Tag Archive for: FDIC

Posts

, ,

Executive Letter: FDIC Regulatory Updates: Key Changes Affecting Banks + Updates on Nominations

From the Desk of Rose Oswald PoelsBy Rose Oswald Poels

Early last week, the FDIC announced several significant regulatory actions. Below is a summary of the most relevant developments:

Rescission of 2024 Bank Merger Policy Statement

The FDIC has proposed rescinding the 2024 Statement of Policy on Bank Merger Transactions, citing concerns over added uncertainty in the application process. This action reinstates the prior policy while the FDIC conducts a broader review of its merger framework.

Withdrawal of Proposed Rules

The FDIC has withdrawn proposed rules related to:
•  Brokered Deposits – The proposal would have significantly altered the regulatory framework for brokered deposits.
•  Corporate Governance – This proposed rule aimed to impose stricter governance requirements for banks with $10 billion or more in assets.
•  Change in Bank Control Act (CBCA) – The proposal sought to modify filing requirements for acquisitions of voting securities.
•  Additionally, the FDIC has rescinded its authority to publish a proposed rule on incentive-based compensation arrangements, which had not yet been adopted by all required regulatory agencies.

Extension of Compliance Date for Sign and Advertising Rule Changes

The FDIC has postponed the mandatory compliance date for certain provisions of its Sign and Advertising Rule from May 1, 2025, to March 1, 2026. This extension applies to digital display requirements and signage at ATMs, allowing the FDIC to refine the regulation based on industry feedback. Other provisions of the rule remain on track for May 1, 2025, compliance.

What This Means for Your Bank

These regulatory shifts indicate the FDIC’s current willingness to reconsider policies that may impose undue burdens or create uncertainty.

WBA is pleased to see the Trump Administration moving forward with an agenda that rolls back excessive regulation, and we will continue to advocate for that with all federal banking agencies. Moreover, we will advocate for additional relief when we are out in Washington, D.C. with bankers this spring at both the WBA/ABA Washington Summit and the WBA/ICBA Capital Summit.

Agency Nominations Status

In case you’ve been wondering where nominations stand at federal agencies that impact the banking industry, here is an overview:
•  Travis Hill appointed as Acting Chairperson of the Board of Directors of Federal Deposit Insurance Corporation (for an overview of Hill’s statement outlining the current focus of FDIC, refer to my Feb. 18 Executive Letter)
•  Andrew Ferguson confirmed as Chair of Federal Trade Commission
•  Mark Uyeda serving as Acting Chair of Securities and Exchange Commission and Paul Atkins nominated as Chair
•  Jeffrey Hall confirmed as Chair of Farm Credit Administration Board, Farm Credit Administration
•  Scott Bessent confirmed as Secretary of Treasury
•  Brooke Rollins confirmed as Secretary of Agriculture
•  Kelly Loeffler confirmed as Administrator of Small Business Administration
•  Scott Turner confirmed as Secretary of Housing and Urban Development
•  Christopher Wright confirmed as Secretary of Energy
•  Russell Vought confirmed as Director of OMB

On March 6, the Senate Banking Committee voted to advance to the Senate the nominations of Jonathan McKernan to be director of the Consumer Financial Protection Bureau and Bill Pulte to be director of the Federal Housing Finance Agency.

The committee also voted to advance the nominations of Stephen Miran to be chairman of the Council of Economic Advisors and Jeffery Kessler to be undersecretary of commerce for industry and security.

Please let me know if you have any questions or concerns as you closely review these updates. WBA will continue its diligence in advocating for regulatory and legislative frameworks that support the strength and stability of our member banks.

/by

Wisconsin Banks Ended 2024 in a Healthy Position According to Latest FDIC Data

Numbers released today by the Federal Deposit Insurance Corporation (FDIC) showed Wisconsin banks rounding out 2024 in a strong position. Residential real estate lending increased over the prior year (15.46%), farm lending held steady (1.83%), and commercial lending increased (3.69%). Deposits increased year over year (5.06%). The Q4 2024 net interest margin of 3.22% is a slight increase over the prior quarter (3.18%) and prior year (3.20%). Wisconsin banks remain well capitalized. 

