Ahead of a House Ways and Means subcommittee hearing today on shrinking the tax gap, ABA and 10 other financial trade associations cautioned lawmakers about creating new reporting requirements for banks that would “impose cost and complexity that are not justified by the potential, and highly uncertain, benefits.” Such a proposal was included in President Biden’s American Families Plan, which called for financial institutions to report information on account flows, including earnings from investments and business activity.

The groups noted that while only limited details were provided in the recently released “Green Book,” which contains information on the tax changes that the Biden administration is proposing to help fund the budget for the coming fiscal year, “the limited additional information . . . suggests that this new regime could be exceptionally expansive and comprehensive, covering the accounts of most Americans, rather than only the ‘wealthiest,’ as described in the American Families Plan.”

The Internal Revenue Service on Monday urged all individuals and families who have not yet filed their 2019 or 2020 tax returns to do so as soon as possible so that those who are eligible may begin receiving the expanded Child Tax Credit payments, which were authorized by the American Rescue Plan and which will begin to be distributed on July 15. The IRS is in the process of sending letters to more than 36 million American families who may be eligible, based on tax information on record.

Eligible families will begin receiving advance payments either by direct deposit or check. Under the expanded tax credit, payments may be up to $300 per month for each qualifying child under age six and up to $250 per month for each qualifying child between the ages of six and 17. The IRS noted that “most families do not need to take any action to get their payment,” and that payments will be calculated based on the 2020 tax return, if available. If the 2020 return is not available, the IRS will determine the payment amount using the 2019 return.

The SDBA will host the 2021 Quad States Convention on Monday and Tuesday, June 14-15, in Rapid City at The Monument. This year's convention will celebrate all that we have accomplished this past year as we reimagine, reinvent and revolutionize in a new direction. The event includes bankers from South Dakota, North Dakota, Montana and Wyoming and their business partners. 

Due to hosting the convention, the SDBA Office will be closed Monday through Wednesday, June 14-16, and will reopen on Thursday, June 17. 

As the OCC reviews recent interpretive letters on digital assets and trust charters, “everything’s on the table,” current Acting Comptroller Michael Hsu told reporters during a press briefing yesterday—including reviewing provisional approvals already granted under prior acting agency leadership.

“Charters that were in the pipeline as well as those that were conditionally approved” are “in the scope of the review,” Hsu said. For example, cryptocurrency firms Anchorage, Paxos and Protego have received conditional approvals for national trust charters to custody digital assets.

Sen. Brian Schatz (D-Hawaii) and Rep. Sean Casten (D-Ill.) introduced legislation last Thursday that would direct the Federal Reserve to subject large banks to stress tests to measure their resilience to climate-related financial risks. Schatz previously introduced the bill in the last Congress.

Among other things, the bill would direct the Fed to establish and work with an advisory group of climate scientists and economists to develop climate change scenarios, including a 1.5 degree Celsius warming scenario, a 2 degree warming scenario, and a “business as usual” scenario, which assumes a higher level of warming if there are no climate policies in place.

The Treasury Department last Friday released its “Green Book,” which contains details on the tax changes that the Biden administration is proposing to help fund the budget for the coming fiscal year. High-level descriptions of most of the tax proposals have been included in the Biden administration’s previously released legislative agendas. The Green Book provides explanations of the proposals and suggested legislative and technical changes required should they be adopted.

The 114-page document includes increases in the corporate tax rate to 28% and an increase in the individual tax rate to 39.6%, effective starting after the 2021 tax year. It also includes a book earnings minimum tax, significant changes to international taxation rules and elimination of the capital gains rate preference and step-up in basis at death (excluding $1 million in gains).

Members of the Federal Reserve’s Community Depository Institutions Advisory Council—which includes several ABA member bank CEOs—raised concerns about the growing number of nonbank competitors seeking to offer banking products and services while circumventing the traditional regulatory structure, according to minutes released last Friday by the Fed.

