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Tag Archive for: Federal Reserve

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Goolsbee and Oswald Poels on webinar
Education, News

‘Golden Path’ to a Soft Landing Is Still Possible, Says Chicago Fed’s Goolsbee

Goolsbee and Oswald Poels on webinar

The Wisconsin Bankers Association’s Midwest Economic Forecast Forum featured a fireside chat with Federal Reserve Bank of Chicago President and CEO Austan Goolsbee, moderated by WBA President and CEO Rose Oswald Poels. The discussion spanned the Fed’s dual mandate (price stability and maximum employment), economic trends, supply chains, natural disasters, energy prices, Midwest industries, and the housing market — providing a detailed analysis of current economic conditions and forward-looking perspectives. Goolsbee is often asked whether he is a hawk or a dove, to which he jokingly replies, “I’m not a bird, I’m a data dog!” Throughout the program, Goolsbee provided an overview of the data the Fed monitors, accompanied by insightful analysis. 

Inflation Trends and Economic Outlook 

Goolsbee highlighted the Federal Reserve’s dual mandate of price stability and maximum employment. He noted that while employment has remained strong, the focus has been on curbing inflation, which has seen significant progress. The latest Consumer Price Index (CPI) showed a 2.9% year-over-year increase, reflecting improvements from previous peaks. Goolsbee emphasized the importance of analyzing long-term trends rather than monthly fluctuations, describing inflation as a “noisy series.” 

Goolsbee is still optimistic that the economy can continue growing in 2025 and have a soft landing. He has been describing it as the “golden path.” Recent months have provided encouraging signs across core components: services, goods, and housing. Goods and services inflation has come down, and recently, housing inflation — a key post-COVID challenge — has started to come down. Despite progress, Goolsbee acknowledged seasonal patterns that typically bring higher inflation in early quarters, emphasizing the need for continued vigilance. 

Policy Impacts and Scenario Planning 

When addressing the potential economic implications of changing administrations, Goolsbee underscored the Federal Reserve’s role in adapting to policy changes. Using a metaphor well known to Midwesterners, “there is no bad weather, only bad clothing,” he likened putting on the proper jacket for the weather to scenario planning for policy implications for inflation and employment. Fiscal policies, including tax cuts and government spending adjustments, were cited as areas requiring comprehensive analysis to understand net effects — not just the effects of individual policies. 

Supply Chains and Natural Disasters 

Goolsbee discussed supply chain disruptions and their role in recent economic cycles. Recovery from COVID-related supply chain breakdowns significantly contributed to lowering inflation without inducing a recession. However, natural disasters, such as wildfires in California, can pose ongoing risks to supply chains and regional economies. While these events often have devastating immediate local impacts, rebuilding efforts can stimulate economic activity. 

The increasing frequency of natural disasters has raised concerns about long-term economic adjustments, including shifts in where people choose to live and how they manage risks. Goolsbee noted that such supply-side shocks necessitate careful monitoring to mitigate broader economic disruptions. 

Employment, Consumer Behavior, and Sentiment 

The U.S. labor market has remained robust, with unemployment near 4%. Despite high wage growth, inflation has continued to decline, challenging traditional assumptions about their correlation. Goolsbee attributed this to nuanced sectoral dynamics and emphasized the importance of forward-looking indicators to guide monetary policy. 

Consumer sentiment has diverged from objective economic metrics, with political partisanism influencing perceptions. Goolsbee pointed out that while sentiment data historically predicted spending trends, recent shifts have reduced its predictive value. Despite this, consumer spending and income growth remain strong. 

Regional Economic Insights 

Manufacturing and Healthcare 

The Midwest’s economic health is closely tied to manufacturing, particularly durable goods and autos. Post-COVID shifts from goods to services spending have pressured the sector. Goolsbee noted that while manufacturing is not in crisis, it faces challenges as demand normalizes to include more services and phase out artificially high demand for goods. Healthcare, a major employer in the Midwest, is another area that Goolsbee pays attention to in terms of employment and consumer spending. While inflation in the healthcare and healthcare insurance industries has been lower than overall inflation, prices remain expensive. 

Housing Market Dynamics 

Housing affordability and inflation remain pressing concerns, with the relative prices of homes compared to other durable goods shifting dramatically over decades. Goolsbee projected interest rates to stay above pre-pandemic lows but below current levels. He highlighted the structural issues driving housing inflation, including decades of insufficient building, which have exacerbated affordability challenges in both urban and rural areas. He noted that no matter where he goes, employers will say their biggest hiring problem is that the cost of housing is so high that people won’t move there. 

Agriculture and Energy 

The agricultural sector has faced a challenging year following blockbuster periods. Food inflation has declined, but input costs remain high, squeezing farm incomes. Energy prices, particularly in the Upper Midwest during winter, pose concerns for households but are less emphasized in core inflation metrics. Goolsbee acknowledged the broader economic implications of volatile energy prices, especially in the context of geopolitical tensions. 

Reflections on Two Years at the Fed 

Reflecting on his tenure, Goolsbee expressed admiration for the mission-driven culture of Federal Reserve employees. He described Federal Open Market Committee (FOMC) meetings as highly deliberative and impactful. Operationally, he highlighted the Reserve Bank’s role in managing significant cash volumes and supporting member banks. 

Goolsbee reaffirmed the Federal Reserve’s commitment to its 2% inflation target, emphasizing its role as a cornerstone of public confidence. He noted that while the path to achieving this target involves navigating uncertainties, the Fed remains steadfast in its mission. 

In closing, Goolsbee commended the robust partnership between the Chicago Fed and regional stakeholders such as the Wisconsin Bankers Association, emphasizing the importance of communication in addressing economic challenges. 

The Midwest Economic Forecast Forum was presented by the Wisconsin Bankers Association in partnership with the Illinois Bankers Association, Michigan Bankers Association, Minnesota Bankers Association, South Dakota Bankers Association, and Wisconsin Bankers Foundation. A special thank you to 2025 event sponsors BOK Financial Capital Markets and Wipfli.

January 15, 2025/by Cassandra Krause
https://www.wisbank.com/wp-content/uploads/2025/01/2025-MEFF.png 1049 1909 Cassandra Krause https://www.wisbank.com/wp-content/uploads/2021/09/Wisconsin-Bankers-Association-logo.svg Cassandra Krause2025-01-15 16:33:162025-01-15 16:33:40‘Golden Path’ to a Soft Landing Is Still Possible, Says Chicago Fed’s Goolsbee
Education, Resources

Ask the Fed® Announces New Webinars

Ask the Fed®, a program covering the latest financial and regulatory developments for bankers and their boards of directors, consists of periodic conference call / webinars that feature Fed experts and guest speakers on top banking questions of the day, with time at the end for questions and comments. Three new webinars were recently announced.

May 23, 2024: Residential Real Estate Series, National Update. At the beginning of the year, there was growing optimism around improving housing demand. Inflation was trending downward, job growth remained persistent, home price growth had moderated, and mortgage rates had come down from recent peaks. However, midway through the peak of the 2024 home selling season, declining home ownership affordability has reemerged as a significant challenge facing the market. As both home prices and mortgage rates trend upward, buyers today are adjusting to the new reality of the cost of homeownership. In the months ahead, lenders, builders, and other market participants will continue to face challenges as they struggle to navigate the ever-changing housing market landscape. Domonic Purviance, from the Federal Reserve Bank of Atlanta, will host a webinar that addresses current housing market conditions and future risks and expectations over the next year.

May 29, 2024: 2024 CRE: Turbulence Ahead? Will 2024 Commercial Real Estate (CRE) weather the storm, or is it just under the weather? CRE continues to benefit from a healthy economy, including robust job growth, strong consumer spending, and available credit. But the industry is also beset by a challenging interest rate climate, appraisal issues, oversupply, falling rental rates, and increasing expenses. Additionally, increasing CRE delinquency rates and loan losses are presenting challenges to some financial institutions. Brian Bailey CRE, CCIM, will discuss trends and emerging risks in the CRE and CRE finance industries.

June 4, 2024: FedNow® Services Update: Erik VanBramer, Vice President FRFS Customer Relations, will provide an update on the industry progress with the FedNow Service. The conversation will provide progress updates, interesting use cases that are developing in the market, and a roadmap towards the future of instant payments.

Registration is open at www.askthefed.org under the “All Calls” tab.

May 21, 2024/by Katie Reiser
https://www.wisbank.com/wp-content/uploads/2021/09/Triangle-Backgrounds_Yellow-on-Light-Blue.jpg 972 1921 Katie Reiser https://www.wisbank.com/wp-content/uploads/2021/09/Wisconsin-Bankers-Association-logo.svg Katie Reiser2024-05-21 09:03:042024-05-21 09:03:04Ask the Fed® Announces New Webinars
Community, News, Resources

Banking Industry Awaits Rate Drop

By Malcolm McDowell Woods

At financial institutions across the state, all eyes remain on the Federal Reserve, waiting to see how quickly and how drastically interest rates move yet this year. While there’s a strong consensus that a rate drop would be beneficial, industry insiders are mostly voicing their hopes that whatever happens comes gently.

At the start of 2024, expectations were that the Federal Reserve would enact a series of interest rate decreases over the course of the year, as long as economic forecasts proved accurate. After the first quarter of the year passed without any rate changes and following a quiet meeting of the Federal Reserve in mid-March, Federal Reserve Bank Chair Jerome Powell said he still expected rate cuts later this year. For now, rates remain high, pushed there through a series of hikes enacted first in response to the economic fallout of the COVID-19 pandemic. Those dizzying jumps, moving the base rate from a low of zero to the current 5.25–5.50%, came fast and furious over a short two-year span, leaving banks a bit shell-shocked and struggling to adapt.

It’s made for rough waters, but analyst Marc Gall, a senior vice president of the Financial Institutions Group at BOK Financial Capital Markets, thinks anyone expecting huge rate cuts anytime soon should temper their expectations.

“The expectation the market has for this year is that the Fed is going to cut interest rates between two to three times, likely towards the second half of the year,” explained Gall. “The outlook has been that the economy is going to start slowing down, that we’re going to start getting closer to a recessionary time, and that’s what’s going to cause the Fed to start dropping the interest rate.” The challenge for the banking industry, said Gall, is that everyone is left waiting for something to happen.

And waiting. “What a ride,” is how Nicolet National Bank CFO Phil Moore jokingly described the past couple of years. As a bank catering to commercial and industrial customers, Nicolet’s portfolio contains many fixed-rate, short-duration loans that couldn’t be adjusted when rates rose so dramatically. Nicolet has managed to emerge unscathed, but it wasn’t much fun, said Moore. The volatility is tough to manage, he said. “It’s not impossible — we dealt with the ups — but it’s just that much more challenging, there’s more financial risk.”