Notable indicators include: 

  • Residential real estate loans increased substantially quarter over quarter (17.15%) and slightly year over year (15.46%). Inventory continues to be very limited, and homeowners who refinanced at low interest rates during the pandemic have little incentive to move. Buyers have become accustomed to the current interest rate environment and higher home prices. Use of home equity lines of credit are reflected in the increase. 
  • Commercial lending held steady quarter over quarter (0.55%) and grew moderately year over year (3.69%) as Wisconsin banks continued to meet customer needs. 
  • Farm loans decreased significantly quarter over quarter (-20.66%) and held steady year over year (1.83%) as farmers struggled with commodity prices, weather, and tight operational costs. 
  • Assets in nonaccrual status decreased slightly quarter over quarter (-2.17%) and remained elevated year over year (14.81%) as inflation and the high cost of living impact borrowers. While banks continue to monitor credit quality, the current level of past-due loans remains above recessionary levels. 

Statement on the release of fourth-quarter 2024 Federal Deposit Insurance Corporation (FDIC) numbers from Rose Oswald Poels, president and CEO of the Wisconsin Bankers Association:  

“The fourth-quarter FDIC numbers show the year 2024 ended on a solid note with Wisconsin’s banks in a strong position. Residential real estate loans increased as the state’s housing market saw activity in the last two months of the year despite low inventory. Commercial lending also saw an increase while farm loan demand held steady as farmers work through commodity prices, weather challenges, and high operational costs. Wisconsin’s banks continue to meet the lending and deposit needs of their communities.” 

FDIC-Reported Wisconsin Numbers (Dollar Figures in Thousands)

   12/31/2024 9/30/2024 QoQ Change 12/31/2023 YoY Change
Net loans and leases  $114,571,863 $114,405,149 0.15% $109,762,497 4.38%
Total deposits  $128,607,041 $125,335,066 2.61% $122,411,348 5.06%
Commercial and industrial loans $18,497,687 $18,396,211 0.55% $17,839,610 3.69%
Residential real estate loans  $39,070,601 $33,352,253 17.15% $33,839,049 15.46%
Farm loans  $4,104,912 $5,173,857 -20.66% $4,031,270 1.83%
Total assets  $159,392,728 $158,237,843 0.73% $152,451,601 4.55%
Assets in nonaccrual status $580,044 $592,938 -2.17% $505,240 14.81%
/by

Executive Letter: New Agency Leadership Affords Opportunities for Renewed Dialog

From the Desk of Rose Oswald PoelsBy Rose Oswald Poels

As mentioned in last week’s Executive Letter, many changes are currently underway in Washington, D.C., including changes in key leadership positions within the prudential federal banking supervisory agencies. One such notable change is with the appointment of Travis Hill as Acting Chairperson of the FDIC. I have had the great fortune to discuss the concerns of Wisconsin’s community bankers directly with Acting FDIC Chairperson Hill on past visits to D.C., including that of the need for right-sized regulations and for agencies to act within their scope of authority.

Upon his appointment, Acting FDIC Chairperson Hill issued a statement which outlined matters of focus for FDIC in the near future, including:

•  Conduct a wholesale review of regulations, guidance, and manuals to ensure FDIC rules and approach promote a vibrant, growing economy;
•  Adopt a more open-minded approach to innovation and technology adoption, including (1) a more transparent approach to fintech partnerships and to digital assets and tokenization, and (2) engagement to address growing technology costs for community banks;
•  Improve the bank merger approval process and replace the 2024 Statement of Policy to ensure that merger transactions that satisfy the Bank Merger Act are approved in a timely way;
•  Withdraw problematic proposals from the past three years, such as proposals on brokered deposits and corporate governance;
•  Improve the supervisory process to focus more on core financial risks and less on process, and to reevaluate the supervisory appeals process;
•  Enhance FDIC’s readiness and preparedness for resolving large financial institutions, including the need to be more proactive and nimble, and to improve the bidding process;
•  Pursue adjustments to FDIC’s capital and liquidity rules to appropriately balance driving economic growth with ensuring safety and soundness and resilience to shocks;
•  Encourage more de novo activity so there is a healthy pipeline of new entrants in the banking sector;
•  Work to ensure law-abiding customers have, and do not lose, access to bank accounts and banking services;
•  Modernize implementation of the Bank Secrecy Act;
•  Study deposit behavior to develop a more sophisticated understanding of the relative stability of different types of deposits and depositors;
•  Reevaluate FDIC disclosure practices, and expand transparency in areas that do not impact safety and soundness or financial stability;
•  Ensure the FDIC remains within its statutory mandates;
•  Pursue internal efficiencies to ensure FDIC is serving as responsible stewards of the Deposit Insurance Fund; and
•  Reestablish a strong workforce culture, where misconduct is not tolerated and those who engage in misconduct are held accountable.

