Navy Federal's woes, Regions' check fraud: Top banking news for October 2023

October 30, 2023 3:46 PM

In October's roundup of top banking news: Navy Federal's contract with the Department of Defense remains in limbo, check fraud takes a bite out of Regions Financial's third-quarter earnings, a Community Reinvestment Act rule gets finalized and more.

Click here to read last month's roundup of banking industry news.

Under the contract with the Department of Defense, Navy Federal would operate 60 banking facilities and 275 ATMs throughout Europe and the Pacific

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Navy Federal, NCUA deadlocked over Department of Defense contract

Article by Ken McCarthy

Navy Federal Credit Union's contract with the Department of Defense to provide banking services to military personnel serving abroad faces an obstacle bigger than any bank lobby — the credit union's own regulator, which insists it cannot provide deposit insurance under the terms of the deal.

The Department of Defense established the overseas banking program after World War II to provide active-duty military members with retail, financial and cash services. The Vienna, Virginia-based Navy Federal is taking over the contract that had been held for 40 years by the $3.1 trillion-asset Bank of America.

The agreement was already under fire from the banking industry, and now the National Credit Union Administration says federal law prevents it from insuring any accounts offered through the program.

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Earlier this year, PNC said that it would reduce expenses by $400 million throughout the course of 2023. Then in July, company executives said that they had identified an additional $50 million worth of expense savings.

Sergio Flores/Bloomberg

Layoffs at PNC cut across business lines and geography

Article by Orla McCaffrey

PNC Financial Services Group laid off employees across both its geographic footprint and its business lines this month, the latest example of downsizing in the U.S. banking industry.

The Pittsburgh-based bank joins a growing list of banks, credit unions and fintech companies that have cut employees in 2023. BMO Financial Group, Wells Fargo and USAA cut hundreds of workers in July and August amid declining prospects for short-term growth in the financial sector.

PNC issued a statement acknowledging the job cuts, and saying that as part of its focus on managing expenses it is shifting "away from work that is not fully aligned to our strategic priorities." The $558-billion asset bank did not say how many employees received pink slips.

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Operational losses related to check fraud totaled $135 million at Regions between April and September. Executives at the Birmingham, Alabama-based bank warned that fraud costs will continue to weigh on the company's future earnings.

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Check fraud leads to big Q3 charge at Regions Financial

Article by Jordan Stutts

Check fraud is costing Regions Financial tens of millions of dollars each quarter — the latest example of how an increasingly rampant type of financial crime is chipping away at the industry's earnings.

Executives at the Birmingham, Alabama-based company warned that operational losses related to check fraud totaled $135 million between April and September, and will continue to weigh on the bank's future earnings.

After disclosing an $82 million loss related to check fraud in the second quarter, the $154 billion-asset bank reported a second scheme that was unknown to the bank three months earlier. The latest fraud scheme led to an additional $53 million loss during the third quarter, according to Regions CEO John Turner.

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A Wells Fargo branch in New York City in March. Mary Mack spent her entire career, which spanned four decades, at the megabank and its predecessors.

Angus Mordant/Bloomberg

Wells Fargo's Mary Mack: The exit interview

Article by Chana Schoenberger

Mary Mack didn't plan to go into banking. And yet, after 39 years in the field, in the summer of 2023, she retired from Wells Fargo, having worked for the bank and its predecessors her entire career. A longtime Most Powerful Women in Banking honoree, she was most recently CEO of consumer and small-business banking, based in Charlotte, North Carolina.

Mack accepted her first banking job because her then-boyfriend, now-husband, whom she met while at Davidson College, was planning to practice law in South Carolina. (He still does; they had three daughters and expect to become grandparents this fall.)

As a college senior, she was tapped to travel around the country with the school's president and speak to business leaders about the value of a liberal arts education. After an informational session with three bank CEOs, all reached out with job offers — but only one, First Union, was willing to let her live in the Charlotte area, close to the South Carolina border.

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The consulting firm McKinsey argues that banks must look in every nook and cranny to figure out how to be relevant and profitable in an uncertain, dynamic environment that's being shaped not only by technology, but also by macroeconomic and geopolitical risks.

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Banks are at a 'tipping point' amid broad shift to nonbanks: McKinsey

Article by Allissa Kline

Though banks have recently been churning out their highest profits in more than a decade, there's trouble brewing beneath the rosy performance metrics, according to the consulting firm McKinsey.

The threat is largely tied to the ongoing shift of balance-sheet activities and transactions away from traditional banks to nonbank institutions, McKinsey warns in its 2023 annual review of global banking. That migration has gained such scale that banking is now at "a tipping point" that could "fundamentally alter the nature" of the industry, the McKinsey report states.

Between 2015 and 2022, more than 70% of the net increase in financial funds wound up not on U.S. banks' balance sheets, but instead at insurance and pension funds, sovereign wealth funds, in the private capital market and with retail and institutional investors, according to the report. Financial funds were defined as the sum of all personal financial assets and all institutional financial assets, except those held by banks.

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5 ways merchants are fighting card-swipe fees at the point of sale

Cardshow by Kate Fitzgerald

Payment card interchange, a major factor of the "swipe fees" that average about 2% of each sale, is in the news again as lawmakers and regulators react to claims that the pricing of card payments is unfairly controlled by card networks Visa and Mastercard.

The existing systems supporting U.S. swipe fees are coming under pressure from at least three directions on political and legal fronts, briefly described below.

But merchants are also using technologies and policies to offset the cost of payment card swipe fees, helped by the rise of faster payments, new approaches to merchant-funded rewards and new U.S. regulations encouraging open banking.

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Jerome Powell, chairman of the Federal Reserve, said on Oct. 24 that the agency's final Community Reinvestment Act rule "will better achieve the purposes of the law by encouraging banks to expand access to credit, investment and banking services in low- and moderate-income communities."

Andrew Harrer/Bloomberg

Community Reinvestment Act rule finally crosses the finish line

Article by Ebrima Santos Sanneh

WASHINGTON — The Board of Governors of the Federal Reserve System voted to issue a final rule revamping the Community Reinvestment Act on the morning of Oct. 24, redefining the criteria for small, intermediate and large banks; introducing new evaluation tests based on loan activity rather than branch location; and incentivizing banks to conduct more community development activities.

"[It] will better achieve the purposes of the law by encouraging banks to expand access to credit, investment and banking services in low- and moderate-income communities," Fed Chair Jerome Powell said in a statement. He said it is adapted to "changes in the banking industry, such as mobile and online banking; providing greater clarity and consistency in the application of the CRA regulations; and tailoring to bank size and type."

The new rule, jointly released by the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. will go into effect on Jan. 1, 2026. The final rule redefines the asset size thresholds and methods with which regulators evaluate lenders. Small banks will be defined as having total assets of less than $600 million, an increase from the $376 million threshold under the current framework. Intermediate banks are defined as having total assets between $600 million to $2 billion and large banks as those having assets of $2 billion or greater.

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Blue Ridge Bank grew rapidly in the banking-as-a-service business before an enforcement action last year by the Office of the Comptroller of Currency. Now the small Virginia bank, founded more than a century ago in the hometown of Luray Caverns, is looking to switch back to a more traditional business model.

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Embracing fintech led to trouble for one small bank. So did the aftermath.

Article by Kevin Wack

Blue Ridge Bank, a community bank in Virginia that dove headfirst into the business of partnering with fintechs, has been in a pinch ever since getting hit with a broad enforcement action last year.

After nearly a year of turmoil, the company's new CEO told S&P Global Market Intelligence this summer that the bank was reducing its focus on fintechs and shifting back to its roots in community banking.

Since that interview was published, the stock price of parent company Blue Ridge Bancshares has fallen more than 50%, adding to a rout that was already underway. The market punished the bank when its compliance problems first surfaced, then punished it again when executives decided to scale back the bank's exposure to the fintech market.

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Banking-as-a-service provider Synapse lays off staff, loses major client

Article by Catherine Leffert

Banking-as-a-service platform provider Synapse laid off about 40% of its staff on Oct. 2, less than four months after cutting 18% of its headcount in June.

Synapse, which provides technology that connects fintech companies and banks, said in an email that it laid off 112 employees — 86 of them full-time, the rest contractors — across job functions after losing a major client last week to long-time bank partner Evolve Bank & Trust.

"We deeply regret saying goodbye to incredibly talented and dedicated members of the Synapse team," the company said in an emailed statement. "However, we have a strong group in place to manage all of our operations and support our customers going forward."

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A federal judge extended an injunction against the Consumer Financial Protection Bureau's small business data collection rule nationwide pending the outcome of a Supreme Court case challenging the constitutionality of the bureau's funding structure.

Joshua Roberts/Bloomberg

Court puts CFPB small-business data collection rule on hold nationwide

Article by Kate Berry

A rule that would require banks and credit unions to report specific data about small-business loan applicants has been put on hold nationwide.

A federal court has extended an injunction on the Consumer Financial Protection Bureau's small-business lending data rule to apply nationwide pending the outcome of a Supreme Court case challenging the constitutionality of the bureau's funding structure.

The Oct. 25 ruling by the U.S. District Court for the Southern District of Texas comes three months after a judge granted a limited preliminary injunction to members of two trade groups and a private bank that had sued the CFPB to keep the rule from going into effect.

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