However, the nature of Nicolet’s lending portfolio — short, two-to-three-and-a-half-year duration loans, works in the bank’s favor, according to Moore. “You know, you hold your nose for three and a half years. It doesn’t feel like too much risk at this point in time, and we feel very comfortable managing that.”

What does Moore anticipate happening over the remainder of the year? “I don’t know, and ask me again in two weeks and I still won’t know,” he laughed. “It’s been crazy right. The market and the Fed have certainly not been reconciled with their thinking, though it seems to me that at least they are getting closer to being reconciled. But what a painful ride it has been, because of the severity and the steepness of the 500-basis-point jump that we just lived through.”

At Peoples State Bank in Wausau, CFO and Senior Vice President Jessica Barnes admits that the rapid and steep rate hikes were challenging. “For someone in my position,” she said, “it’s kind of been fun and exciting in a sick way, but definitely challenging. [Those] very rapid rate jumps were just something I’d never seen before in my career. It was hard to adjust to and make sure we’re still serving our customers adequately.”

The swift hikes reduced the value of investment portfolios at most banks, raising concerns about liquidity.

“It’s funny, because when banks have liquidity and funds available to invest, it’s not as good a time to invest because rates are usually low,” said Barnes. “But when rates are very high, like they are today — and I do believe that we’re at our peak — cash is not as abundant to invest.” Her bank’s approach has been to consciously diversify the structure of its portfolio, so it will perform well in different environments. The bank will also seek opportunities to sell some of its lower-yielding securities that have longer durations for higher yields to help with profitability.

That strategy reveals Barnes’ belief that significant interest rate cuts are unlikely in the near future. “If I believed they were going to be lowered very soon, you could make a case that we could just sit on those larger unrealized losses” for the short term. But Barnes isn’t holding her breath. “We’ve held the view since last year that there wouldn’t be as many rate cuts as were being predicted. When we put together our 2024 plan, we didn’t factor in any rate cuts. And so far that’s been a pretty correct assumption.”

At the Bank of Wisconsin Dells, Senior Vice President and CFO Tracey Pierce is in agreement that any rate cut yet this year will be minimal and later in the year.” I think the curve will somewhat normalize through a series of rate cuts, but at a slow pace for now,” she said. “Probably looking at the fourth quarter, something like 25 basis points.”

That would help most banks, hers included, but only incrementally.

“The perception among some bankers is that all we need is for the Fed to start cutting rates and everything will be okay,” noted Gall, but he doesn’t see banks deriving much cost savings on the deposit side from what he thinks will be small cuts. “Really, the Fed needs to cut a lot in order for things to get materially better on the margin side in the short term. And again, if the Fed starts cutting rates, that’s incrementally beneficial over the long term, but most of them need a big drop quickly, which is not what the outlook is for this year.”

That means the potential for continuing squeezed margins and questions of liquidity, issues that came to the fore last year after several bank failures across the country. Gall and others say it has resulted in an increased scrutiny on liquidity from bank regulators.

“Liquidity really is the biggest concern for our industry right now,” said Pierce, of the Bank of Wisconsin Dells.” We’re starting to see the effects of inflation on our deposits.” Inflation has forced consumers to spend excess savings, leaving banks with fewer funding sources.

Gall added that the volatility of the past several years has impacted banks across the state differently. “There are some banks right now that have very good earnings that have enjoyed even higher earnings as interest rates have risen, but there are others that have seen their earnings drop significantly. It means the range of performance between Wisconsin banks is the widest it has been in a very long time.”

Finally, muddying the waters is the looming shadow of the presidential election in November. Traditionally, the Fed has preferred to avoid making significant policy moves near the election, lest it be accused of interfering with politics, but no one knows for sure what will happen. “So that’s a wild card, right?” said Moore.

Just what the banking industry doesn’t need — more uncertainty.

“It’s my greatest fear,” concluded Moore. “It’s just so much more challenging to manage. I’m just hoping for consistency and stability.” He’s not alone.

McDowell Woods is a freelance writer and an instructor of journalism and media studies at the University of Wisconsin–Milwaukee.

May 2, 2024/by Jaclyn Lindquist
https://www.wisbank.com/wp-content/uploads/2024/05/AdobeStock_213215018-scaled.jpeg 1659 2560 Jaclyn Lindquist https://www.wisbank.com/wp-content/uploads/2021/09/Wisconsin-Bankers-Association-logo.svg Jaclyn Lindquist2024-05-02 08:14:022024-05-02 10:31:15Banking Industry Awaits Rate Drop
Community, News, Products

Executive Letter: The Federal Reserve’s FedNow® Service Offers New Payment Options

By Rose Oswald Poels

As you have likely seen, the Federal Reserve’s FedNow® Service is now live, having initially launched in late July with baseline functionality to support account-to-account transfers and bill pay. Through the service, financial institutions are able to instantly transfer money for customers any time of the day and any day of the year, adding greater flexibility for customers.