I am encouraged by this statement as many of the topics listed are concerns previously shared by Wisconsin bankers and me with FDIC, and Acting Chairperson Hill directly.

I am also encouraged by the nomination of Jonathan McKernan to serve as the next CFPB Director. Similar to previous interactions with Acting FDIC Chairperson Hill, past WBA-led banker meetings with McKernan have been engaging and impactful whereby Wisconsin community bankers were able to share concerns over the impact of Basel III, duplicative regulatory burdens, and of the revised CRA rule. While the industry continues to monitor actions impacting CFPB, the nomination of McKernan as the agency’s Director does afford a continued dialog with someone familiar with concerns held by heavily regulated community banks.

WBA continues to monitor events occurring in Washington, D.C. and will continue our longstanding regulatory advocacy efforts with the new agencies’ leadership. Acting FDIC Chairperson Hill and McKernan as CFPB Director will afford WBA the opportunity to renew past dialog with these key leaders.

/by

Latest FDIC Data Highlights Strong Performance of Wisconsin Banks

On December 12, 2024, the Federal Deposit Insurance Corporation (FDIC) released numbers showing Wisconsin banks continued to be in a healthy position through the third quarter of 2024. While residential real estate lending dipped slightly over the prior year (-2.34%), farm lending held steady (-0.29%) and commercial lending increased (2.50%). Deposits increased year over year (3.53%), due in part to the high interest rates offered on certificates of deposit (CDs) and money market accounts. The Q3 2024 net interest margin of 3.18% is a slight decrease over the prior year (3.19%) but an increase over the prior quarter (3.14%). Wisconsin banks remain well capitalized. 

Notable indicators include: 

  • Residential real estate loans decreased slightly year over year (-2.34%). Inventory continues to be very limited, and homeowners who refinanced at low interest rates during the pandemic have little incentive to move. Seasonal trends in housing sales played into the decrease from the prior quarter (-11.70%) with spring typically being the most popular time to move in Wisconsin. 
  • Commercial lending saw modest growth year over year (2.50%) and quarter over quarter (1.19%) as the Fed began easing interest rates in September. 
  • Farm loans held steady year over year (-0.29%) and increased quarter over quarter (4.68%) as farmers sought to upgrade equipment, make capital improvements, or manage operational costs affected by tighter margins. 
  • Past-due loans were elevated year over year (19.30%) and quarter over quarter (6.55%) as inflation and the high cost of living impacts borrowers. While banks continue to monitor credit quality, the current level of past-due loans remains above recessionary levels. 

Statement on the release of third-quarter 2024 Federal Deposit Insurance Corporation (FDIC) numbers from Rose Oswald Poels, president and CEO of the Wisconsin Bankers Association:  

“The latest FDIC report underscores the continued strength and adaptability of Wisconsin banks. While monitoring the effects of inflation, Wisconsin’s banks remain well capitalized and continue to meet the needs of their communities. A decrease in interest rates in September helped commercial borrowers’ lending needs and allowed banks the opportunity to support those customers’ growth and financial goals.” 

FDIC-Reported Wisconsin Numbers (Dollar Figures in Thousands) 

   9/30/2024 6/30/2024 QoQ Change 9/30/2023 YoY Change
Net loans and leases  $114,405,149 $112,992,032 1.25% $111,536,377 2.57%
Total deposits  $125,335,066 $122,315,576 2.47% $121,056,967 3.53%
Commercial and industrial loans $18,396,211 $18,179,173 1.19% $17,946,778 2.50%
Residential real estate loans  $30,702,592 $34,770,361 -11.70% $31,436,804 -2.34%
Farm loans  $5,173,857 $4,942,403 4.68% $5,188,674 -0.29%
Total assets  $158,239,189 $155,167,083 1.98% $153,647,895 2.99%
Assets 90+ days past due or in nonaccrual status  $618,665 $580,617 6.55% $518,570 19.30%
/by
,

