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Under Pressure: Cost of Funds Strategies in a Rising Rate Environment

By Achim Griesel and Dr. Sean Payant

When rates were at record lows for long periods of time, the true value of low-cost funding may have faded into the background; however, low-cost core deposits continue to be the driver of long-term franchise value. Now, with rates continuing to rise — the one-year treasury exceeded 4% in September 2022 — the importance of low-cost funding is once again at the forefront.

The chart below is for a financial institution with strong low- and no-cost funding. In record low-rate environments, its cost-of-funds advantage over its peers was relatively small at 20–30bp. When rates started to rise from 2017–2019, it tripled to 60bp. For a $1 billion institution, that represents a $6 million increase to the bottom line. The current rising rate environment will lead to similar increases in profit.

In addition, deposit growth has stagnated in Q2 of 2022. On the macro level, FDIC insured deposits were down for the first time in a long time, and they were down significantly at 1.85% from the prior quarter. On the micro level, our data for consumer and business checking account deposit balances shows balances are down 3% and 7%, respectively, from the beginning of 2022. Even more importantly, the entire balance decline happened in May and June 2022, a trend we anticipate will continue.

Large institutions are aware of the value created by low-cost deposits, and they have the budgets to target core relationships that drive these benefits. For example, Chase is back to its $600 offer for opening a checking and a savings account. BMO Harris pays up to $500, and Citi has an offer of up to $2,000 for relationships with extremely high balances.

In addition to the cost of the offer, these largest banks spend a significant amount of marketing dollars to gain new core relationships and the benefits that come with them. When a financial institution does not commit to an always-on marketing strategy, it must provide above market offers to “buy” new relationships.

Community-based financial institutions (FIs) cannot compete by following a similar strategy. Unlike their large competitors, community-based FIs do not have the budgets for acquisition incentives of $500+ or the expansive budgets associated with marketing to acquire these relationships.

Compared to community-based FIs, large banks generally have more products and services as well as marketing teams who dwarf their smaller competitors. Given this reality, what does a community-based FI need to do to thrive?

To grow low-cost deposits, it is essential you follow a disciplined approach:

Step One: Your Institution must have a Sales and Service Culture. Good products are the foundation of a sales and service culture. You cannot ask your teams to sell, or consumers to buy, inferior products. If you want to know if your institution has good products, ask your customer-facing employees; they can tell you how consumers respond. Equally important is ensuring your team members are well-trained, understand and believe in your products and consistently execute your service expectations.

Step Two: Your Institution must be Strategic. Large institutions have the staffing and marketing budgets that allow them to frequently change offers, products marketed and/or desired prospects. For community-based FIs to compete, they must make data-driven, always-on marketing part of their core growth strategy. Your always-on marketing strategy supported by your sales and service culture will drive tangible results even when large banks are in periods of very high offers.

Step Three: You Institution must be Aligned. Your FI’s training and execution at the branch and through online channels must be aligned with your strategic marketing. Aligning marketing and execution is what reduces the acquisition costs for new core relationships. Without this alignment, your FI is left trying to compete on the offer alone, making it expensive to match those large bank offers previously mentioned.

Step Four: Measure, Inspect, and Reward! Any strategic initiative needs to be measured. Your core relationship growth strategy should have periodic — quarterly at least — goals. In addition, determine benchmarks to evaluate success. Inspect what you expect in order to ensure your sales and service standards are being consistently executed. Reward success! When your team members are fully aware of where they stand compared to their goals, it possible to evaluate results and reward successes.

Growing core relationships in order to grow low-cost deposits should be of primary importance in any rate environment; however, it is paramount in the current rising rate environment. Ultimately, out-performing your peers by 60bp will be welcomed by your board and celebrated by your management team. When you strategically align your culture, products, and people, competing for core relationships becomes easier and the $500+ offers from large banks become less effective. David will beat Goliath!

 

Griesel is president and Dr. Payant is chief strategy officer at Haberfeld, a data-driven consulting firm specializing in core relationships and profitability growth for community financial institutions. Haberfeld is a WBA Associate Member.

