This year’s American Bankers Association (ABA) conference was well-represented by banks across the nation that ranged in size from small family-owned community banks to large public institutions. The conference focused mainly on: (1) the November elections and the ABA’s efforts to influence candidates and current congressional members on pending legislation, (2) the unpredictability of the economy, and (3) education for banks on the emerging digital asset market and related tools to provide customers the opportunity to integrate their external digital asset relationship with their current institution.
The mid-term election cycle heating up gave ABA political strategists the opportunity to discuss pending and proposed legislation affecting banks. Several pieces of legislation are threatening to banks, including the “Durbin 2.0 Act” – a retailer-favored effort to remove the transactional fees associated with credit card transactions and thus remove credit card rewards for consumers. The original Durbin Amendment, passed in 2010 as part of the Dodd-Frank Act, began limiting the transaction fees charged to consumers using a debit card to an amount “reasonable and proportional” to the cost of the purchase.
Environmental, social and governmental (ESG) reporting requirements and limitations are also the subject of much pending legislation. Current bills circulating go as far as limiting the Securities and Exchange Commission (SEC) from any ESG oversight or enforcement on one extreme, to attempts to make ESG government policy decisions through industry lending relationship restrictions on the other. The ABA is working on influencing legislators to ensure that banks maintain autonomy in their lending decisions and to keep compliance costs related to ESG reporting to a manageable level. They fear that even application of fair or forced lending access restrictions to the largest banks in the U.S. will trickle to the smallest institutions eventually by way of “best practice” regulator creep.
Economic indicators and multiple Federal Reserve interest rate hikes, unheard of since the 1980s, are causing uncertainty in the lending and investment markets. Economists attending – including Comerica Bank’s Chief Economist Bill Adams – predict a slowing or halt to the interest rate increases in early to mid-2023. They discussed the Fed’s ability to “turn on a dime” if certain economic indicators turn negative, like if the unemployment rate increases. However, economic indicators are normally lagging, and the economy does not respond at the same pace as a Fed decision – creating an unpredictable future for banks.
While institutions remain well-capitalized and credit appears strong, the industry saw a decline in deposits in the second quarter of 2022. Half of community banks reported average asset terms of three years or more. Eventually the interest rate increases will broadly affect the commercial and consumer markets, although the increases are not expected to immediately impact the residential lending market, since rates have been at historic lows for an unprecedented period. Other downside risks discussed included nonfinancial corporate borrowing and housing affordability, which could limit consumer spending.
Numerous conference sessions were designed to educate bank leaders on blockchain, encryption, digital assets – including crypto currency – and custodial market opportunities. Attendees were informed about the potential for a federal government digital asset – a Central Bank Digital Currency (CBDC). Vendors with platforms that tie to a bank’s main customer reporting systems and dashboards to allow customers to either view and get funds back and forth to an existing trading platform were prevalent at the conference. Banks spent time discussing the risks of either adopting or avoiding these new platforms including customer satisfaction, deposit run-off and regulatory risk.
On September 30, the ABA submitted public comment to the Basel Committee on Banking Supervision concerning prudent treatment of banks’ digital asset exposure. They listed three key principles that should guide supervisory and regulatory approaches to digital assets: (1) the need to develop a broad understanding of key features in many digital assets, (2) a willingness by regulatory and supervisory authorities to permit prudent innovation, and (3) the benefits of conducting a significant share of the digital asset market through supervised financial institutions.
During the conference, FDIC Acting Chairman Martin Gruenberg spoke on the effects that more and more expansive storm damage will have on the credit market, banks, and lenders. The risks include a smaller insurance reimbursement market and potentially more loan default. He asked banks to consider climate-related financial risk policies – especially those banks with concentrated geographical risk. He did not expect the Fed’s direction to affect bank capital.
Several financial institutions have joined the ABA’s effort to stop bank scams and phishing. The main focus of the ABA platform – banksneveraskthat.com – is to educate people on how to avoid losing money to scammers imitating banks. The website covers important information about scam safety and phishing and includes several videos – and even a game – providing helpful tips and information.
Daniel D. Robb, President and CEO of Jonesburg State Bank in Jonesburg, Missouri was introduced as the new Chair of the ABA. The ABA’s choice of a new leader from a small family-owned financial institution (less than $250M in assets ) shows the ABA’s re-focus on the community aspects of local banking. Other officer appointments included Chair-Elect Julieann M. Thurlow of Reading Cooperative Bank (Reading, MA), Vice Chair John C. Asbury, CEO Atlantic Union Bancshares Corp. (Richmond, VA), and Treasurer Carissa Rodeheaver, Chairman President and CEO of First United Bank & Trust (Oakland, MD).