Executive Letter: Free WBA FDIC Part 328 Revised Rule Resources

By Rose Oswald Poels

For several months now, WBA legal staff have fielded questions regarding FDIC’s recently revised Part 328 rule as banks work to implement new requirements before the January 1, 2025, mandatory compliance date. The rule requires use of a new FDIC digital sign on digital deposit taking channels which includes websites and web-pages or mobile applications that offer the ability to make deposits electronically and provide access to deposits. Signage on bank ATMs may also be affected; and banks that offer non-deposit products must also, clearly and conspicuously, display a non-deposit sign in certain branch locations and also electronically if the bank’s website offers access to non-deposit products.

To assist with implementation, WBA has created a free FDIC Part 328 Rule Resource which includes a straightforward review of the rule (with implementation tips), a model plan for monitoring compliance with the rule, steps to consider for reviewing and testing compliance, and links to FDIC resources which includes past FDIC webinar presentations and a Frequently Asked Questions (FAQ) document. The WBA FDIC Part 328 Resource is found in the Compliance Best Practices section of the WBA Best Practices Library.

In addition, I have regular conference calls with senior staff at FDIC Chicago to share concerns of the membership. I have shared questions with FDIC regarding revised Part 328, some of which have not been answered yet in their resources. Several previously shared questions have been incorporated into FDIC presentations and FAQs. FDIC is hosting four webinars regarding requirements of Part 328, two of which have already been conducted. The presentation slide deck for both webinars may be found on FDIC’s Deposit Insurance Banker Webinar website. I expect FDIC to post dates for the remaining two webinars at the same site. The webinars are hosted via Teams Live Event at the link found at the site. There is no formal registration for the live event.

If you or your staff have outstanding Part 328-related questions or need the password for the protected WBA Best Practice Library, please contact WBA Legal at wbalegal@wisbank.com.

/by

Newly Released FDIC Numbers Show Wisconsin Banks in Solid Position

Data released September 5, 2024, by the Federal Deposit Insurance Corporation (FDIC) shows Wisconsin banks remained in a healthy position through the second quarter of 2024. Lending held steady or increased in Q2 2024 over the prior year in all categories (commercial, residential, and farm loans), as banks responded to the borrowing needs of their customers. Deposits increased year over year (2.00%), due in part to the high interest rates offered on certificates of deposit (CDs) and money market accounts. The Q2 2024 net interest margin of 3.15% is a slight decrease over the prior year (3.24%) but an increase over the prior quarter (3.10%). Wisconsin banks remain well capitalized.

Notable indicators include:

  • Residential real estate loans were up quarter over quarter (15.21%) and year over year (11.55%). With spring being a popular time to move, homes continue to sell quickly. Borrowers have become accustomed to the current home prices and interest rates. Wisconsin’s housing shortage persists, particularly as many homeowners refinanced into low-interest rate mortgages in prior years and have little appetite to sell.
  • Commercial lending held steady quarter over quarter (0.75%) and year over year (-0.33%) as business owners await potential interest rate cuts by the Fed and potential economic changes following the November election before making significant operational changes.
  • Farm loans increased quarter over quarter (20.59%) and year over year (2.44%) as farmers entered planting season and sought to upgrade equipment, make capital improvements, or manage operational costs affected by tighter margins.
  • Past-due loans were elevated year over year (33.76%) as inflation and the high cost of living impacts borrowers. Past due loans eased, however, quarter over quarter (-5.92%), and the current level of past-due loans remains above recessionary levels.

Statement on the release of second-quarter 2024 Federal Deposit Insurance Corporation (FDIC) numbers from Rose Oswald Poels, president and CEO of the Wisconsin Bankers Association:  

“The latest FDIC report underscores the strength and adaptability of Wisconsin banks. Despite economic and geopolitical concerns, banks remain well capitalized and continue to meet the needs of their communities, as evidenced by steady or increased lending across sectors and a steady deposit base. As indicators point toward a likely interest rate cut by the Fed in September, borrowing costs could ease and provide additional opportunities for banks to support their customers’ growth and financial goals.”

