The end of Chevron deference, CRE concerns: Top banking news for June 2024

Published July 3, 2024 5:30 AM

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Updated July 9, 2024 9:17 AM

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In this month's roundup of top banking news: a cease-and-desist order from the Federal Reserve, CRE concerns, increased turnover among bank CFOs and more.

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john Roberts, Samuel Alito, Neil Gorsuch, Brett Kavanaugh

Eric Lee/Bloomberg

Supreme Court ends Chevron deference in landmark decision

Article by Kevin Wack and Kate Berry

On June 28, the Supreme Court overturned a major legal precedent requiring judges to defer to federal regulatory agencies' interpretation of ambiguous statutes. The 6-3 ruling reduces the power of a wide range of executive branch agencies, including bank regulators, to interpret laws.

The 40-year-old legal doctrine — known as Chevron deference, named for the 1984 Supreme Court decision in Natural Resources Defense Council v. Chevron establishing the precedent — had long frustrated companies in regulated industries because it limited their ability to sue agencies over their interpretations of broad or vague legal authorities.

The doctrine often meant that regulators could write broader, more costly rules than regulated companies believed were warranted. Its demise is expected to open the floodgates to a wave of litigation challenging such rules.

But the end of Chevron deference could be a double-edged sword for banks, according to industry lawyers, because the Supreme Court's decision will also make it easier for advocacy groups and state attorneys general to challenge rules they oppose, which would introduce more uncertainty for banks.

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Michael Hsu, acting director of the Office of the Comptroller of the Currency and co-chair of the special committee of the Federal Deposit Insurance Corporation (FDIC), during a House Financial Services Committee hearing in Washington, DC, US, on Wednesday, June 12, 2024.

Al Drago/Bloomberg

Synapse bankruptcy puts bank-fintech partnerships on notice

Article by Ebrima Santos Sanneh and Claire Williams

Synapse — a fintech middleware provider that connected licensed banks with non-bank entities looking to offer banking services — abruptly shut down and filed for bankruptcy protection in April, freezing numerous transactions and leaving $85 million of customer deposits unaccounted for, as revealed in the company's Chapter 11 bankruptcy proceedings.

On June 14, the Federal Reserve issued a cease-and-desist order against Synapse partner Evolve Bank for shortcomings in managing its third-party fintech relationships — an order that originated from a routine supervisory review. A spokesperson for Evolve said the bank is working with its independent U.S. Trustee appointed in this matter and the other partner banks to get funds back to end users.

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San Diego

Adobe Stock

Regional banks are locked in a battle of perception over CRE

Article by Catherine Leffert

Concerns about the riskiness of some commercial real estate loans, especially in the office sector, have been hitting banks' stock prices like a game of Whac-A-Mole. Although it seems safe to assume that the asset class will experience some stress, experts say it's difficult to accurately assess individual loans without information that the banks often don't provide.

As banks begin to report second-quarter earnings, many institutions with outsized CRE portfolios will seek to share enough information to convey stability without getting so deep in the weeds that they put investors on alert or break confidentiality agreements.

Jon Winick, CEO of the bank advisory firm Clark Street Capital, said there are reasons to worry about commercial real estate, but that data from banks' earnings reports don't jibe with a doomsday story.

"Now, the apocalyptic narrative could be completely accurate," Winick said. "But you have to concede that there is a difference between the actual facts on the ground, what banks have seen so far in non-performing assets and what the market perception is."

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Turnover time: Why so many banks have CFO vacancies

Article by Allissa Kline

Turnover among bank CFOs appears to be rising. What had been a slow burn is picking up pace as banks face not only retirement and burnout scenarios, but heightened regulatory pressures and profitability challenges created by the higher interest rate environment. Last year's bank failures, which fueled uncertainty in the sector, didn't help.

