Top banking news this month: May 2023

June 1, 2023 12:54 PM

In May's roundup of American Banker's favorite stories: Washington state plans to provide mortgage assistance to help address historical discrimination, an insider look at how Comerica is faring with the Treasury's Direct Express program, the fall of First Republic Bank and more.

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

Most Influential Women in Fintech

Cardshow by Editorial Staff

Influence in the fintech sector takes many forms. There are the entrepreneurs who work long hours to build businesses, create jobs and develop innovative products that help people. There are the venture capitalists who take a chance on these founders with fresh ideas and give them the funding to keep going. There are industry organizers who get everyone on the same page on important matters such as industry self-regulation. And there are consultants and lawyers who help the industry get past all the obstacles that arise.

American Banker's inaugural Most Influential Women in Fintech honors women in all these categories. Why just women? Because the numbers are still dismal for women in fintech. Female-founded startups raised 1.9% of all venture capital funds in 2022, a drop from 2021, according to Pitchbook. Industry observers estimate that female-led startups in the fintech sector received about half of that. By recognizing the outstanding female leaders, we aim to highlight the contributions they are making alongside their male colleagues and allies.

Click here to read the full story.

Alex Wroblewski/Bloomberg

Washington state will provide mortgage assistance as remedy for historical discrimination

Article by Jordan Stutts

A new state law in Washington will provide homeownership assistance to members of communities harmed by historical policies that restricted fair access to housing.

The law levies a $100 fee on certain documents recorded by county governments to fund a program that will provide qualified applicants with loans to cover down payments and closing costs associated with buying a home.

The program will cover first-time homebuyers who are Black, indigenous, people of color or from other historically marginalized communities.

Click here to read the full story.

Al Drago/Bloomberg

FDIC order against Cross River Bank is a warning on fintech alliances

Article by Penny Crosman

The FDIC has slapped Cross River Bank in Teaneck, New Jersey, with a consent order saying it engaged in unsafe or unsound banking practices related to fair lending regulations. The order was issued in March but made public on April 28.

Cross River is a banking-as-a-service provider that makes loans through fintech lenders such as Affirm, Upstart, Rocket Loans and the former Kabbage.

The bank did not admit or deny any charges of unsafe or unsound banking practices or violations of law or regulation.

Click here to read the full story.

Adobe Stock

10 weeks of tumult: How the banking crisis of 2023 has unfolded

Cardshow by Kevin Wack, Jordan Stutts and Polo Rocha

The banking crisis that erupted in early March has unfolded at lightning speed.

Three regional bank failures that cost the Federal Deposit Insurance Corp.'s piggy bank an estimated $35 billion. Rising concerns about the outlook for midsize banks. A nascent policy debate over the future of deposit insurance. Burgeoning fears that commercial real estate loans may be the next source of trouble. And much more.

It's all unfolded so fast that it's been hard to keep up. So 10 weeks into the crisis, here's a week-by-week recap of the key events, featuring links to American Banker's extensive coverage.

Click here to read the full story.

Cooper Neil/Bloomberg

Comerica in 'serious violation' of Treasury's Direct Express program

Article by Kate Berry

Comerica Bank officials privately acknowledged significant compliance failures in their operation of a Treasury Department program that provides federal benefits on prepaid cards to millions of unbanked Americans, according to internal documents obtained by American Banker.

A Comerica executive said the Dallas bank faced a "serious contract violation" for allowing fraud disputes and data on Direct Express cardholders to be handled out of a vendor's office in Lahore, Pakistan, the documents show.

Personally identifiable information on veterans, Social Security and disability recipients were routinely shared and handled by i2c Inc., a vendor based in Redwood City, Calif., with an office in Lahore, Pakistan, in violation of the government contract, the Comerica executive said. The Treasury's agreement with the bank states that all services provided "shall be performed in the United States or its territories."

Click here to read the full story.

cropped James Herbert First Republic Bank

Jamey Stillings

Jim Herbert built First Republic over 40 years. Then it all fell apart.