FDIC-Reported Wisconsin Numbers (Dollar Figures in Thousands)

   6/30/2024 3/31/2024 QoQ Change  6/30/2023 YoY Change 
Net loans and leases  $112,992,876 $110,786,174 1.99% $109,976,913 2.74%
Total deposits  $122,315,576 $122,823,065 -0.41% $119,920,909 2.00%
Commercial and industrial loans $18,179,173 $18,044,391 0.75% $18,240,073 -0.33%
Residential real estate loans  $34,770,361 $30,180,575 15.21% $31,170,659 11.55%
Farm loans  $4,942,403 $4,098,653 20.59% $4,824,718 2.44%
Total assets  $155,167,030 $153,075,902 1.37% $152,381,917 1.83%
Assets 90+ days past due or in nonaccrual status  $580,617 $617,124 -5.92% $434,070 33.76%
/by

Wis. Banks Begin 2024 in Healthy Position According to Latest FDIC Numbers

The Federal Deposit Insurance Corporation (FDIC) released quarterly data on May 29, 2024, showing Wisconsin banks started 2024 on solid footing. In Q1 2024, lending increased over the prior year in all categories (commercial, residential, and farm loans), demonstrating banks’ responsiveness to their customers’ borrowing needs. High interest rates on certificates of deposit (CDs) and money market accounts contributed to an increase in deposits both quarter over quarter (0.34%) and year over year (3.97%). While net interest margin has decreased slightly from 3.30% to 3.10% year over year, capital levels are healthy. 

Notable indicators include: 

  • While residential real estate loans dropped quarter over quarter (-10.81%), they increased year over year (13.62%). Inventory remains low, particularly as many homeowners refinanced into low-interest rate mortgages in prior years and have little appetite to sell. Homes continue to sell quickly as borrowers have become accustomed to the current home prices and interest rates.  
  • Commercial lending increased slightly quarter over quarter (1.15%) and year over year (1.94%) as business owners cautiously strive for growth, avoiding significant operational changes. 
  • Farm loans increased year over year (7.17%) as farmers looked to upgrade equipment, make capital improvements, or expand. 
  • Past-due loans increased as persistent inflation and high everyday costs stress borrowers; however, the current level of past-due loans remains above recessionary levels. 

Statement on the release of first-quarter 2024 Federal Deposit Insurance Corporation (FDIC) numbers from Rose Oswald Poels, president and CEO of the Wisconsin Bankers Association:  

“The recently released Q1 2024 data from the FDIC showed the strength and stability of Wisconsin’s banking industry. Individuals, families, and business leaders continue to trust Wisconsin banks as financial partners and safekeepers of their money. Geopolitical issues remain among top economic concerns. In addition, decreases in credit quality indicate economic strain and signal challenges for consumers, businesses, and banks if inflation is not tamed. The Fed is unlikely to ease interest rates until the end of 2024 at the earliest; banks stand prepared to help their customers weather headwinds.”

FDIC-Reported Wisconsin Numbers (Dollar Figures in Thousands)    

   3/31/2024 12/31/2023 QoQ Change  3/31/2023 YoY Change 
Net loans and leases  $110,786,153 $109,762,474 0.93% $106,545,353 3.98%
Total deposits  $122,823,065 $122,411,348 0.34% $118,136,459 3.97%
Commercial and industrial loans $18,044,391 $17,839,610 1.15% $17,700,465 1.94%
Residential real estate loans  $30,180,575 $33,839,049 -10.81% $26,562,059 13.62%
Farm loans  $4,098,653 $4,031,270 1.67% $3,824,265 7.17%
Total assets  $153,075,799 $152,451,578 0.41% $149,718,289 2.24%
Assets 90+ Days Past Due or in Nonaccrual Status  $617,124 $542,817 13.69% $406,287 51.89%
/by
,

FDIC Seminars on Final Rule Regarding Use of FDIC Sign and Advertising Statement

The Federal Deposit Insurance Corporation (FDIC) announced it will host four seminars on the final rule governing use of FDIC’s Official Signs and Advertising Statement, Misrepresentations of Insured Status, and Misuse of FDIC’s Name or Logo for bank staff, bank officers, and other stakeholders.

