Also, I read your opinion in American Banker this week and it was well done, as usual. You made me think a lot on the issue of CBDC and scared me a little. I highly recommend others to read the piece. And if you're not an American Banker subscriber let me know and I'll be glad to email it to you.
John
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John Tyson
CFO;Chief Financial Officer
Altamaha Bank & Trust Company
Vidalia, GA
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Original Message:
Sent: 06-09-2022 17:10
From: Rob Blackwell
Subject: Weekly News Roundup
Beachgoers are swimming at their own risk this summer due to a shortage of lifeguards, an armed man was arrested for the attempted murder of Supreme Court Justice Brett Kavanaugh near Kavanaugh's home, and Wired magazine ran an incredible story about how a U.S. saxophonist encrypted secrets in music to steal information from the USSR. Here's what else you might want to read this week.
"Banks and Tech Giants Are Losing Skilled Staff to Flexible Fintechs"
I've had the opportunity to host a couple panels with bank CEOs recently, and if there's one thing everyone is united on, it's staffing issues. They remain a big challenge for just about every bank, big and small. This story by Yahoo Finance keys in on that, noting that employee departures from traditional banks to fintechs are up 75% since the start of the pandemic.
It's reflective of a broader trend of bankers, engineers, data scientists, and sales professionals leaving Wall Street and Big Tech for more flexible work arrangements and better career prospects in what has become one of the most competitive job markets in recent history. However, the pace of movement has slowed recently amid a darkening economic outlook.
"We're literally hiring people out of Facebook and Amazon, really high-tech engineers, and they don't naturally gravitate toward banks with coding systems from the 1980s," said Christian Faes, co-founder of the fintech LendInvest.
To prevent the departures of key executives, many banks are upping retention rewards for the top brass, though such rewards should slow during 2022, especially if share prices continue to slide. On a related note, see which bank CEOs received the biggest pay increases on a percentage basis last year.
"Bankers Should Dread the Idea of a CBDC"
Most bankers aren't particularly concerned with the notion of a central bank digital currency (CBDC). They should be. In an op-ed for American Banker, I explain why the creation of a CBDC would drain funding from community banks, restrict the availability of credit, and lead to even more industry consolidation.
If you think that makes it sound like the Fed won't move forward, think again. Vice Chair of the Board of Governors Lael Brainard and other supporters of a CBDC contend that without a digital currency, the U.S. dollar will relinquish its status as the world's reserve currency - an argument all lawmakers can get behind, regardless of party affiliation. And given the history of crises leading to the passage of bills the financial services industry once dismissed as having no chance of becoming law, the chances of the U.S. adopting a digital dollar are higher than you might think.
"Fed Pick Michael Barr Approved by Senate Panel, Overcoming Key Confirmation Hurdle"
Speaking of the Fed, Michael Barr, President Biden's pick for vice chair of supervision, took an important step toward confirmation after winning bipartisan approval from the Senate Banking Committee. For his part, Barr has remained neutral on the CBDC debate, simply stating when asked to weigh in that any plan should have approval of the administration and Congress. Importantly for Barr, he has the support of Sen. Patrick Toomey, the top Republican on the Senate Banking Committee, so his confirmation appears certain.
"Kansas City Fed Rescinds Master Account for Payments Firm, GOP Senator Says"
Something very weird is happening with Reserve Trust, the fintech that was at the center of Republican opposition to the nomination of Sarah Bloom Raskin to serve as Fed vice chair for banking supervision. If you recall, GOP senators raised questions about how and why a trust company-turned-fintech was approved for a Fed master account when so many other nonbanks are not. Raskin, who was on the company's board, allegedly made a call to the Kansas City Fed on behalf of the firm, though it was never clear if this had any impact on the decision. Raskin eventually withdrew her nomination after Sen. Joe Manchin, D-W.V., said he could not support her due to her views on climate change.
Fast forward to now, however, and Reserve Trust is back in the news because its master account appears to have been withdrawn by the Fed. Its website, which a couple months ago touted its master account status, is now just a bare bones placeholder with an address and phone number. Reporters who call the firm don't get any response, and Bloomberg sent someone to knock on their doors several times during work hours and never received an answer.
Sen. Toomey sent a letter to the Kansas City Fed asking for more details here, including why a master account was granted in the first place and what caused it to be rescinded.