For those who are not yet familiar with the new service, FedNow Service is the Federal Reserve’s new instant payment infrastructure that allows financial institutions of any size to provide safe and efficient payment services. Customers can send and receive instant payments; recipients have full access to funds immediately. The following is a standard payment flow example from the FedNow Service:

  1. A sender (i.e., an individual or business) initiates a payment by sending a payment message to its Financial Institution (FI) through an end-user interface outside the FedNow Service. The sender’s FI is responsible for screening the payment according to its internal processes and requirements.
  2. The sender’s FI, or its service provider, submits a payment message to the FedNow Service.
  3. The FedNow Service validates the payment message, for example, by verifying that it meets message format specifications.
  4. The FedNow Service sends the contents of the payment message to the receiver’s FI to seek confirmation that it intends to accept the payment message. At this point, the receiver’s FI has the opportunity to confirm, among other things, that it maintains the specified account.
  5. The receiver’s FI sends a positive response to the FedNow Service, confirming that it intends to accept the payment message. Steps 4 and 5 are intended to reduce the number of misdirected payments and resulting exception cases that can occur in high-volume systems.
  6. The FedNow Service debits and credits the designated master accounts of the sender’s and receiver’s FI (or those of their correspondents), respectively.
  7. The FedNow Service sends a payment message forward to the receiver’s FI with an advice of credit and sends an acknowledgement to the sender’s FI that settlement is complete.
  8. Outside of the FedNow Service, the receiver’s FI credits the receiver’s account.* The receiver’s FI makes funds available to the receiver immediately after step 7. This crediting to the receiver’s account as well as the debiting of the sender’s account by their respective financial institutions happens outside the FedNow Service.*

*The FedNow Service processes payments around the clock, every day of the year. However, for accounting and reporting purposes, the FedNow cycle date differs from the calendar date for a period of time (from close until midnight) because it aligns with the Fedwire® Funds Service business day, which generally has a closing time of 7:00:59 p.m. ET. If the Fedwire Funds Service business day is extended, the FedNow cycle date extends along with it. For consistency, the FedNow Service aligns to the same timeframe for weekends and holidays.

For financial institutions that elect to be a receive-only participant, the institution is able to receive customer payments, but may not initiate customer payments, except to return payments using the service. Alternatively, a financial institution may elect to be able to send and receive customer transfers. A financial institution could also elect to participate in the FedNow Service to receive requests for payment via the FedNow Service.

The FedNow Service will also support transfers between participating financial institutions, either on behalf of their respondents or for their own internal purposes. This type of transfer includes settlement services.

In trying to identify future educational offerings and other resources for the WBA membership, I ask that bankers please complete the following short survey regarding use or non-use of the new service. Results will be kept confidential.

Take the Survey

Additional FedNow® Service Resources

  • FedNow® 101: What to Know Now About FedNow Webinar (September 5, 1:30–2:30 p.m.)
  • Banks Advised to Gear up Now for 2023 Launch of FedNow Instant Payments, Article by Paul Gores
  • Federal Reserve FedNow® Service Resource Webpage
August 30, 2023/by Hannah Flanders
https://www.wisbank.com/wp-content/uploads/2021/09/Untitled-3_Yellow.jpg 972 1920 Hannah Flanders https://www.wisbank.com/wp-content/uploads/2021/09/Wisconsin-Bankers-Association-logo.svg Hannah Flanders2023-08-30 13:39:522023-08-31 09:03:16Executive Letter: The Federal Reserve’s FedNow® Service Offers New Payment Options
Advocacy, News, Resources

Executive Letter: An Update on Recent Out-of-State Bank Failures

Rose Oswald PoelsBy Rose Oswald Poels

Since the announcement of the failures of Silicon Valley Bank (SVB) in Santa Clara, California and Signature Bank in New York, New York, the Wisconsin Bankers Association (WBA) has been working with the news media as well as federal- and state-level government officials to reassure the public that the banking system overall — and Wisconsin banks in particular — are safe, sound, and resilient.

On Sunday, I issued a special edition of my Executive Letter to share a summary of events as they were unfolding, including the decision of the regulators to protect all depositors affected by the Silicon Valley Bank and Signature Bank failures. On Monday, WBA issued a statement to the news media highlighting important differences between the failed banks and Wisconsin banks. WBA has been working with newspapers, TV stations, and radio stations across the state to put the public at ease in knowing their money is safe in an FDIC-insured bank in Wisconsin.

Resources for Bank Customers

WBA has created a new consumer-facing piece explaining FDIC insurance. The one-page document can be printed out or shared digitally. It contains a high-level overview as well as links (and QR codes) directing readers to FDIC resources: Understanding Deposit Insurance and Deposit Insurance FAQs. WBA’s FDIC insurance resource — along with a range of other materials, including social media graphics for banks — is available in the Consumer Resources Hub.

My previous Executive Letter also contains talking points about how the situations at the failed banks were idiosyncratic and do not reflect the way Wisconsin banks operate. A number of unique factors converged at the same time to trigger the liquidity crisis at Silicon Valley Bank, which would not apply to Wisconsin banks that are not heavily focused on the volatile tech sector. As government officials, banking leaders, and economists have reiterated: Americans should have confidence in our banking system.

The Federal Reserve’s Bank Term Funding Program

The Federal Reserve has launched the Bank Term Funding Program (BTFP) to offer loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging any collateral eligible for purchase by the Federal Reserve Banks in open market operations. The assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating a bank’s need to quickly sell such securities in times of stress.