During the presentation, FDIC staff will cover: (a) requirements for all FDIC-insured institutions’ use of FDIC official signs, including the new FDIC official digital sign for bank websites, apps, and ATMs, as well as updates to the advertising statement; and (b) clarifications on the prohibitions against misrepresentations of deposit insurance coverage and misuse of the FDIC’s name and logo, which apply to any person, including banks. FDIC staff will also discuss some of the questions that have been raised by bankers, trade associations, technology companies, vendors, and others.

The first seminar will be held via Microsoft (MS) Teams on May 30, 2024. The dates for the remaining three seminars will be announced at a later date. Each seminar will last approximately 90 minutes and all seminars will be held from 2:00-3:30pm ET.

To join the May 30th Seminar MS Teams Live Event, click on the MS Teams Live Event link within FDIC’s seminar series announcement: https://www.fdic.gov/resources/deposit-insurance/banker-webinar/index.html

/by

Banks Rounded Out 2023 Strong According to Latest FDIC Numbers

Numbers released today by the Federal Deposit Insurance Corporation (FDIC) showed Wisconsin banks remained in a healthy position through the final quarter of 2023. Banks continued to meet the borrowing needs of their customers, as evidenced by year-over-year lending increases in all categories (commercial, residential, and farm loans). Deposits were up both quarter over quarter (1.12%) and year over year (2.00%), demonstrating public trust in Wisconsin banks as safe places to keep money. While net interest margin has decreased slightly from 3.27% to 3.20% year over year, capital levels are healthy. 

Notable indicators include: 

  • Residential loans grew quarter over quarter (7.64%) and year over year (5.62%). With low inventory, homes continue to sell quickly. The Fed did not raise interest rates in the last quarter of 2023, and rates remain good in historical context. 
  • Commercial lending increased only slightly year over year (0.20%) and decreased slightly quarter over quarter (-0.60%) as business owners continue to monitor economic trends and interest rates. 
  • Farm loans increased year over year (10.30%) as farmers looked to upgrade equipment, make capital improvements, or expand. The decrease in farm loans quarter over quarter (-22.31%) reflects seasonal demand fluctuation. 
  • Past-due loans increased as inflation, the lag effect of interest rate hikes earlier in 2023, and slowed income growth presented challenges to borrowers in paying back their loans. Banks anticipated and were prepared for an increase in net charge-offs (loans that are unlikely to be repaid). 

Statement on the release of fourth-quarter 2023 Federal Deposit Insurance Corporation (FDIC) numbers from Rose Oswald Poels, president and CEO of the Wisconsin Bankers Association:  

“The year 2023 ended on a positive note with banks in a solid position. Residential loans are picking up, while many business owners are tending more toward a ‘wait-and-see’ approach on borrowing. Bankers, consumers, and business owners alike are hopeful that the Federal Reserve will lower interest rates in 2024. Inflation, the potential for a recession, and geopolitical issues remain top concerns for the year ahead. Wisconsin banks continuously evaluate economic conditions and stand ready to serve their customers and communities as trusted financial partners.”   

FDIC-Reported Wisconsin Numbers (Dollar Figures in Thousands)

    12/31/2023  9/30/2023  QoQ Change   12/31/2022  YoY Change 
Net loans and leases   $109,763,200  $111,536,925  -1.59%  $105,370,783  4.17% 
Total deposits   $122,411,348  $121,056,967  1.12%  $120,013,372  2.00% 
Commercial and industrial loans  $17,839,610  $17,946,778  -0.60%  $17,804,684  0.20% 
Residential real estate loans   $33,839,052  $31,436,804  7.64%  $32,038,691  5.62% 
Farm loans   $4,031,270  $5,188,674  -22.31%  $3,746,971  7.59% 
Total assets   $152,451,299  $153,646,118  -0.78%  $149,546,185  1.94% 
Assets 90+ Days Past Due or in Nonaccrual Status   $542,817  $518,570  4.68%  $411,481  31.92% 
/by
,

Executive Letter: 2023 Agencies Risk Perspectives

By Rose Oswald Poels

This year was a very busy one from a banking regulatory perspective with WBA and the industry engaging regulators on many different issues. As you look ahead to the new year, it is helpful to understand from the banking agencies’ perspectives the key issues they identify that are facing the industry.