"There has definitely been an uptick" in bank CFO turnover, said Scott Simmons, co-managing partner at Crist|Kolder Associates, a Chicago-area executive search firm that places CEOs, CFOs and other C-suite executives in banking and other industries. "There are no obvious patterns as to why … but what I can tell you is there's immense pressure on these banks, and there's a lot of pressure on the management team to either perform or buy, or be bought."

CFOs play a big role at banks. They are often viewed as the No. 2 executive — in charge of financial planning, cash flow, budget and various investments. They deal with regulators, analysts and investors, and they take center stage during quarterly earnings calls.

The departures of CFOs are impacting companies other than just banks. CFO turnover has been rising among all public companies since 2019, and it hit a three-year high during the first quarter of this year, according to a report from Russell Reynolds Associates, a management consulting firm.

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Graeme Sloan/Bloomberg

Truist suffers data breach, hackers claim it affects 65,000 employees

Article by Carter Pape

Truist acknowledged an October data breach on June 14 that, according to a threat actor advertising the stolen data on a forum, includes data on 65,000 employees.

"In October 2023, we experienced a cybersecurity incident that was quickly contained," a spokesperson for Truist said. "In partnership with outside security consultants, we conducted a thorough investigation, took additional measures to secure our systems, and notified a small number of clients last fall."

The spokesperson did not say who was behind the breach, how it occurred nor whether the thieves demanded a ransom payment. The Truist spokesperson did not acknowledge the threat actor's claim of having source code or employee data, except to say that the bank was "providing awareness to teammates."

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Andrew Harrer/Bloomberg

Fed hits Synapse partner Evolve Bank with cease-and-desist order

Article by Kyle Campbell

The Federal Reserve Board hit Evolve Bank with a cease-and-desist order on June 14 related to its third-party fintech relationships, which include the now-shuttered fintech middleman platform Synapse Financial, imposing a litany of requirements on the bank, including restrictions on new fintech partnerships., citing the community bank's shortcomings related to anti-money-laundering, risk management and consumer protection.

Evolve was one of the primary banking partners of Synapse, a middleware provider that sought to serve as a bridge between licensed banks and nonbank entities looking to take deposits and make loans. Synapse abruptly shut down and filed for bankruptcy protection in April, freezing numerous transactions and leaving $85 million of customer deposits unaccounted for, according to the firm's Chapter 11 bankruptcy proceedings.

The Fed noted that the action, which was issued in conjunction with the Arkansas State Banking Department on June 11, was made independent of the bankruptcy proceedings.

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David Paul Morris/Bloomberg

U.S. Bank announces partnership with Greenlight to provide family app

Article by Frank Gargano

U.S. Bank in Minneapolis has partnered with family finance fintech Greenlight Financial Technology to help customers teach their children healthy spending habits.

Consumers with eligible U.S. Bank checking accounts can gain free access to Greenlight's platform and linked debit cards for children and teenagers up to 17 years old. The collaboration is the latest product tied to the launch of the institution's Bank Smartly accounts and rewards program in November 2022.

"Families were looking for a better way to raise financially smart kids [and] we found that age-appropriate financial literacy, paired with a debit card to put the skills into practice, is a powerful way to meet that need," said Jennifer Miller, head of strategic alliances and campus banking at U.S. Bank. "Greenlight has revolutionized how parents teach their kids and teens about money, and we wanted to bring that to our customers in a simple and seamless experience."

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Joseph Otting - New York Community Bancorp

Joseph Otting, NYCB

Bloomberg

NYCB's new leaders face skeptical shareholders in wake of turmoil

Article by Allissa Kline

Shareholders approved all but one of New York Community Bancorp's proposals presented June 5 at the bank's annual meeting, including a resolution okaying the $1.05 billion capital infusion in March that may have shielded New York Community from more dire circumstances.

Shareholders questioned the new executive management team, suggesting some discontent in the wake of the capital influx. One shareholder wanted to know why investors should sign off on the additional capital, which came from an investment group led by former Trump administration Treasury Secretary Steven Mnuchin. Although the capital infusion was announced March 6 and closed six days later, New York Community was required to obtain shareholder approval to finalize the deal because of the amount of stock it plans to issue.

"If the capital raise was not ready to go specifically that afternoon, the chances of the company surviving would have been at a peril," CEO Joseph Otting told shareholders during the meeting. "As we look back today, it was the right decision for the company, it was the right decision for the investors, and collectively we will work very hard to reestablish the value of this company going forward."

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U.S. Bancorp splits new president's former duties between two executives

Article by Allissa Kline

U.S. Bancorp has split its new president Gunjan Kedia's former day-to-day responsibilities between two longtime executives.

Stephen Philipson is now leading all of the product businesses within U.S. Bancorp's wealth, corporate, commercial and institutional banking division, the company said in a press release. Meanwhile, Felicia La Forgia will oversee a newly created unit within the same division called the Institutional Client Group, which will focus on distributing resources to institutional clients.

Philipson, who joined U.S. Bancorp 15 years ago, most recently oversaw the global markets and specialized finance segment within the wealth, corporate, commercial and institutional banking unit. He joined the bank in 2009 as the deputy head of high grade fixed income after having worked at Wells Fargo, Wachovia Securities and Morgan Stanley, according to his LinkedIn profile.

La Forgia, who has been with U.S. Bancorp since 2008, was most recently the head of corporate banking at U.S. Bank, the banking subsidiary of U.S. Bancorp. She was also group head of the bank's oil and gas, retail and apparel and utilities businesses, the company said.

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Michael Hsu, acting director of the Office of the Comptroller of the Currency, speaks with Gary Gensler, chairman of the Securities and Exchange Commission during a Financial Stability Oversight Council meeting in 2022.

Ting Shen/Bloomberg

Regulators are laying the groundwork to rein in private credit

Article by Ebrima Santos Sanneh

The rapid expansion of private credit — and banks' relationship with firms that offer it — has begun to draw significant attention from bank regulators, and could signal a new regulatory priority if President Biden wins a second term.

The Financial Stability Oversight Council — a regulatory body created by the Dodd-Frank Act composed of the heads of nine federal financial regulators — pointed to the sector's lending to high-risk borrowers and its links to banks as potential sources of financial instability in a May 2023 report. The council stopped short of demanding regulatory action, suggesting instead that the group enhance its data collection on nonbank lending to nonfinancial businesses.

Industry experts say the likelihood of FSOC taking action is low in an election year, but that another Biden term could give the group time to pursue such risks.

"If Biden remains in office, I think you will see continued statements of concern from Democratic regulators," said Ian Katz of Capital Alpha Partners. "In a second term the FSOC would have four years to do something, so I think there's a good chance of some kind of measure by FSOC, perhaps a designation of some private credit-related activity as potentially systemic."

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Dow Eclipses 40,000 For First Time As Investors Bet On Rate Cuts

Alex Kent/Bloomberg

Bank stocks among those that plunged 99% due to NYSE glitch

Article by Carter Pape

BMO Bank, Berkshire Hathaway, Barrick Gold, NuScale Power and other companies' stocks saw trading halted after 9:40 a.m. Eastern time on June 3, each at slightly different times. In each case, within a couple of hours, trading on the stock resumed at prices within 10% of the previous day's close.

The stock exchange, which is owned by Intercontinental Exchange, said a technical issue with industrywide price bands published by the Consolidated Tape Association led to the halts. The association oversees the dissemination of real-time trade and quote information for NYSE and other regional stock exchanges. The association has had 100% system availability in 17 of the last 20 quarters, according to its website.

According to the association, the problem was related to limit up-limit down bands meant to prevent extreme price movements in individual stock by preventing trades above or below a set percentage of the average price of the stock in the preceding five minutes. The bands were developed as part of the response by financial regulators and exchanges to the flash crash of 2010, which temporarily wiped out nearly $1 trillion in market capitalization in a few minutes.

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