June 20th in observance of the Juneteenth National Independence Day. We will re-open at 8 a.m. CDT on Tuesday, June 21st. 

Registration Open for 2022 SDBA Agricultural Credit Conference - July 20-21 in Pierre, SD

The South Dakota Bankers Association will present the 2022 Agricultural Credit Conference, July 20-21, at the Ramkota Hotel & Conference Center at 920 W. Sioux Ave. in Pierre, SD. This conference focuses on the unique needs of ag bankers, and the desire for quality information and training to better serve their customers. The SDBA has lined up speakers on a variety of timely topics to help ag bankers navigate through challenging times. New or experienced ag lenders, as well as CEOs will all benefit from this conference. Click here to view the full agenda and to register.

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Contact Natalie Likness, SDBA, at 605.224.1653 or via email.