Supreme Court rulings, FDIC workplace culture probe: Top banking news for May 2024

June 3, 2024 5:30 AM

Enjoy complimentary access to top ideas and insights — selected by our editors.

In this month's roundup of top banking news: a Supreme Court ruling on CFPB funding, TD Bank's money laundering woes, an FDIC workplace probe reveals a culture of misconduct and more.

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

Eric Lee/Bloomberg

Supreme Court upholds CFPB's funding in 7-2 decision

Article by Kate Berry

On May 16th, the Supreme Court ruled that the Consumer Financial Protection Bureau's funding is constitutional and satisfies the requirements of the Appropriations Clause.

For most federal agencies, Congress provides funding on an annual basis, which forces the agencies to ask Congress for renewed funding every year.

"The Consumer Financial Protection Bureau is different," Justice Clarence Thomas wrote for the majority. "In this case, we must decide the narrow question whether this funding mechanism complies with the Appropriations Clause. We hold that it does."

Rohit Chopra, the CFPB's director, responded by saying the Supreme Court had "repudiated the arguments of the payday loan lobby."

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James MacDonald/Bloomberg

'Tougher before it gets better': TD faces a long road on AML woes

Article by Catherine Leffert

TD Bank said last fall that it was cooperating with a U.S. Department of Justice probe related to anti-money-laundering issues. Since then, TD has disclosed that it has invested more than $500 million to enhance its compliance, been slapped with a $6.7 million fine from a Canadian regulator and taken a $450 million provision for a potential regulatory penalty, while also implying there are more fines to come.

Although TD hasn't laid out specifics, the Wall Street Journal reported this month that the Justice Department is investigating the bank's role as a conduit for Chinese crime groups laundering money from fentanyl sales in New York and New Jersey. The Journal reported that in that case and at least one other, TD employees allegedly accepted bribes to help move the drug money.

"Simply put, our anti-money laundering program did not deliver," TD CEO Bharat Masrani wrote in a May 7 memo to employees. "We did not meet our expectations or our regulatory obligations to monitor, detect, report and respond to suspicious activity. As a result, criminals broke through our defenses and used the bank to launder money."

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FIS CEO Stephanie Ferris on the New York Stock Exchange floor for the company's May 2024 investor day presentation.

Colin Ziemer

FIS says it is once again putting banks first

Article by Chana Schoenberger

FIS, best known among banks for its core software that powers deposits and all other functions, veered into payments when it bought Worldpay in 2019. But since announcing last year that it would sell a majority stake in the payments processor to GTCR in a transaction that valued WorldPay at $18.5 billion, FIS has been scrambling to renew its commitment to the banking sector.

"We lost our focus on serving our banking clients," Stephanie Ferris, who was named CEO of FIS in 2022, said after leading her first investor day at the New York Stock Exchange. "We had just taken our eye off the ball."

The turnaround has occupied the first year of Ferris' time as CEO, starting when she laid off 2,600 workers by February 2023. The stock has risen nearly 60% since its five-year low of $47.16 in October 2023.

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Brenden Smith, FirstBank's chief information security officer, presented a case study at RSA Conference on Wednesday about a yearslong battle his team fought with hackers he hired to attack the bank's systems.

Carter Pape

FirstBank hired hackers to breach its systems. It took them three years.

Article by Carter Pape

FirstBank took an unconventional approach to test the bank's cybersecurity by hiring hackers to breach its systems and note any weaknesses. Over the course of three years, the attackers made numerous attempts to sneak their way in. At first, the attacks were difficult for FirstBank staff to detect; the hackers largely exploited previously undiscovered vulnerabilities in the software and devices used by FirstBank.

In one case, Brenden Smith, the chief information security officer of FirstBank, said during a panel at the cybersecurity-focused RSA Conference, the hackers made an initial breach into FirstBank's systems that took 102 days for his team to detect.

"The good news," Smith said, "is that they didn't accomplish any of their objectives."

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Adobe Stock

Why some banks have decided now is the time to sell their Visa shares

Article by Polo Rocha

Selling Visa shares, whose value has skyrocketed 1,600% since its 2008 initial public offering, is coming in handy for certain banks that are restructuring their underwater bond portfolios.

Those banks saw the value of their bonds tank when interest rates rose, causing losses that were previously "unrealized" but become very much real once the bonds are sold. The decision to get rid of the bonds can be painful because it lowers the banks' capital levels, giving them a smaller cushion to handle potential economic turmoil.

The sales are one example of banks coming up with "creative ways to fill the hole created by selling underwater securities," Paul Davis, a consultant and founder of The Bank Slate, recently told American Banker. Selling banks' highly desired insurance businesses, as Truist Financial did this year, is another option.

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Two thefts decades apart, and a victim's quest for answers

Article by Kevin Wack

Rosemarie Brekke received reparations after a long quest to document the theft of her family's assets by the Nazis — but then the money disappeared from her Bank of America account, leading to more questions.

"The money was stolen by the Nazis first. And Bank of America is now the corporate thief that stole it again!" Brekke recently told American Banker. How has Bank of America responded?

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Martin Gruenberg's ouster from the Federal Deposit Insurance Corp. leaves the White House with the difficult task of finding a regulator willing to serve a roughly six month term atop the beleaguered agency.

Sarah Silbiger/Bloomberg

FDIC workplace probe outlines pervasive culture of misconduct

Article by Ebrima Santos Sanneh and Claire Williams

A report on workplace culture commissioned by the FDIC and performed by law firm Cleary Gottlieb portrayed a culture characterized by patriarchy and insularity, with reports of discrimination and harassment, particularly for female employees and individuals belonging to marginalized groups.

"Far too many FDIC employees — substantially more than those who have previously reported internally — have suffered from sexual harassment, discrimination, and other forms of interpersonal misconduct for far too long," the report noted. "We find that aspects of the FDIC's culture and structure — including a lack of accountability, fear of retaliation, a patriarchal, hierarchic, insular and risk-averse culture, power imbalances, insufficiently clear guidance and reporting channels, inadequate recordkeeping, and an investigative process that lacks credibility internally — have contributed as root causes to the conditions that have allowed for this type of workplace misconduct to occur."

Over a span of five months, investigators took testimony from more than 500 individuals, primarily current FDIC employees. The firm also conducted interviews with another 167 individuals and meticulously reviewed thousands of related documents uncovering hundreds of instances of misconduct, some occurring as recently as weeks before the report's publication.

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Key Speakers At The FinTech Week 2023 Conference

Michael Hsu, acting director of the Office of the Comptroller of the Currency Photographer: Ting Shen/Bloomberg

Ting Shen

Small banks 'feel like hostages' to their core systems: OCC's Hsu

Article by Miriam Cross

The frustration of small banks in regards to innovation was one theme to emerge in a daylong set of panels and conversations on May 2 organized by the Alliance for Innovative Regulation around its multi-year MDI ConnectTech initiative, which explores problems and solutions related to minority depository institutions and digitization in partnership with the National Bankers Association, Inclusiv and other groups.

"In every single discussion I've had about banks, digital, and modernization, especially with community banks, all roads lead through the core," Michael Hsu, Acting Comptroller of the Currency, said in a fireside chat hosted by the AIR. "I've heard a lot of frustration from community banks because they feel like hostages in these relationships and have no negotiating leverage."

At stake is the ability for financial institutions focused squarely on under-resourced communities to be competitive and serve their audiences effectively.

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Joseph Otting, new NYCB CEO Photographer: Patrick T. Fallon/Bloomberg

Patrick T. Fallon/Bloomberg

NYCB lays out revised strategy while warning of more near-term pain

Article by Polo Rocha and Allissa Kline

New York Community Bank, whose apartment-heavy commercial lending portfolio landed it in hot water earlier this year, warned investors on May 1st there will be more pain in coming quarters as it continues to root out troubled loans. Charge-offs and loan-loss provisions will be elevated this year before returning to more normal levels in 2025 and 2026, executives said.

Borrowers have so far shown "amazing resiliency," new CEO Joseph Otting, a former top bank regulator, told analysts during the company's first-quarter earnings call. Still, net charge-offs were $81 million during the quarter, while the provision for loan losses totaled $315 million — far above where both metrics were a year earlier. Nonperforming loans also skyrocketed year over year, totaling $798 million as of March 31.

Analysts say there are still a lot of unknowns. One big question: How will New York Community, which has gone through significant turmoil since late January, ultimately close the gap between its current performance metrics and what the management team is aiming to achieve by 2026?

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MARCOS OSORIO/OSORIOartist - stock.adobe.com

'Like wildfire': Rising check fraud pits small banks against big banks

Article by Kate Berry

Small banks say they're taking hits to earnings and face negative impacts on their business customers due to rising check fraud. Many bankers say that check fraud is so rampant that it is leading to a loss of faith in the banking system and the U.S. Postal Service.

"Check fraud is out of hand," Chris Doyle, president and CEO of the $2.2 billion-asset Texas First Bank said recently. "It's an all-out war and we have people fighting it every day at our bank. The capture and washing of checks is out of control. There's no security around checks. It's too easy to wash them and commit fraud."

Community banks are laying the blame for check fraud mostly on seven large banks, including JPMorgan Chase, Bank of America and Wells Fargo, for not doing enough to police new account openings. Checks are intercepted by criminals through the mail, altered by check washing, and then deposited in so-called drop accounts or mule accounts, which are later emptied. Small banks end up repaying their customers whose checks are stolen, but it can take months for them to get reimbursed by large banks in contravention of longstanding Uniform Commercial Code rules.

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