“Regulations exist for a reason; they protect consumers and other financial institutions that provide services and conduct transactions as counterparties,” council members noted. “When one segment of the industry is allowed to operate under fewer rules that provide economic gain to that segment at the cost of greater counter-party and systemic risk, the overall financial ecosystem is placed at greater risk.”

An estimated 124.2 million households were considered “banked” in 2019, with at least one member having a checking or savings account, according to FDIC figures that were highlighted in a new report from the ABA on Tuesday on access to the banking system. Banking services are widely available to Americans, the report found, with the average person living within commuting distance of 25 branch locations.

Recent research suggests that consumers are increasingly turning toward mobile channels to access financial services. Prior to the pandemic, 34% of American households used mobile channels as their primary channel to access their bank accounts. COVID-19 caused a further uptick in preference for mobile banking options: 97% of banks reported an acceleration in mobile adoption among their customers as a result.

President Biden last week signed an executive order on climate-related financial risk that, among other things, directs financial regulators to take several steps to ensure the appropriate measurement and mitigation of these risks. The order directs the treasury secretary to work with the members of the Financial Stability Oversight Council to consider “assessing, in a detailed and comprehensive manner, the climate-related financial risk, including both physical and transition risks, to the financial stability of the federal government and the stability of the U.S. financial system,” as well as facilitating the sharing of climate-related risk information between FSOC member agencies and other areas of the federal government as needed.

In addition, Treasury must issue a report within 180 days on current efforts by the financial regulatory agencies to incorporate climate-related financial risk into their policies and programs. That report should include recommendations on how “identified climate-related financial risks can be mitigated, including through new or revised regulatory standards as appropriate,” according to the order. This action by the Biden administration comes after officials from the Federal Reserve, OCC, FDIC and SEC in recent weeks have all indicated that they are focusing efforts on climate-related financial risks.

Testifying before the House Financial Services Committee yesterday, Acting Comptroller of the Currency Michael Hsu said that the OCC needs to determine how to charter fintech firms in a “safe and sound way, where we can adapt to the innovation.”

“Some are concerned that providing charters to fintechs will convey the benefits of banking without its responsibilities,” Hsu said. “Others are concerned that refusing to charter fintechs will encourage growth of another shadow banking system outside the reach of regulators. I share both of these concerns. We must find a way to consider how fintechs and payment platforms fit into the banking system, and we must do it in coordination with the FDIC, Federal Reserve and the states.”

With a request for information posted in the Federal Register on Monday, the FDIC is looking for feedback on insured depository institutions’ current and potential digital asset activities.

According to the agency, there are “novel and unique considerations” related to digital assets—often called digital currency or cryptocurrency—and “given that banks are increasingly exploring the emerging digital asset ecosystem,” information gathered will help inform FDIC’s understanding of industry and consumer interests.

The OCC on Tuesday said it will formally “reconsider” the agency’s June 2020 final rule revising the agency’s Community Reinvestment Act rules and that banks subject to the rule may pause efforts to comply with it. “While this reconsideration is ongoing, the OCC will not object to the suspension of the development of systems for, or other implementation of, provisions with a compliance date of Jan. 1, 2023, or Jan. 1, 2024, under the 2020 CRA rule,” the agency said.

ABA President and CEO Rob Nichols welcomed the news. “By reconsidering its CRA Rule, the OCC provides an opportunity for the regulatory agencies to pursue a joint rulemaking in this area,” he said. “We still believe there is a compelling need to modernize CRA rules so they reflect the modern banking system and meet the needs of communities. Today's action by the OCC can help us get there.”

Amid substantial growth in online purchases in recent years, the Federal Reserve last Friday reopened its rule on the Durbin Amendment. Specifically, the Fed issued a proposal that would amend Regulation II, which implements Durbin, to apply the requirement that debit card transactions be able to be processed on at least two unaffiliated payment card networks—for example, a PIN debit and a signature debit network—to card-not-present transactions, which have grown from 10% of debit purchases in 2009 to 23% in 2019.