WBA staff participated in a call on Monday with Nellie Liang, Under Secretary for Domestic Finance at the U.S. Treasury Department and from that call, WBA learned:

  • Bank holding companies are not able to participate in BTFP. Eligible participants include any U.S. federally insured depository institution or U.S. branch or agency of a foreign bank that is eligible for primary credit under the Fed’s discount window.
  • The Federal Reserve is not looking to consider municipal securities as collateral.
  • Banks are not required to first utilize all other available funding options before seeking access to the BTFP.
  • It is not the intention of the Federal Reserve to lengthen the one-year term.
  • At some point in the future, the names of institutions who participate in BTFP will be made public in accordance with Congressional requirements.

The Federal Reserve has made an FAQ and a Terms and Conditions one-pager available regarding the program. It is my understanding the FAQs will be updated, as necessary.

The Federal Reserve announced a free webinar, Wednesday, March 15, 2023, at 1:00 p.m. ET–2:15 p.m. ET regarding the new lending program. The Federal Reserve’s Matthew Malloy, section chief – monetary policy operations and analysis, monetary affairs and Kelley O’Mara, senior counsel – legal division, will lead an Ask the Fed® webinar to provide an overview of the BTFP and address frequently asked questions that have arisen since the program’s launch. Registration for the webinar can be done through the Ask the Fed® website.

The Latest on SVB and Signature Bank Bridge Banks

Moments ago, WBA staff attended a Q&A webinar with FDIC on the status of the two failed banks. The bridge banks Silicon Valley Bridge Bank, N.A. and Signature Bridge Bank, N.A., have assumed the deposits and obligations of the failed banks. FDIC has appointed new CEOs, and their objective is to maximize the value of the entity to attract a buyer as well as minimize cost to the industry. The main theme from FDIC officials was “business as usual” — all deposits (insured & uninsured) have been transferred to the bridge bank, all contracts for services have been transferred, the bridge banks have access to borrow to ensure ample liquidity, they have the same routing number and check stock, and they can operate just as any other open and operating bank.

Our Current Focus

Our immediate priority is to make sure the public knows that the banking system is safe and sound. No taxpayer dollars will be used to repay depositors of the failed banks; longer-term policy questions about the treatment of uninsured deposits are a discussion for a later day. WBA has heard from our membership about the positive steps you are taking through both proactive and responsive conversations with your customers as well as issuing email and social media communications. Thank you for all you are doing to reassure Wisconsinites that our industry remains strong and a source of strength for our economy.

March 15, 2023/by Hannah Flanders
https://www.wisbank.com/wp-content/uploads/2021/09/Triangle-Backgrounds_Yellow-on-Light-Blue.jpg 972 1921 Hannah Flanders https://www.wisbank.com/wp-content/uploads/2021/09/Wisconsin-Bankers-Association-logo.svg Hannah Flanders2023-03-15 07:59:312023-03-15 07:59:31Executive Letter: An Update on Recent Out-of-State Bank Failures
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News, Products

Banks Advised to Gear Up Now for 2023 Launch of FedNow Instant Payments

By Paul Gores

Banks interested in joining next year’s rollout of the FedNow faster payments service should be preparing for it today, those familiar with the program say.

FedNow, a Federal Reserve payments service similar to The Clearing House’s RTP network, is scheduled to be offered to banks in the U.S. as soon as May of 2023.

According to the Fed, the FedNow Service will facilitate the nationwide reach of instant payment services by financial institutions, regardless of size or geographic location, and do it around the clock, every day of the year.

Businesses and consumers will be able to send and receive instant payments at any time of day via banks and credit unions that use FedNow. Recipients will have full access to funds immediately, giving them greater flexibility to manage their money and make time-sensitive payments, the Fed says.

“Wisconsin banks have been very innovative over the years, and this is another innovation that’s coming that Wisconsin banks should be looking at and should be adopting when they are ready,” said Todd Koehn, vice president for faster payments solutions at Bankers’ Bank. “It potentially could be a game changer for their customers.”

FedNow currently is conducting a pilot program with more than 100 banks, core processors, and other third-party organizations involved with payments technology.

The U.S. has trailed Europe and some parts of the world in developing an instant payment network. While the privately owned Real Time Payments network, or RTP, is available to American banks, the Fed felt like it needed to play a role to expand the fast-payments realm, experts said.

“All of the market players going back a decade recognized it wasn’t if but when instant payments would come domestically into the market and ecosystem,” said Nick Denning, senior vice president –payments industry relations, for ICBA Bancard. “I think at that time the Fed was trying to determine what role they would play, if any, in instant payments, and ICBA, community banks, and other groups definitely advocated for the Fed to play that operator role to bring more network capabilities to the market.”

Now that the Fed’s faster payment network is getting ready to launch — and will be seeking early adopters — banks that want to participate should be gearing up for it, experts said. To do that, banks should make sure they have an overall payments plan, and begin meeting with their core processor or fintechs that in most cases will be the channel connecting the bank and the new behind-the-scenes FedNow payments “rail.”

“Community banks should be talking to their key technology partners,” said Koehn. “What are their timeframes to get on the rail? How long will it take once they’re on the rail for my bank to join the rail?”

Earlier this year, the Fed disclosed fees for FedNow. But that doesn’t include the cost of the infrastructure needed by a bank to use the network. The overall cost to implement a connection to FedNow is one reason many banks are expected to go through their core processor or a fintech instead of directly to the Fed.

“It’s cheaper to go direct to the Fed, but you’d have to build your own infrastructure and maintain it. And that’s expensive,” Koehn said. “Most community banks will connect through a processor, whether it’s an online banking processor or a core processor.”

According to the Fed, FedNow’s anticipated fees include:

  • A $25 monthly FedNow Service participation fee for each routing transit number (RTN) that enrolls in the service to receive credit transfers.
  • 4.5 cents per credittransfer to be paid by its sender, including returns.
  • A fee of 1 cent for a request for payment (RFP) message to be paid by the requester, including both requests for a new payment or funds to be returned.

A participating financial institution can send an RFP through the FedNow Service to another participating financial institution to request payment of a bill, invoice, or other amount owed by the receiving financial institution’s customer.

The planned FedNow Service’s credit transfer transaction limit will be $500,000.

Brad Northcraft, senior vice president for deposit operations at IncredibleBank, said his bank plans to access FedNow through a payments provider that is part of the financial institution’s core processor.

Northcraft said he thinks a key catalyst for FedNow was for the U.S. to have a system that would bring payments into parity with other countries.

“I think they generally recognized that the payments industry, the velocity of payments, continues to accelerate. I think that was their impetus to really launch FedNow,” he said.

He noted that the introduction of Real Time Payment (RTP) by The Clearing House about five years ago also was a motivation for the Fed to establish its own faster-payments network.

While money moves electronically through ACH, wires and RTP, Koehn said FedNow is meant to augment existing systems, not replace them.

Denning, too, said FedNow will enhance overall payment capabilities.

“To a certain degree, FedNow and RTP network will compete for volume and so forth, but also to a certain degree, complement each other in terms of the robustness of the nation’s payment systems from a resiliency and scope and breadth perspective,” Denning said.

The Fed says surveys show consumers and businesses want faster payments, and that instant payments can help banks better retain their customers.

“Because (with FedNow) I can make a payment on Sunday at 2 a.m. and you’re going to have your payment at 2:01 a.m. — or quicker than that — on Sunday morning, I think it is going to be partially driven by the end user,” Northcraft said.

Koehn said he thinks FedNow is “going to revolutionize community banking because banking has been 5 to 5½ days a week, and FedNow will bring 24-by-7-by-365.”

“And that’s a good thing for community banks when customers are depositing money, and the community bank knows there’s no fraud associated with it,” he said.

Koehn said there are many scenarios in which around-the-clock payments capability could help banks and consumers.

For example, he said, a small manufacturing company might be having trouble attracting and retaining employees because the workers, as is increasingly the case, want to be paid on the same day they do their work, not on traditional paydays every week or two. FedNow could be used to accommodate same-day payroll for the manufacturer.

Or, perhaps, a plumber who made an emergency repair could send an invoice securely over the network, and be paid instantly by the homeowner or business, avoiding the problems of checks that need to be cashed or could bounce.

Banks that don’t have a serious payments strategy need to get going and figure out how FedNow can best help them, those familiar with FedNow say.

“I’ve been in banking for almost four decades. Started in the payments space back in 2011. The mantra back then was whoever controls the payments controls the balances,” Northcraft said.

Denning said banks should be talking to their current third-party providers, whether it’s their core provider or other providers that they leverage for payments or other capabilities, as well as customers.

As part of that process, it’s important to analyze what customers need, Denning said.

“What pain points and challenges do they encounter on a daily basis that I can help solve with some of what we’re doing in payments?” Denning said. “We can offer instant payments, but where the rubber really hits the road is how can we make a difference in people’s lives, how can we help our customers.”

He added: “Connecting those dots on what the providers can do and then what pain points, challenges, opportunities exist within our customer base, that’s where the magic will really happen.”

Gores is a journalist who covered business news for the Milwaukee Journal Sentinel for 20 years.

December 13, 2022/by Hannah Flanders
https://www.wisbank.com/wp-content/uploads/2022/12/Cyber-Electronic-scaled.jpeg 931 2560 Hannah Flanders https://www.wisbank.com/wp-content/uploads/2021/09/Wisconsin-Bankers-Association-logo.svg Hannah Flanders2022-12-13 06:51:552022-12-13 06:53:35Banks Advised to Gear Up Now for 2023 Launch of FedNow Instant Payments
2022 Midwest Economic Forecast Forum speakers
News

Inflation, Global Supply Chains, and Labor Top the List of 2022 Economic Trends to Watch

Minneapolis Fed President Neel Kashkari and Economist Dr. David Kohl Headline Midwest Economic Forecast Forum 

By Cassandra Krause, Wisconsin Bankers Association 

On January 4, the Wisconsin Bankers Association hosted the 2022 Midwest Economic Forecast Forum in partnership with the Illinois Bankers Association, Michigan Bankers Association, Minnesota Bankers Association, Montana Bankers Association, and South Dakota Bankers Association. The event kicked off with a presentation by Minneapolis Federal Reserve Bank President and CEO Neel Kashkari. His presentation was followed by a town hall-style Q & A, moderated by WBA President and CEO Rose Oswald Poels. The conversation included topics such as the conditions in sectors like manufacturing, agriculture, and construction; the Fed’s dual mandate from Congress; supply chains; an influx in bank deposits; and Community Reinvestment Act (CRA) modernization. 