Article by Allissa Kline, Jordan Stutts and Kevin Wack

James Herbert II spent four decades building one of the nation's 20 largest banks. Then, in the span of just seven and a half weeks, the 78-year-old founder saw it all come crashing down.

First Republic Bank, which Herbert founded in 1985, collapsed on May 1 after being toppled by a deposit run. As the San Francisco bank's executive chairman, Herbert was involved in desperate efforts to arrange a private-sector solution. But after those efforts failed, he was left to watch as the Federal Deposit Insurance Corp. seized the bank and sold it to JPMorgan Chase.

Herbert is taking the bank's failure hard, according to his friend Frank Fahrenkopf Jr., a longtime First Republic board member. In recent days, Herbert has been staying with family members in Jackson Hole, Wyoming — sitting in the backyard, looking at the Grand Tetons and trying to forget what went wrong, Fahrenkopf said in an interview.

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Bloomberg

Is short selling a symptom of a bigger problem for regional banks?

Article by Claire Williams, Allissa Kline and Kevin Wack

Though regional banks' stock prices recovered somewhat on May 5, sharp sell-offs during the week sparked complaints about short sellers' role in driving down prices and ignited a broader discussion about steps that policymakers might take to restore confidence in the industry.

There are several ideas bank industry insiders have floated as potential ways to stem the bearish tide that regained strength after JPMorgan Chase bought the failed First Republic Bank on May 1.

These include short-term steps such as stepping up enforcement of market manipulation rules and enacting a temporary ban on short selling, as was done during the 2008 crisis.

Click here to read the full story.

Ron Sachs/Bloomberg

Banks, credit unions outraged by CFPB's $8 credit card late fee plan

Article by Kate Berry

Rohit Chopra, the director of the Consumer Financial Protection Bureau, wants to slash $9 billion a year in late fees currently charged by credit card companies. Since banks and credit unions currently collect $12 billion a year in late fees, the bureau has set itself up for a massive fight that is widely expected to end in contentious litigation.

While the cost to assess a late fee on a credit card may be minimal, the CFPB's proposal in February to slash credit card late fees to just $8 a month — down from the current $30 for a first offense and $41 for subsequent violations — has raised major questions about how banks and credit unions set late fees, including the costs of debt collection and losses from delinquent borrowers. The CFPB said it received 57,933 comment letters on its proposal.

Chopra has said he wants to address what he called "a loophole," created by the Federal Reserve Board in 2010, that set the safe harbor and allowed issuers to raise credit card late fees every year in line with inflation. Chopra has repeatedly criticized the Federal Reserve for setting late fees at a high level and allowing issuers to raise them every year with inflation. The bureau's proposal also would cap late fees at 25% of a minimum credit card payment.

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Christinne Muschi/Bloomberg

TD Bank launches a credit card with zero interest and a monthly fee

Article by Kate Fitzgerald

TD Bank says it is answering the objections of consumers who said they prefer simplicity over credit card terms that can seem complex by launching two cards: one that eliminates interest, and another that gives cash-strapped consumers a periodic break on payments and fees.

In the first case, the Cherry Hill, New Jersey-based bank has created a Visa credit card called TD Clear. It does not carry interest or late fees, and instead charges consumers a monthly fee of $10 for a $1,000 credit line and $20 a month for a $2,000 credit line, TD announced on May 9.

The product, which TD says is an industry first, aims to replace confusion about interest or penalty fees with a set repayment approach that doesn't waver, Christopher Fred, TD's executive vice president and head of U.S. credit cards and unsecured lending, said in an interview.

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'It's hard for banks to be taken seriously': The essentials of crisis communication

Article by Jackie Stewart

The news broke on a Sunday in March — regulators had taken over Signature Bank.

Not only was it the second failure in just a few days — Silicon Valley Bank had met the same fate two days earlier — but the third largest in U.S. history. (Silicon Valley Bank was the second.)

There was wall-to-wall news coverage about these events. Speculation about the future of other institutions and the health of the industry overall spread across social media in a way that banks hadn't been forced to grapple with during prior crises. Twitter was still in its infancy when the 2008 financial crisis struck, while other platforms, like TikTok and Instagram, weren't even around yet.

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