The following summarizes the most recent risk perspective reports from the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board (FRB), and the Federal Deposit Insurance Corporation (FDIC), and will offer insight to bankers as you evaluate and revise risk strategies for the upcoming year:

OCC Semiannual Risk Perspective, Fall 2023

The OCC’s Fall 2023 Semiannual Risk Perspective presents data in five main areas — the operating environment, bank performance, special topics in emerging risks, trends in key risks, and supervisory actions. OCC reported that the overall strength of the federal banking system remains sound and that OCC expects banks to remain diligent and adhere to prudent risk management practices across all risk areas. Additionally, OCC stated that banks should continue to guard against complacency to ensure each maintains the ability to withstand potential future economic challenges.

The OCC highlighted credit, market, operational, and compliance risks, as the key risk themes. Highlights from the report include that:

  • Credit risk is increasing due to higher interest rates, increasing risk in CRE lending, prolonged inflation, declining corporate profitability, and the potential for slower economic growth. Key performance indicators are beginning to show signs of borrower stress across asset classes.
  • Rising deposit rates, broader market liquidity contraction, and increased reliance on wholesale funding started to impact net interest margins through the first half of 2023. Competition for deposits and higher interest rates are raising deposit rates. OCC reported deposit and liquid asset trends stabilized in the latter half of 2023, but the levels were supported by increased reliance on wholesale funding. Increases in interest rates are negatively impacting investment portfolio values.
  • Operational risk is elevated. Cyber threats continue. Banks continue to leverage new technology to further digitalization efforts, offering innovative products and services to meet customer demands. OCC warned that increasing digitalization efforts can also heighten risk of fraud and error, including fraud targeting peer-to-peer and other faster payment platforms.
  • Compliance risk remains elevated. OCC believes this is due to the heightened focus on ensuring equal access to credit and fair treatment of consumers, the expanded use of innovative technologies for product and service delivery, and expanded partnerships with third parties, such as financial technology firms, and increases in BSA/AML risk.

Federal Reserve Financial Stability Report, October 2023

The FRB’s latest Financial Stability Report was released in October in which FRB reports conditions affecting the stability of the U.S. financial system by analyzing vulnerabilities related to valuation pressures, borrowings by business and households, financial-sector leverage, and funding risks. Similar to the OCC, FRB reported that the banking sector remains sound overall, and that most banks continue to report capital levels above regulatory requirements. Nevertheless, FRB reports a subset of banks continued to face funding pressures.

The FRB’s report includes a discussion which considers possible interactions of existing domestic vulnerabilities with several potential near-term risks, including international risks. Survey contacts reflect the effect of persistent inflation and monetary tightening, insights regarding CRE, the reemergence of banking-sector stress, market liquidity strains and volatility, fiscal debt sustainability, and climate-related financial risks.

FDIC Risk Review 2023 Report

The latest FDIC Risk Review report incorporates data for 2022 through first quarter 2023, with insights related to the stress to the banking sector that emerged in March 2023. The report reflects risks on the key credit, market, operational, crypto-asset, and climate-related financial risks facing banks.

Regarding key credit risks, FDIC reported asset quality remained generally favorable as of first quarter 2023 despite modest deterioration. FDIC believes weaker economic conditions and higher interest rates may challenge bank loan portfolios, including credit card, C&I, residential real estate, and CRE loans.

From a markets perspective, FDIC reported market risks were primarily related to the effects of higher interest rates. Also, deposit outflows along with high levels of unrealized losses could pressure liquidity for some banks. FDIC reported the banking industry benefited from strong loan growth and higher NIMs in 2022, but higher funding costs reduced NIMs.

FDIC also reported that operational risks, including cybersecurity risks and risks related to illicit financial activity, remained elevated across the banking industry. FDIC also reported that crypto assets continue to present novel and complex risks that FDIC believes are difficult to fully assess. From FDIC’s perspective, climate-related financial risks include physical risk and transition risk, and FDIC’s report focuses on physical risk from severe weather and climate events.

/by
Wisconsin Bankers Association logo

questions@wisbank.com

608-441-1200

4721 S Biltmore Ln.
Madison, WI 53718

Get our Newsletter!
Subscribe