Banking

Partly because of economic volatility, longer-term brokered CDs have become more competitive in the past few years. In recent regulatory proposals, the competitive environment could get significantly more challenging. Traditional banks should be aware of the regulatory conversations and prepared to take their customers through the process of considering and pursuing these investment vehicles.

At the turn of 2017, the U.S. environment was best described as unsettled and uncertain. With the unexpected election results, President Trump entered Washington with a stance that “excessive rulemaking strangles economic growth” and a promise of change from the political norm.[1] Change is difficult. Many of the plans have been executed more slowly or differently than expected, sustaining the underlying climate of uncertainty. As we approach the close of the year, however, the pace of change seems to be picking up.

Banks had a recent win in Washington. Behind closed doors, President Trump signed a Congressional bill to overturn the Consumer Financial Protection Bureau (CFPB) rule banning mandatory arbitration clauses.[1] As initially written, the CFPB rule would have opened banks and credit unions up to a flood of litigation. The new bill is a sign of support from Washington as banks face looming regulatory changes.

“Regulation is killing community banks.” Treasury Secretary Stephen Mnuchin

In March, regulators announced that they would launch an effort to ease capital rules for smaller institutions. In June, a Treasury report recognized, “community financial institutions’ business models have come under pressure from added compliance costs from new regulations.” It urged regulators to “explore exempting community banks from the risk-based capital regime implementing the Basel III standards.” In the most recent step, which happened on August 22, U.S. bank regulatory agencies put forth a proposal to delay the implementation period for stricter capital rules for smaller banks while they review ways to simplify requirements.

After attending the Public Company Accounting Oversight Board’s (PCAOB) Forum on Auditing in the Small Business Environment, our HORNE Financial Institutions team was reminded of future certainties that require immediate preparations. Regulations are becoming more complex. Regulators are requiring more diligence from publicly traded companies and banks—as well as from their auditors. 

On Monday, May 1^st, President Trump spoke to representatives from the Independent Community Bankers of America (ICBA), committing to cut the ‘red tape’ imposed by the 2010 Dodd-Frank financial regulatory law. His repeal promises were met with a great deal of excitement from the community bankers present, in part because of the reminder that the number of federally insured small banks dropped from 7,357 in 2011 to 5,980 in 2016—at least in part because of the regulation.[1] ICBA representatives including CEO Cam Fine reiterated the general tone, saying that community banks face a “pressing need for regulatory relief.”[2]

As promised, the Federal Reserve’s monetary policy committee raised interest rates by a quarter of a percentage point at its March 15 meeting. Chair Janet Yellen had suggested the hike would be appropriate if economic markers—in particularly GDP rates, jobs, and consumer spending—improved over a slight slump from at the start of 2017 determined to be mostly ‘transitory.’

Saturday (April 29) marks the 100^th day of the Trump Presidency. The benchmark has historically been used to review promises made and kept, as well as where progress has occurred and where it is yet to happen. For community banks and the small businesses and individuals they support, four markers are of particular importance—small business lending, mortgage rates, interest rate risk, and regulations. Let’s look at all four to get a sense of where the country is, and where we may be headed in the second half of 2017.

While the on-paper goal for banks working toward their implementation deadline for the new Current Expected Credit Loss (CECL) impairment standard is compliance, the long game opportunity is much greater. Every decision in the process hinges on data.

“As an agency designed to serve the American people, it is imperative to constantly look back on the SEC’s rules and engage the public on ways to improve. Today, we are asking for public comment on whether Industry Guide 3 continues to elicit the information that investors need for informed investment and voting decisions.”

- SEC Acting Chairman Michael Piwowar

On March 1, 2017, the SEC voted to publish a request for public comment on disclosures mandated by Industry Guide 3—Statistical Disclosure by Bank Holding Companies. The agency is seeking input from investors, registrants and others on ways to improve disclosures for bank holding companies, inquiring whether Guide 3 remains capable of gathering the information needed for investors to make informed funding and voting decisions. Additionally, the SEC is examining what new types of disclosures about bank holding company activities might be necessary.

In the previous post about preparing for your CECL compliance deadline, we looked at the steps needed to analyze the credit risks within your loan portfolio, and clarify the credit quality indicators (CQIs) impacting those risks. These first two steps of this complex, lengthy lead up to your early or required implementation date should have provided you with a solid understanding of the composition of your loan portfolio.

On December 14, 2016, the Federal Reserve boosted its benchmark interest rate by 25 basis points to a range of 0.5 percent to 0.75 percent. While this is still incredibly low by historical standards, it is notable because it’s only the second time since the financial crisis of 2008 that the Fed has raised this rate.

The move continues to support economic growth and sustains a friendly environment for borrowing and risk-taking. It also recognizes that the U.S. is enjoying strong employment and price stability, and healthy inflation, as well as positioning the economy to ride the expected acceleration that will occur as a result of the new Trump administration.

FASB issued the Accounting Standards Update (ASU) No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting in March 2016. The new update takes effect for public business entities for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For private entities, the amendments take effect for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption will be permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption.