5 regulatory issues to watch in banking this year

Citi received three notices from the Federal Reserve in late 2023 imposing six- and 12-month deadlines by which the bank must change the way it measures particular risks, according to Reuters, which cited an email and an anonymous source. The regulators' demands relate to Citi's ongoing risk management overhaul, which is meant to address a pair of consent orders issued in 2020 by the Fed and the Office of the Comptroller of the Currency. Those orders followed several risk-related blunders at Citi, including a mistaken payment of $900 million to the creditors of cosmetics company Revlon. 

The bank recently failed exams by the OCC, which were intended to determine whether the company is advancing on data integrity as much as it has reported. 

"We're making steady progress simplifying and modernizing our bank, "a statement from Citi reads, emphasizing a commitment to "meeting the expectations" of regulators. "Like any multiyear effort of this scale, progress isn't linear and there are important learnings along the way that we're incorporating into our efforts, including in the areas of regulatory reporting, infrastructure and data enhancement. We continue to advance this critical body of work."

Read more: Regulators push Citi to move faster on risk management fixes: Report 

Crackdowns on banks engaging in banking-as-a-service, or BaaS, are on the rise. Financial institutions including Blue Ridge Bankshares, Cross River Bank, Choice Financial Group and First Fed Bank have been forced by regulators including the Office of the Comptroller of Currency and the FDIC. to heighten oversight of their fintech partners, strengthen compliance and more.

"The number one takeaway for banks has to be that banking-as-a-service is not the silver bullet many of them thought it would be for deposit gathering," Jason Henrichs, founder and CEO of community bank consortium Alloy Labs Alliance, recently told Miriam Cross, tech reporter at American Banker. "There is a reckoning that it will involve more investment."

Read more: Banking-as-a-service banks: 'There is a reckoning'

Treasury Secretary Janet Yellen refused to take a position on the bank agencies' Basel III endgame proposal, which would raise capital standards for the largest banks, when she testified in front of the House Financial Services Committee in early February.  She instead said that she would leave the Basel questions to the bank regulators.

Lawmakers from both parties criticized the Basel proposal during the annual report of the Financial Stability Oversight Council. In response to Rep. David Scott, D-Ga., who expressed concerns about potential small business and consumer lending impacts of the proposal, Yellen said she believes it's important that the country has a strong banking system with adequate capital, but she qualified that by acknowledging the nature of the largest criticisms against the proposal. 

"It's important to ensure that credit availability is not significantly diminished," she said. 

Read more: Yellen refuses to back banking agencies' Basel play