Kashkari on webinar

Minneapolis Fed President Neel Kashkari

 

Wisconsin’s Recovery Slower Than Minnesota’s, But Regional Recovery Mirrors That of the Nation 

Kashkari said that overall, our region looks a lot like the nation, but there are differences. Wisconsin started recovering more quickly than Minnesota did, but then the recovery became slower over the last six months to year. What happens with COVID will continue to matter because workers getting sick will be a disruption to economic activity. 

Kashkari noted that economic recovery since initial COVID-19 shutdowns has been uneven. “On one hand, GDP is fully recovered. . . but different sectors have been affected differently,” said Kashkari. “Many workers have found jobs. . . and while the unemployment rate has come down, we are still about 4–6 million workers short of where we should be, had there been no pandemic.”   

Demand for Labor Has Recovered More Quickly Than Supply  

The labor market was one of the main topics Kashkari responded to in the Q & A. 

“One of the things that I learned before the pandemic was that the vast majority of Americans want to work,” said Kashkari. “Every time businesses told us ‘we’re out of workers,’ as wages started to climb, workers came back in, and that was resoundingly positive for everyone. . . I still believe that’s true.”  

Kashkari commented that people of all income levels have more savings and more options — and there’s still a lot of fear of getting COVID or bringing it home to a vulnerable family member. The demand for labor has come back, but it’s going to take longer for people to feel comfortable coming back into the job market.  

Two Rate Hikes Likely in 2022 

With regard to inflation, Kashkari predicted it will be transitory, though it has been higher and has lasted longer than he had expected. He referred to his essay, titled “Two Opposing Risks,” which was published just prior to his presentation, and said he foresees two interest rate hikes this year. The rate rises may require sacrificing some gains in employment in order to keep inflation under control. 

Role of Banks in Communities Highly Appreciated 

Kashkari highlighted how community banks stepped up powerfully through the Paycheck Protection Program. “[Banks] have managed exceptionally well during the pandemic,” he said, adding that he has nothing but admiration for community banks and the role they served. WBA’s Oswald Poels expressed gratitude on behalf of community bankers for the recognition of their efforts. 

Kohl and Oswald Poels

Dr. David Kohl and Rose Oswald Poels

Economic Mega Trends 2022 and Beyond 

Dr. David Kohl, a highly anticipated speaker at events hosted by WBA and state banking associations around the country, discussed ten global macro-economic mega trend disruptors. The renowned economist and professor emeritus at Virginia Tech also responded to audience questions in a dialog moderated by Oswald Poels. 

Disruptors Present Both Challenges and Opportunities 

Some of the major disruptors Kohl highlighted in his presentation were globalization; environmental, social, and governance (ESG); and technology and automation. He provided a recent historical overview of inflation and provided a watch list for short- and long-term inflation. “Uncertainty concerning inflation, geopolitics, supply and marketing chains creates challenges but also presents opportunities,” said Kohl. “This is true for businesses and individuals with a high business and financial IQ that follow the process and execute a business plan.” 

Global Perspective Key to Success 

Kohl gave an overview of markets around the globe to keep an eye on, including Asia/China and Europe/Russia. “’Think globally, but act locally’ is a theme for success in the decade of the 2020s,” advised Kohl. “Observe economic mega trends from afar and connect the dots to determine how they impact your bank, business, employees, and customers’ lives.”   

Wisdom for Banking 

Like any good educator, Kohl had words of wisdom to share with the audience beyond what can be found in textbooks and data reports. “Success in life and business is about managing the controllables and managing around the uncontrollables,” he explained. “From the board room to business front lines, one cannot manage what happens in Washington, D.C., Beijing, or Brussels, but can attempt to manage around uncontrollable factors using scenario planning. Focus energy and strategy on the controllable elements with tactics that are agile and adaptive given the economic landscape.” 

If you were unable to attend the live broadcast, you can still register to receive access to the recording through January 18, 2022 plus resources provided by Kashkari and Kohl. 

Wisconsin Experts Offer Sector Forecasts 

As an extension of the Midwest Economic Forecast Forum, WBA has compiled eight sector-specific reports from industry experts on what 2022 will hold for Wisconsin. The reports include insights from Rose Oswald Poels, Wisconsin Bankers Association; Robb Kahl, Construction Business Group; Kevin Krentz, Wisconsin Farm Bureau Federation; Brandon Scholz, Wisconsin Grocers Association; Eric Borgerding, Wisconsin Hospital Association; Kurt Bauer, Wisconsin Manufacturers & Commerce; Michael Theo, Wisconsin Realtors Association; and Tom Still, Wisconsin Technology Council. 

To read the full Wisconsin Economic Report, please visit wisbank.com/2022forecast. 

January 5, 2022/by Cassandra Krause
https://www.wisbank.com/wp-content/uploads/2022/01/MEFF_social_media_banner_speakers_1200x635pxls.png 1058 2000 Cassandra Krause https://www.wisbank.com/wp-content/uploads/2021/09/Wisconsin-Bankers-Association-logo.svg Cassandra Krause2022-01-05 22:21:162022-01-06 14:32:42Inflation, Global Supply Chains, and Labor Top the List of 2022 Economic Trends to Watch
Advocacy, News

Omarova Withdraws From OCC Running

President Biden’s top pick for comptroller of the currency, Saule Omarova, withdrew her nomination to lead the Office of the Comptroller of the Currency on Tuesday, December 7, in a letter to the White House. After facing stiff opposition from the banking industry and members of Congress, President Biden has accepted her request and expects to make an announcement at a later date, according to reports.

