5 regulatory issues to watch in banking this year

March 20, 2024 5:30 AM

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Recently, the Federal Deposit Insurance Corp. has issued multiple orders to banks including a sell-merge-or-liquidate order to Liberty Bank, as well as an order to strengthen compliance around anti-money-laundering technology at Brighton Bank. Additionally, the Federal Reserve has enacted deadlines for Citi to change the way it measures particular risks.

Read more about these and other regulatory issues to watch this year in our roundup.

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Citi receives notices from FDIC regarding risk management

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

Banking-as-a-service banks face regulatory crackdowns

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'

Yellen leaves Basel questions to bank regulators in recent testimony

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

FDIC issues sell-merge-or-liquidate order to Liberty Bank

The FDIC recently issued a sell-merge-or-liquidate order to Liberty Bank in Salt Lake City, effectively shutting down the Utah bank if another institution can't get it out of its problems. The bank is one of the smallest in the country, with just $13 million of assets.

The FDIC order is similar to the sell-or-merge directives that regulators used after the 2008 financial crash to force troubled banks to take action, industry lawyers said. Liberty bank has not been consistently profitable since 2007, according to an American Banker review of regulatory data on its quarterly performances.

In an email to American Banker, Liberty Bank President and CEO Kendall Phillips said the bank is "fully cooperating with the regulators on all issues of the order."

Read more:

FDIC's unusual order against tiny Utah bank: Sell yourself or liquidate

Brighton Bank receives consent order from FDIC

Brighton Bank has entered an agreement with the FDIC to overhaul its anti-money-laundering technology and practices after a report from the regulator last year found the bank violated compliance laws.

The order, which took effect Nov. 30, requires Brighton Bank to appoint a Bank Secrecy Act officer, enhance audits of information technology, and train staff in BSA/AML requirements, among other action items.

"This order reflects ongoing close scrutiny across all the federal banking agencies of AML compliance programs," Michael Dawson, a partner at law firm WilmerHale, told American Banker's Catherine Leffert.

Read more:

FDIC action against Tennessee bank emphasizes tech