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Producer Price Index Steady in November 2022, Services Pressures Remain a Concern

By PNC Senior Economist Kurt Rankin

  • The Final Demand Producer Price Index (PPI) rose by 0.3% in November 2022
  • Core PPI, less Food & Energy, accelerated in November 2022 to 0.4% for the month
  • Energy PPI declined sharply in November 2022, down 3.3% for the month
  • Producer price pressures continue to center on Services (+0.4%), with Goods prices showing significant deceleration (+0.1%)

The Producer Price Index (PPI) for November 2022 rose versus the month prior, up 0.3% versus October. This translates to a 7.4% year-over-year gain, which is down from the peak pace of 11.7% mark posted in March 2022. November’s 7.4% is the slowest year-over-year pace recorded since May 2021 (+6.9%). More importantly, the November monthly rise equals 3.6% at an annualized pace, representing producer price inflation if current conditions were to be maintained for a one-year period. This metric has come in under 4.0% for the past five months consecutively, including two outright declines in the topline PPI measure in July & August. Further deceleration in the monthly annualized pace of gains in producer prices will be necessary before consumer price inflation concerns can be resolved.

Producers’ Energy prices declined in November 2022 versus October by 3.3%. The PPI Energy component index now sits below the March 2022 level reached after Russia’s invasion of Ukraine. This is a good sign for inflationary trends, broadly speaking, as energy costs filter through to all sectors of the economy – industrial and consumer. With oil prices falling further thus far in December, at least there appears to be no renewed threat of a reignition of energy costs that would prevent inflation from continuing to ease in the coming months.

On the other hand, Food prices surged in November 2022 according to that PPI component index. The Food cost measure of the PPI rose by 3.3% for the month versus October, offsetting the relief seen in the Energy segment.

Inflation across household necessities is the biggest concern for the U.S. economy as consumers continue to spend through their stimulus-supplemented savings and rapidly accumulate credit card debt — all while inflation eats away at real-time spending power since wage growth has not kept up with inflation. With Food PPI rising strongly in November, one can be sure to see continued upward pressure on household grocery bills as those producer prices are passed on to the retail level. The holiday shopping season will likely be accompanied by plenty of restaurant goers as well, meaning higher costs for the ‘Food Away from Home’ category.

Overall inflation is moving in the right direction, though at a slow pace. The Federal Reserve’s monetary policy tightening plans will remain aggressive until clear, consistent signs of inflation’s demise have been demonstrated.

The “Demand Destruction” among households that the Fed has aimed at through higher borrowing costs has been evident in the U.S. housing market, with Existing Single-Family Homes through October 2022 declining all the way to levels not seen since 2011. But consumers have not cut back on smaller, everyday goods and –even more so – services purchases thus far. U.S. households’ indomitable spending habits are set to contribute to a recession in 2023 after those same consumers hit a wall in their spending capacity by mid-year, coupled with higher debt levels and reduced savings cushions. And once the U.S. consumer does pull back in aggregate, an economic contraction is virtually unavoidable given that 70% of U.S. economic activity is dependent upon workers bringing home a paycheck, and then spending that paycheck.

Data from 12/9/22.

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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.

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Money in Moments: RTP Network, FedNow Progress Are Wins for Businesses and Consumers

By Shailesh Kotwal

There is no debating that one of the most dynamic financial services topics today is how banks can process payments securely in just moments for businesses and consumers. During a recent appearance before Congress, Federal Reserve Board Chairman Jerome Powell reiterated that FedNow — the Fed’s instant payment service — is expected to go live in 2023.

For the last several years, the Fed has been hard at work to provide another option for banks to process safe and immediate payments for businesses and consumers. Pilots are underway to ensure FedNow will work smoothly upon launch. This progress is a positive sign for businesses and consumers. They’re now poised to have convenient access to two services that provide immediate payment processing and settlement 24 hours a day, 365 days a year.