"Sens. Gillibrand, Lummis Introduce Major Cryptocurrency Bill"
From the way the media covered this bill, you would think it's on the fast track to passage. That is definitely not the case. Though Sens. Kirsten Gillibrand, D-N.Y., and Cynthia Lummis, R-Wis., did managed to introduce a broad, bipartisan bill, it has several issues. Let's start with the fact, that as one reporter put it on Twitter, "I have never, ever seen an industry react so jubilantly to the prospect of regulation via legislation like the crypto sector is today. It is surreal."
That's a big red flag for other lawmakers. Try to imagine a world in which a "bank regulation" bill is enthusiastically supported by JPMorgan Chase, Wells Fargo and Citigroup and you'll get a sense of why. If the people you are trying to regulate love the bill, then it probably means it isn't tough enough.
There are other issues too. The bill would classify digital assets as commodities, giving the Commodity Futures Trading Commission authority to regulate most of the industry. That, in turn, would give Congressional oversight of the crypto sector to the Agriculture committees, not the Senate Banking or House Financial Services committees. I find it hard to believe the leaders of either panel, Democrat or Republican, would be keen on that.
So don't be fooled by the swooning coverage given to the bill. It has the virtue of being bipartisan and first, and it may well be a starting point for debate, but there are a lot of traps to run and key players have not yet weighed in.
If you want to read more about what the bill actually does, Gillibrand and Lummis also published a press release with a link to the bill and a section by section overview.
"Bank Economists Advise Caution but Don't Expect a Recession"
The ABA's economic advisory committee, which is composed of 13 economists from some of the largest banks in North America, expects the U.S. economy to crawl along through 2024 but not officially recede. However, that outlook could change if rates move too high too fast, inflation and supply chain pressures persist, or there's a downturn in the housing market.
Lately, there have been signs that all three outcomes are probable, if not likely. Citi's chief economist stated earlier this week that any notions of near-term improvements in the supply chain "have been shattered," mortgage activity hit a 22-year low the week before, and with Treasury Secretary Janet Yellen telling senators on Tuesday that she expects inflation to remain high, rates don't seem to be going anywhere but up. For what it's worth, Richard DeKaser, committee chair and chief corporate economist at Wells Fargo, noted that the ABA forecast was "optimistic." Certainly more so than Jamie Dimon's "hurricane" take last week.
The global picture looks even worse. On Tuesday, the World Bank warned that elevated prices and low growth could persist for years, threatening numerous countries still struggling to recover from the pandemic. "The risk from stagflation is considerable with potentially destabilizing consequences for low- and middle-income economies," said David Malpass, president of the World Bank Group. "There's a severe risk of malnutrition and of deepening hunger and even of famine in some areas." As a result, the bank slashed its forecast for global growth in 2022 to 2.9%, down from 4.1% in January.
"Progressives Seek Guidance-First Approach to Climate Risk"
Progressive groups are pushing bank regulators to tackle climate risks in the financial system through guidance, which can be implemented relatively quickly and easily, as opposed to rulemakings and enforcement actions, which can take years to put into place. However, some analysts contend that a guidance-based approach won't yield the long-term effects the groups seek.
"The Effect of Nonbanks in the Mortgage Space"
Nonbanks have made significant inroads into the mortgage market. To fend them off, community banks should focus on customer service, technology, and other strategies, such as niche banking and referrals from realtors and builders.
"Will Regulators' Warnings Chill Lenders' Use of AI?"
The CFPB recently stated that lenders that rely on artificial intelligence will need to explain how their models work and why they deny certain applicants. While fair-lending rules have been around for decades, repeated warnings from the CFPB and other agencies suggest that scrutiny will intensify in the near future. Online lenders contend that decisions can be hard to explain when they're informed by algorithms that assess creditworthiness by evaluating thousands of different variables.
"Does Your Bank Struggle With Analysis Paralysis?"
An abundance of data that doesn't yield insights is like a nifty pair of binoculars with unremovable lens caps. Review ways to avoid succumbing to "analysis paralysis."
"8 Ways Cloud Banking Can Boost Efficiency"
Potential cost benefits include those related to IT resources, labor, and faster times to market.
"3 Reasons to Add SBA Lending"
Ninety-nine percent of businesses in the United States are small, and many of the newest companies in the country are concentrated in a handful of industries. Review why they represent a tremendous opportunity for banks that offer SBA loans.
Additionally, review these tips on how to capitalize on banking-as-a service opportunities for small and midsize enterprises.
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Rob Blackwell
Chief Content Officer and Head of External Affairs
IntraFi Network
Arlington, VA
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