Top banking news this month: February 2023

March 8, 2023 11:40 AM

In February's roundup of American Banker's favorite stories: An international African American sorority enters the credit union market; a deep dive into the ideology behind banks giving out free pens; and a rising number of financial institutions are facing a tightening of liquidity and more.

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

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Banking on sisterhood: A Black sorority launches a credit union

Article by Frank Gargano

For Members Only Federal Credit Union in Chicago debuted in February as one of the few credit unions sponsored by a fraternity or sorority. Its goal is to foster the development of generational wealth for the Black women connected through Alpha Kappa Alpha.

The sorority itself was founded in January 1908 on the campus of Howard University, a historically Black institution in Washington D.C. Today, AKA has more than 335,000 African American female initiates in 12 counties and boasts notable alumni such as Maya Angelou, Katherine Goble Johnson and Vice President Kamala Harris.

Emma Hayes, who has been an active member of AKA for more than 25 years and is currently chief culture officer for the $51 billion-asset State Employees' Credit Union in Raleigh, North Carolina, explained how the sorority was inspired by its lineage to launch its own financial institution.

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Signage is displayed at a Wells Fargo bank branch in New York.

Wells Fargo's new partnership with Choice Hotels follows its launch last year of a co-branded card with the renter-focused loyalty company Bilt Rewards.

Wells Fargo, eyeing growth in credit cards, lands hotel chain as partner

Article by Polo Rocha

Wells Fargo has nabbed a co-branded hotel card partnership that was previously held by Barclays, notching a win in the megabank's efforts to revitalize its credit card business.

The bank's new multi-year partnership is with Choice Hotels International, which operates brands such as Radisson Hotels, Comfort, Quality, Clarion, Econo Lodge and Cambria. Choice Hotels has nearly 7,500 properties across the globe.

The announcement comes as Wells retools its credit card portfolio. In recent years, the San Francisco bank has launched a new suite of Wells Fargo-branded cards aimed at growing its customer base after years of underperformance.

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Bloomberg

These payment companies are rushing to serve small businesses

Article by John Adams

Small businesses have been throttled by the pandemic, supply-chain glitches, labor shortages and inflation, yet the category as a whole has shown a resilience that makes it ripe for new financial services.

"We've noticed more small businesses getting formed, and they're looking for a way to manage their business in a single location," said Gina Taylor, executive vice president and general manager of business blueprint and banking for American Express.

The number of small businesses in the U.S. reached 33.2 million in 2022, according to the Small Business Administration. That's up from 32.5 million in 2021, 31.7 million in 2020 and 30.7 million in 2019.

Small businesses also do most of the hiring. Eighty percent of the 10.3 million job openings in the U.S. at the end of 2022 were at businesses with fewer than 250 employees, according to the U.S. Bureau of Labor Statistics. There are three million more job openings at small businesses today than before the pandemic, versus 250,000 more at large companies.

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Why these banks still give away millions of pens a year

Article by John Reosti

Over a dozen years since debuting a tongue-in-cheek marketing campaign built around "freeing" pens that had been tethered to the teller counters in its branches, Huntington Bancshares has handed out more than 79 million pens.

Julie Tutkovics, the $183 billion-asset Huntington's chief marketing and communications officer, says the bank has no plans to stop.

A similar program at TD Bank has been going on for even longer — dating back to the New Jersey-based Commerce Bancorp, which Toronto-Dominion Bank bought in 2008 — and was recently updated to ensure that the 20 million pens it gives away each year are made primarily from recycled plastics.

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At close to a third of banks analyzed by Janney, the loan-to-deposit ratio increased by at least 10 percentage points between the fourth quarter of 2021 and the same period last year.

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The number of banks facing a liquidity crunch is growing

Article by Orla McCaffrey

While most banks still have plenty of liquidity, a growing segment of financial institutions is seeing their lending obligations outpace deposits, and sometimes at a rapid pace.

More than 85% of more than 800 U.S. commercial banks saw increases in their loan-to-deposit ratios between the fourth quarter of 2021 and the fourth quarter of 2022, according to a Janney analysis of FDIC call-report data. At close to a third of the banks, the loan-to-deposit ratio increased by at least 10 percentage points.

A decline in deposits at many banks is putting pressure on loan-to-deposit ratios, a key metric of bank liquidity. Even as loan demand wanes in many categories, loan-to-deposit ratios are rising at some banks. Banks with higher loan-to-deposit ratios may face challenges if they run into unexpected funding needs.

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Canvas Credit Union in Colorado had nearly $2 billion in total auto loans on its books at the end of 2022 but -- like many other credit unions -- has been forced to raise interest rates.

Why credit unions are charging more than banks for auto loans

Article by Ken McCarthy

Credit unions have grabbed a growing share of the auto-lending market in recent quarters, but that could change as a need for liquidity has forced many of those institutions to raise loan rates.

According to the latest data from Bankrate, the interest rate for a 60-month new auto loan averaged 6.85% for U.S. credit unions in January — higher than the average 6.29% for U.S. banks and 6.05% for thrifts.

Some of the biggest banks in the country have remained "very competitive" on auto loan rates, and that is reflected in the average, said Greg McBride, chief financial analyst at Bankrate.

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Federal Reserve Vice Chair Lael Brainard's upcoming departure from the board of governors will influence policymaking at the central bank in several key ways.

The Federal Reserve System

What Brainard's departure means for the Fed, bank policy and her career

Article by Kyle Campbell

When Vice Chair Lael Brainard leaves the Federal Reserve to become the White House's top economist, she will also hand off leadership duties on several key initiatives at the central bank.

On Feb. 14, the White House announced that Brainard would become its next director of the National Economic Council. That same afternoon, she submitted her resignation from the Fed board, effective on or around Feb 20.

Technically, the role of vice chair carries no special duties beyond assuming leadership responsibilities when the chair is absent. But, during the past nine years — the longest tenure by a nonchair in two decades — Brainard has carved out a distinctive sphere of influence on the board of governors, including on matters of payments, research and financial stability.

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Banks face avalanche of data demands ahead of CRA, CFPB final rules

Article by Miriam Cross

The burden on banks to collect, maintain and analyze masses of data will be steep in 2023.

The Community Reinvestment Act is on the brink of substantial reform, with a final rule expected soon and a proposed 12-month implementation period to follow. A final rule from the Consumer Financial Protection Bureau to implement section 1071 of the Dodd-Frank Act, governing the collection and reporting of small-business lending data, has a deadline of March 31. The timeline for section 1033 of the Dodd-Frank Act, about open banking, is longer, but the CFPB is expected to issue a proposal later this year with a final rule in 2024.

This potential triple whammy means that financial institutions may want — or need — to get a head start at strategizing what tools they need to acquire, homegrown systems they need to modify, staff they need to allocate and costs they need to account for, even if it is advisable to hold off on actual investments before the rules are finalized.

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Visa Stalls Plans to Raise Fees for Some In-Store Retailers

David Paul Morris/Bloomberg

How Visa's risk chief defends it against 71,000 cyber attacks a day

Article by Carter Pape

For the past 15 years, Visa has managed the millions of fraud and cybersecurity attacks it faces each month with a trick known as devaluing data — making sure that any payment information a hacker or fraudster gets from a bank, merchant or consumer has as little value as possible to the thief.

One of the most important ways Visa devalues data is by implementing EMV chip transaction processes. This payments flow encrypts and tokenizes data, making it unreadable and obfuscated to would-be hackers, and renders much of the information on the card unusable for cloning purposes.

Paul Fabara, Visa's chief risk officer since 2019, says data devaluing is one of the five principal strategies the company uses to manage its fraud and cybersecurity risk. The strategy has become a payments security standard advocated by the industry and regulators.

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Dominic Ng, chairman and CEO of East West Bancorp.

Asian American caucus defends East West CEO against espionage claims

Article by Claire Williams

Leaders of the Congressional Asian Pacific American Caucus have decried a move by Republicans to ask the FBI to investigate East West Chairman and CEO Dominic Ng for alleged communist ties as racial profiling.

The Republicans, led by Rep. Lance Gooden, R-Texas, wrote to FBI Director Christopher Wray in a letter dated Feb. 15, claiming that Ng had violated the Espionage Act.

The Biden administration named Ng to the Asia-Pacific Economic Cooperation's Business Advisory Council, a regional economic forum designed to promote economic integration and shared prosperity across 21 nations that border the Pacific Ocean, in November. At the time, he said that one of the council's priorities would be climate change.

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