At U.S. Bank, we’re focused on continuing to help our customers send and receive payments instantly today on The Clearing House’s RTP Network, while also supporting the development of FedNow. Come 2023, we’ll be ready to process payments on both RTP and FedNow seamlessly, whichever works best for our customers.

The great progress we have experienced in recent years with RTP will only help FedNow be more successful. RTP volume has steadily increased, going up 35 percent year over year. But FedNow should particularly benefit from the use cases that have been established for businesses to utilize instant payments that drive efficiencies and improve customer experience. Here are some of the instant payment use cases that are already transforming payment experiences across our economy.

  • Merchant funding: In the past, small businesses would often wait days to receive funds from electronic payment sales. With real-time payments, small businesses have funds from sales in their bank account the same day, including sales made on nights and weekends.
  • Payroll: Biweekly payroll has been common for decades. But those days may be fleeting. Real-time payments enable money to be immediately available to employees after a shift. We also envision real-time payments being used to for incentive pay, seasonal worker pay and to pay an employee who leaves the company.
  • Request-for-Payment (RfP): RfP allows consumers to have their various bills sent directly to them via their bank’s app. Consumers can pay their bill at any time of day or week and get confirmation that the payment has gone through, instantly. Businesses save money by reducing paper bills and improved visibility into when they will receive funds.
  • Auto industry: When a consumer takes out an auto loan, the dealership often waits days to have access to the funds from the sale. With real-time payments, we’re now delivering the funds immediately after the consumer is approved for the loan, even on nights and weekends. We also worked with Driveway.com to enable consumers who sell their vehicle on the platform to be paid before their car leaves their driveway.

We are only scratching the surface of how transformative instant payments can be in our daily lives. I am confident that use cases will continue to accelerate throughout 2022 as companies — big, small and everything in between — will work to make their payments processes as simple as the real-time peer-to-peer payments their employees and customers already enjoy and now expect from businesses.

As I look towards the future of payments, I am excited that much of the groundwork will be laid for banks to hit the ground running when FedNow is live. This optionality will allow businesses to choose which payment rail works best for their systems and provide consumers with more safe and instant payment experiences throughout their daily lives.

Kotwal is vice chair of payment services at U.S. Bank, fifth-largest bank in the United States with operations in North America and Europe.

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Small Decline in Real GDP in Second Quarter, But Economy Is Not in Recession

Commentary by PNC Chief Economist Gus Faucher

Real gross domestic product (GDP) fell 0.9% at an annual rate in the second quarter of 2022, according to the advance estimate from the Bureau of Economic Analysis (BEA); this followed a 1.6% decline in the first quarter. This is the first time GDP has contracted in two consecutive quarters since the first half of 2020, when the pandemic came to the U.S.

The big drag came from inventories, which subtracted 2 percentage points from growth. Trade was a major positive adding 1.4 percentage points to growth in the quarter as the trade deficit declined. Exports rose a very strong 18% while imports rose just 3%; higher imports subtract from GDP. Consumer spending rose 1.0% adjusted for inflation, adding 0.7 percentage point to growth. Goods spending fell 4.4% in the quarter, with declines for both durable and nondurable goods, but services spending rose 4.1%.

Business fixed investment was essentially flat in the second quarter, with a big increase in investment in intellectual property products almost offsetting declines in investment in structures and equipment. Housing investment was a major drag, subtracting 0.7 percentage point from growth, as higher interest rates weighed on homebuilding and repairs and renovations. Government subtracted 0.3 percentage point from growth, with small declines in federal and state and local government spending.

On a year-ago basis real GDP was up 1.6% in the second quarter, down from 3.5% growth in the first quarter.

Final sales of domestic product — GDP minus the change in inventories, which measures demand for goods and services produced in the U.S. — increased 1.1% in the second quarter, following a 1.2% decline in the first quarter.

The National Bureau of Economic Research (NBER) is the widely accepted arbiter of recessions in the U.S. according to the NBER, a recession is “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” The NBER explicitly states that two consecutive quarters of contraction in GDP does not necessarily equate to recession. Instead, the NBER considers many economic series, including personal income (excluding government transfer payments) and consumer spending, both adjusted for inflation; employment; wholesale and retail sales, also adjusted for inflation; and output in manufacturing, mining, and utilities.

Using these indicators, the economy was expanding through the second quarter. The second quarter GDP results reaffirm this view, with consumer spending and final sales of domestic product both up moderately, and with inventories the major drag on growth. Demand remains solid.

Strong job growth is another indication that the economy is expanding in mid-2022; the economy added 375,000 jobs per month on average in the second quarter. Additionally, the decline in real GDP (unannualized) in the first half of 2022 was 0.7%; it is unclear if this would meet the NBER’s definition of a “significant” decline. And an alternative measure of the size of the economy, real gross domestic income (the income going to households and firms from economic activity) rose in the first quarter; the BEA will release the first read on real GDI for the second quarter next month. Real personal income excluding transfer payments rose slightly in the second quarter.

The GDP price index rose 8.7% annualized in the second quarter, up from 8.2% in the first quarter. The personal consumption expenditures price index increased 7.1% in the second quarter, the same pace as in the first quarter. The core PCE price index, excluding food and energy prices, rose 4.4% in the second quarter, down from 5.2% in the first quarter. The PCE price indices are the Federal Reserve’s preferred inflation measures and are running much higher than the central bank’s 2% objective. The central bank is raising interest rates in an effort to slow growth and bring down inflation.

Economic growth slowed in the first half of 2022, but the U.S. economy is not in recession. Demand, especially from consumers, remains solid, thanks to the very good labor market and about $2 trillion in extra saving relative to before the pandemic, and despite the drags from inflation and higher interest rates. Consumer spending is shifting from goods to services; consumers bought a lot of goods in the initial recovery from the pandemic and don’t need as many now and are feeling more comfortable going out and spending on services.

Despite a very small decline in the second quarter, business investment demand remains solid. A narrowing trade deficit will also contribute to solid economic growth in the second half of 2022. Housing will remain a drag, however, as higher mortgage rates continue to weigh on the housing market. PNC expects annualized growth in the second half of 2022 of around 2%, with growth slowing to around 1% in 2023 and 2024 as higher interest rates continue to weigh on the economy.

Although the U.S. economy continues to expand, recession risks are elevated, with a probability of around 45% over the next couple of years; this is more than double the probability before the Russian invasion of Ukraine. The risk is that Fed interest rate increases to reduce inflation could lead to an outright contraction in economic activity, either in late 2022 or sometime in 2023.

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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. 

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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.”

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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.

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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.

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Juneteenth Gains Federal Holiday Status

Juneteenth National Independence Day, June 19, has been established as the 12th federal holiday. The bill passed unanimously on Tuesday in the U.S. Senate and in a 415-14 vote on Wednesday in the House of Representatives. It was yesterday signed into law by President Joe Biden. It is the first new holiday since Martin Luther King, Jr. Day was signed into law in 1983. Juneteenth became a legal holiday in Wisconsin in 2009 under then-Governor Doyle, and, after the 2020 murder of George Floyd, a number of banks in Wisconsin have closed their lobbies and given employees time off in observance of the holiday. As the June 19 falls on a Saturday this year, most federal employees will observe the holiday today, June 18, however, when a holiday falls on a Saturday, the Fed does not observe it on the Friday before. U.S. stock markets are scheduled to remain open this year. 

On June 19, 1865, approximately two and a half years after the Emancipation Proclamation and two months after Confederates surrendered in April 1865, federal troops arrived in Galveston, Texas to take control of the state and ensure that all enslaved people be freed. Slavery was outlawed across the nation with the ratification of the 15th Amendment six months later. 

Juneteenth events will be taking place around Wisconsin this weekend. Other ways to commemorate Juneteenth include reading and tuning into dialogue surrounding race and equality, supporting Black-owned businesses, and donating to organizations that make a positive impact on Black communities.

In the words of Henry Louis Gates, Jr., “Of all Emancipation Day observances, Juneteenth falls closest to the summer solstice. . . the longest day of the year, when the sun, at its zenith, defies the darkness in every state, including those once shadowed by slavery. By choosing to celebrate the last place in the South that freedom touched — reflecting the mystical glow of history and lore, memory and myth, as Ralph Ellison evoked in his posthumous novel, Juneteenth — we remember the shining promise of emancipation, along with the bloody path America took by delaying it and deferring fulfillment of those simple, unanticipating words in Gen. Granger’s original order No. 3: that ‘This involves an absolute equality of personal rights and rights of property between former masters and slaves.’”

By, Cassie Krause

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Events

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Midwest Economic Forecast Forum

Don’t miss this unique Midwest and national economic forecast for 2023!

Presented by the Wisconsin Bankers Association, in partnership with the Michigan Bankers Association, Minnesota Bankers Association, and Missouri Bankers Association

Thursday, January 12, 2023 – 10:30 a.m. – Noon CT (11:30 a.m.–1:00 p.m. ET)

Prepare for 2023 by joining an economic outlook with St. Louis Fed President James Bullard during this virtual event. Then listen to Augustine Faucher, Chief Economist with the PNC Financial Services Group, as he shares what he expects in 2023 and beyond.

Bankers are encouraged to invite their business clients to virtually share these economic insights. Individual or group registration rates are available.

Virtual Forum Agenda

10:30 – 11:15 a.m. CT

An Economic Outlook with Federal Reserve Bank President James Bullard

Time will be allotted for open Q & A.

11:15 a.m.–Noon CT

Recession Risks Elevated in 2023 as Fed Raises Interest Rates to Fight Inflation – Augustine (Gus) Faucher

Who Should Attend?

Bank leaders with an interest in the economic and business environment will find value in hearing from our nationally-recognized speakers. Bankers are encouraged to invite their business customers to attend as a part of the bank’s group of attendees. Group pricing is available for your bank. Associate Members of the presenting state bankers associations are also invited to register to attend.

Registration Information

Registration is available individually or as a group. Take advantage of our group pricing to invite additional staff and business customers to join your bank in attending!

  • Individual Registration – $39/connection
  • Group Registration – up to 10 virtual connections – $149/group

Limited sponsorship opportunities are available for this multi-state event. Contact WBA’s Nick Loppnow via email for more information.

Media Inquiries: For a Media Registration for the event, please contact WBA’s Cassandra Krause at 608-441-1216 or ckrause@wisbank.com. Advance registration is required.

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WBA/ABA Money and Banking

A fundamental study of how money functions in the U.S. and world economies. How money supply, the banking system, the Federal Reserve and the federal government are all interrelated, and how changes in the financial system can affect individuals, businesses, and governments on a world-wide basis are covered.

The required textbook for this course is Money and Banking.

IMPORTANT:  Be sure to order the required book for this course.  We recommend that you FIRST select and add your course session to the shopping cart, then select your preferred format of book from the “Recommended Training” options that appear alongside the shopping cart.

Audience: Bank personnel who have not had a formal course in money and banking and who wish to increase their understanding of the banking industry; officer trainees through the mid-management level.

Price: $430

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WBA/ABA Money and Banking

A fundamental study of how money functions in the U.S. and world economies. How money supply, the banking system, the Federal Reserve and the federal government are all interrelated, and how changes in the financial system can affect individuals, businesses, and governments on a world-wide basis are covered.

The required textbook for this course is Money and Banking.

IMPORTANT:  Be sure to order the required book for this course.  We recommend that you FIRST select and add your course session to the shopping cart, then select your preferred format of book from the “Recommended Training” options that appear alongside the shopping cart.

Audience: Bank personnel who have not had a formal course in money and banking and who wish to increase their understanding of the banking industry; officer trainees through the mid-management level.

Price: $430

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WBA logo

questions@wisbank.com

608-441-1200

4721 S Biltmore Ln.
Madison, WI 53718

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