The Wisconsin Bankers Association had previously signed onto the Independent Community Bankers of America (ICBA)’s letter opposing Omarova’s nomination citing her academic papers and public statements that propose transferring private retail banking functions to the Federal Reserve and fully replacing private bank deposits to “end banking as we know it.”

December 8, 2021/by Hannah Flanders
https://www.wisbank.com/wp-content/uploads/2021/09/Wisconsin-Bankers-Association-logo.svg 0 0 Hannah Flanders https://www.wisbank.com/wp-content/uploads/2021/09/Wisconsin-Bankers-Association-logo.svg Hannah Flanders2021-12-08 14:32:182021-12-08 14:32:18Omarova Withdraws From OCC Running
Compliance, News

Agencies Release Final Computer-Security Incident Notification Requirements Rule

The federal banking agencies (FRB, FDIC, and OCC) have issued their final rule to require banks to notify their primary federal regulatory of any “computer-security incident” that rises to the level of a “notification incident”, as soon as possible and no later than 36 hours after the bank determines that a notification incident has occurred.  

The rule defines a “computer-security incident” as an occurrence that results in actual harm to the confidentiality, integrity, or availability of an information system or the information that the system processes, stores, or transmits.  

“Notification incident” is defined as a computer-security incident that has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, a banking organization’s: 

(i) Ability to carry out banking operations, activities, or processes, or deliver banking products  and services to a material portion of its customer base, in the ordinary course of business;  

(ii) Business line(s), including associated operations, services, functions, and support, that upon  failure would result in a material loss of revenue, profit, or franchise value; or  

(iii) Operations, including associated services, functions and support, as applicable, the failure or  discontinuance of which would pose a threat to the financial stability of the United States.  

The final rule is effective April 1, 2022 and has a compliance data of May 1, 2022. The full final rule may be viewed here.

November 22, 2021/by Cassandra Krause
https://www.wisbank.com/wp-content/uploads/2021/09/Triangle-Backgrounds_Lime-Green.jpg 972 1921 Cassandra Krause https://www.wisbank.com/wp-content/uploads/2021/09/Wisconsin-Bankers-Association-logo.svg Cassandra Krause2021-11-22 14:30:262021-11-22 14:30:26Agencies Release Final Computer-Security Incident Notification Requirements Rule
Education, News

Midwest Economic Forecast Forum Virtual on January 4

By Kenneth D. Thompson, WBA Board chair, president and CEO of Capitol Bank, Madison

Ken Thompson HeadshotWe are closing out this calendar year with a better understanding of COVID-19 than we had at this time one year ago in 2020, however the ongoing pandemic casts a heightened degree of uncertainty onto predictions for the 2022 economy. As bankers, we are responsible for interpreting economic data and trends that will impact the financial health of our institutions, our customers, and our communities. To support us in this important aspect of our work, the Wisconsin Bankers Association and partners organize the Midwest Economic Forecast Forum annually. This year’s event is set to be an exciting opportunity to hear from nationally renowned experts as they present their perspectives on economic conditions that continue to be susceptible to the risks and challenges posed by the pandemic.

The forum will be held virtually on January 4, 2022 from 10:30 a.m.–noon CT. Individual and group rates will be available, giving banks the opportunity to invite their staff, business customers,
directors, and others to join in on the viewing as part of their group registration.

Headlining the event will be Federal Reserve Bank President Neel Kashkari, who will provide an economic outlook. Kashkari took office as president and chief executive officer of the Federal Reserve Bank of Minneapolis on January 1, 2016. In this role, he serves on the Federal Open Market Committee, bringing the Ninth District’s perspective to monetary policy discussions in Washington, D.C. In addition to his responsibilities as a monetary policymaker, Kashkari oversees all operations of the Bank, including supervision and regulation, treasury services, and
payments services.

Presenting on the topic of “Economic Mega Trends 2022 and Beyond” will be David Kohl, Ph.D., professor emeritus, Virginia Tech. Kohl will cover questions such as: What are the global economic disruptors and power shifts? How will trade, geopolitics, supply chains, climate changes, and weather in extremes impact competitors? How will the stimulus package and Central Bank’s accommodative policy impact strategic positioning? What are some major mega trends on the horizon? What are the lead and lag indicators that need to be on the dashboards of decision makers?

With the level of uncertainty surrounding our economy moving forward, bankers should be especially interested in attending this engaging and informative event. The year ahead will no doubt be affected by excess liquidity in the banking system, supply chain delays/disruptions, labor shortages, and inflation fears. Bankers need to have a keen eye on how these key economic drivers will impact their banks and clientele. I look forward to the discussion on these topics at the Midwest Economic Forecast Forum and hope many of you will join us.

November 9, 2021/by Cassandra Krause
https://www.wisbank.com/wp-content/uploads/2021/09/Triangle-Backgrounds_Yellow-on-Light-Blue.jpg 972 1921 Cassandra Krause https://www.wisbank.com/wp-content/uploads/2021/09/Wisconsin-Bankers-Association-logo.svg Cassandra Krause2021-11-09 14:37:222021-11-09 14:54:39Midwest Economic Forecast Forum Virtual on January 4
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