When the Fed first issued Reg II, “the market had not developed solutions to broadly support multiple networks over which merchants could choose to route [CNP] transactions,” the Fed said, noting that technology has since evolved to address these issues. “Despite these developments, and in contrast to the routing choice that currently exists for card-present transactions, merchants are often not able to choose from at least two unaffiliated networks when routing card-not-present transactions, according to data collected by the Board and information from industry participants,” the Fed said.

If you haven’t yet registered to attend the 2021 Quad States Convention on June 14-15 in Rapid City, S.D., the early bird deadline to register is Friday, May 14.

The South Dakota Bankers Association invites you to celebrate all that we have accomplished this past year as we REIMAGINE, REINVENT and REVOLUTIONIZE in A NEW DIRECTION at the 2021 Quad States Convention. This year’s event will include bankers and business partners from South Dakota, North Dakota, Montana and Wyoming.

Chuck Hegerfeld, BankStar Financial, Elkton, has been appointed to the United Bankers’ Bancorporation, Inc. (UBBI) and United Bankers’ Bank (UBB) Boards of Directors.

Hegerfeld has been president and CEO of BankStar Financial since 1998. He brings more than 30 years of bank management experience and is a graduate of South Dakota State University and the Graduate School of Banking at Colorado. Hegerfeld is a member of the South Dakota Bankers Insurance & Services (SDBIS) Inc. Board of Directors, an officer and director at Elkton Development Corporation, and is involved in various local community and nonprofit organizations.

The South Dakota Bankers Association (SDBA), the professional and trade association for South Dakota’s financial services industry, recently held elections for three of the 10 seats on its Board of Directors. Elected to serve on the SDBA Board of Directors were:

• Nathan Franzen, President of Ag Banking, First Dakota National Bank, Yankton
• Keith Knuppe, Senior Vice President-Loan Officer, BankNorth, Warner
• Pennie Lutz, President/CEO, Richland State Bank, Bruce

This is Franzen, Knuppe and Lutz’s first term on the SDBA Board of Directors. They started their three-year terms on May 1, 2021.

John McGrath, First PREMIER Bank, Sioux Falls, has been appointed to the Board of Directors for the South Dakota Bankers Association (SDBA), the professional and trade association for South Dakota’s financial services industry. SDBA Chair Steve Bumann, BankWest, Pierre, appointed McGrath to fill a vacant seat on the SDBA Board of Directors through April 30, 2022.

McGrath is SVP – chief credit officer at First PREMIER Bank. He has a commercial economics degree from South Dakota State University and has worked in the banking industry for 43 years. McGrath started his career in 1978 with First National Bank of the Black Hills (now Wells Fargo) in Rapid City and the following year joined Miners & Merchants Bank in Lead. In 1984, McGrath moved to Norwest (Wells Fargo) and worked in Deadwood, Sioux Falls and Rapid City before joining First PREMIER Bank in Sioux Falls in 1994.

The ABA Foundation will host a free webinar on Wednesday, May, 12 at noon CDT examining new research from the FINRA Foundation and AARP Fraud Watch Network on the drivers of chronic fraud victimization. The virtual panel will also feature a banker expert from Citi, who will discuss strategies to protect elders and other vulnerable customers from fraud. Register for the webinar.

The Small Business Administration informed trade associations on Tuesday that Paycheck Protection Program funding has been exhausted and that the PPP application portal stopped accepting applications for loans from most lenders.

SBA said that it has reserved approximately $6 billion in funding for previously submitted loan applications subject to hold codes that have yet to be resolved. There is also approximately $8 billion remaining in congressionally mandated funding for PPP loans made by designated “community financial institutions,” defined for bankers’ purposes as minority depository institutions and community development financial institutions.

In a significant move yesterday, the Federal Reserve proposed new guidelines that it will use when evaluating requests for master accounts with the Fed or access to the agency’s financial services. The proposal comes amid growing requests from fintech firms and other providers to gain access to the payments system. Comments on the proposal are due 60 days after publication in the Federal Register.

Under the proposed guidelines, the Fed will consider: