Top banking news this month: January 2023

January 31, 2023 4:34 PM

In this month's roundup of American Banker favorites: Development of central bank digital currencies gains momentum, ongoing lawsuits against JPMorgan Chase and PNC address the banks' liability, regulators with the Office of the Comptroller of the Currency propose dissolving big banks that repeatedly fail to rectify past bad behavior and more.

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

Alarm Bells, Arrogance and the Crisis at Wells Fargo - Chapter 1 hero image

Former Wells Fargo Chief Security Officer Michael Bacon (far left) is shown in a photo montage with two of the bank's former CEOs, Tim Sloan (second from left) and John Stumpf (second from right), as well as former retail banking head Carrie Tolstedt (center) and former Chief Administrative Officer Pat Callahan (far right).

Chapter 1: A turbulent departure

Article by Kevin Wack

This story is the first chapter in a five-part series:

Alarm bells, arrogance and the crisis at Wells Fargo

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Michael Bacon strode off the elevator on his way to a hastily called meeting. Walking down the hall on the 12th floor at Wells Fargo's headquarters, he felt a sense of foreboding.

Bacon, a loquacious middle-aged executive with a Texas drawl and an easy charm, was the closest thing to a cop in the San Francisco bank's senior ranks. As chief security officer and director of corporate investigations, he oversaw a unit that provided security for more than 10,000 buildings in all 50 states and 36 countries. His team also included a group of investigators whose job was to probe employee misconduct at the bank.

Bacon was heading into a meeting with his boss, Human Resources Director Hope Hardison. Their relationship had grown tense. It was September 2014, and cheating by low-level employees — trying to meet sales goals by enrolling customers in products without their consent — was becoming a big problem for Wells Fargo.

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Bloomberg

CBDC projects pick up the pace as 2023 kicks off

Article by John Adams

Progress on central bank digital currencies has been relatively slow. But a flurry of tests near the end of the year suggest CBDC initiatives are improving their pace, as central banks try to determine the impact on traditional banking and payment systems.

About a dozen CBDCs have launched, according to a tracker from the Atlantic Council, which adds 17 are in pilot and 72 are in research and development. Eighty percent of central banks are considering a CBDC or have already launched one, according to PwC. There's a mix of motivating factors, such as improving cross-border payments, mitigating financial crimes and improving financial inclusion, reports PwC. Mounting risks from other forms of digital currency, such as volatility in cryptocurrency, are also pushing CBDC projects.

"A well-designed CBDC can help provide a real-time view of risks and currency outflows to help implement specific and targeted measures to prevent financial contagions from spreading further in the event of a crisis," said Gilbert Verdian, founder and CEO of Quant, a London-based blockchain firm.

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Crypto Bank Silvergate Falls After Third Quarter Earnings Miss

Silvergate Bank tapped the Federal Home Loan Bank system for $4.3 billion in advances in the fourth quarter of 2022, just as its deposit levels shrank dramatically by almost 70%.

SOPA Images/Photographer: SOPA Images/LightR

Silvergate Bank loaded up on $4.3 billion in Home Loan bank advances

Article by Kate Berry

When depositors began pulling money out of Silvergate Capital Corp. following the collapse of the cryptocurrency exchange FTX, the California bank shored up its liquidity by tapping a quasi-government agency not typically known as a lender of last resort.

Silvergate received $4.3 billion from the Federal Home Loan Bank of San Francisco late last year, company filings show. The billions in liquidity provided by the FHLB in the fourth quarter alone helped La Jolla, Calif.,-based Silvergate stave off a further run on deposits. The crypto-friendly bank now holds roughly $4.6 billion in cash — the bulk of which came from Home Loan Bank advances, according to select financial metrics that Silvergate released last week.

The lifeline that Silvergate got from the Home Loan Bank System shows one way in which the crypto industry has managed to find its way into the mainstream banking system. It also comes as the Federal Housing Finance Agency is reviewing the mission of the Home Loan banks. Critics have questioned the system's hybrid public-private business model and whether the banks are engaged in the primary mission of supporting housing. Though the banks were created during the Depression to support housing finance, some experts suggest the funding to Silvergate is an example of mission creep

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Adobe Stock

Five trends to watch in fourth-quarter bank earnings

Article by Jordan Stutts

As the full-year impact of rising interest rates and inflation comes into focus, investors should expect banks to report the good, the bad and the uncertain in their fourth-quarter earnings, analysts say.

Net interest income will continue to buoy bank performance but is expected to level off as the Federal Reserve slows the pace of rate hikes in response to inflation. At the same time, if economic volatility settles down, banks could see a rebound in fee revenue from capital markets as investors trade more and seek more advice on their portfolios.

As higher deposit costs cause more outflows, bank executives could be forced to explain how they expect to compete for new sources of funding. But the negative effects of sluggish deposit growth should be mitigated by weaker loan demand amid a tightening economy – unless borrowers stampede to banks for more loans to counteract the effects of inflation.

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Lawsuits against JPMorgan, PNC test banks' liability in wire fraud cases

Article by Carter Pape

Two ongoing lawsuits will test just how responsible big banks are for recent fraud losses and whether their monitoring practices are enough to shield them from accountability when customers lose money to insider threats and phished credentials.

In one case, Joyce's Jewelry, a jeweler in Uniontown, Pennsylvania, alleged in the U.S. District Court in Pittsburgh that PNC allowed hackers to empty the business's accounts because it lacked adequate measures to prevent the fraud.

Hackers successfully phished for one employee's credentials and used them to wire away all $1.6 million the company had in its four accounts. However, PNC promised to require tokens from two Joyce's employees to complete such transactions, according to Joyce's, which is one reason why the company claims PNC bears responsibility.

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General Views of Boston as U.S. Productivity Rebounds

The Federal Reserve Bank of Boston produced new data in one of the largest consumer payments diary surveys conducted in recent years.

Bloomberg News

Wealthy, white consumers pay fewer bank fees: Report

Article by Kate Fitzgerald

Poorer and more marginalized demographic groups in the U.S. are significantly more likely to be unbanked, and one of the reasons they use cash is fear of high bank account and credit card fees.

To find out who is paying most of these fees, the Federal Reserve Banks of Atlanta, Boston and San Francisco produced new data in one of the largest consumer payments diary surveys conducted in recent years.

About 16% of consumers earning under $50,000 annually were likely to pay a bank overdraft fee, compared with 7% of consumers earning more than $100,000, FRB economists Oz Shy and Joanna Stavins concluded.

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Michael Hsu (pictured), the acting comptroller of the currency, has vowed to fix "too big to manage" banks. But "he needs to prove that the OCC has the fortitude to see its task through," writes the policy chief of a regulatory watchdog group.

Bloomberg News

Regulators willing to break up repeat-offender banks, acting comptroller says

Article by Ebrima Santos Sanneh

WASHINGTON — The Office of the Comptroller of the Currency and other regulators would consider breaking up big banks that repeatedly fail to correct bad behavior, according to acting Comptroller Michael Hsu.

Though financial regulators have long had the power to split up banks for incessant violations, Hsu's remarks at the Brookings Institution on Jan. 17 were the most explicit warning in recent memory of regulators' willingness to break apart large, chronically delinquent financial institutions.

"Enterprises can become so big and complex that control failures, risk management breakdowns and negative surprises occur too frequently — not because of weak management, but because of the sheer size and complexity of the organization," Hsu said. "In short, effective management is not infinitely scalable."

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Bloomberg News

Community reinvestment group plans to put KeyBank's regulators on notice

Article by Allissa Kline

One month after releasing a highly critical report about KeyBank's mortgage lending record to Black borrowers, the National Community Reinvestment Coalition is taking its concerns to regulators.

The fair-lending advocacy group says it is planning to send letters this quarter to the Federal Reserve and the Office of the Comptroller of the Currency that focus on KeyBank's "failure to complete" a five-year, $16.5 billion community benefits plan to which it committed in 2016 while seeking regulatory approval to acquire First Niagara Financial Group in Buffalo, New York.

The coalition says that the letter to the OCC will be submitted as a public comment letter ahead of KeyBank's next Community Reinvestment Act exam, which is scheduled in April.

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Sharonview Federal Credit Union in South Carolina, increased its membership 11% year-over-year, to 113,360, at the end of the third quarter.

'Mom and pop' credit unions are losing the tech race — and members

Article by Ken McCarthy

Technology is giving large credit unions an advantage in attracting new members, so much so that the growth the industry experienced over the past 12 months is concentrated almost entirely among those with $1 billion of assets and up.

The credit union industry experienced 4.4% annual membership growth, to 134.3 million, in the third quarter compared to a year earlier, according to the latest data from the National Credit Union Administration. Credit unions with at least $1 billion of assets grew their memberships 8.1% year-over-year in the third quarter.

The largest credit unions in the U.S. — including Navy Federal and Pentagon Federal — continue to see strong membership growth. Navy Federal saw its membership rise 11%, to 12.1 million, in the third quarter compared to a year earlier; and PenFed grew new members by 16%, to 2.8 million, in the same timeframe.

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Starbucks worked with Comcast to automate tasks that take baristas away from the register

Bloomberg

How Starbucks and Kroger are reimagining the point of sale

Article by Daniel Wolfe

NEW YORK — Starbucks and Kroger, two retail brands that have been at the forefront of mobile payments and self-checkout technology, respectively, are deploying new systems to further cut friction at the point of sale.

Both companies are taking drastically different approaches to updating their checkouts, but with the same goal: cut down on the time consumers spend making a payment by reducing the points of friction that are in the store's direct control.

In Starbucks' case, that means tallying every second the barista spends on mundane tasks, and finding a way to automate those chores. With Kroger, that means loading a digital copy of its front end into a computer simulation to spot customer bottlenecks in current and future layouts.

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